Back at 2100
By Duru
June 19,
2005
I was on
vacation in
Since I have
been mostly out of the mix, I cannot say I can offer one of my magical
explanations of current market events (imagine that?!?), but I did learn some
interesting tidbits while I was off in
Barron's ran
an article this weekend that adds to the endless cacophony of voices weighing
in on the housing bubble: "The Bubble's New Home" by Johnathan R.
Laing. In this article famous and
well-respect economist Robert Shiller provides a well-argued warning. Interestingly enough, the article references
the real-estate market in Australia, noting that Sydney's residential boom has
stumbled: "…real
(inflation-adjusted) prices rose 12.8% in 2003 before dropping 2.5% in 2004 and
remaining wobbly ever since." This
is not quite the sound of a bubble popping, but it will probably be important
to keep tabs on how this slowdown unfolds in the coming months and years.
I casually watched
the Australian news with interest as the Australian stock market slowly
crept on to new highs for the year largely on the strength of energy,
commodity, and resource stocks. Sure enough, the Australian ETF, EWA, is looking
better than ever now. Oil has hit new
highs for this current bull run, and it threatens the
$60 a barrel level that skeptics have given no respect. The continued general disbelief in oil's run
continues to amuse me. I maintain that the
trend is up and strong for oil,
and I will not back down from that until the Chinese economy breaks down and
Americans stop driving SUVs down the block to the grocery store. Guess when that will happen, eh? Now, I
can understand the psychology of the skeptics: I
have long refused to believe in the housing bubble, but that market has not
cared about my opinion as prices of homes just keep going higher in all but the
worst markets, and the stocks of the homebuilders keep climbing right along to
new all-time highs as well. Other
pockets of consumer spending have been trooping along "just fine thank you
very much" as evidenced by the recent moves in numerous important retail
stocks. To name just a few, check out the
earnings reports and charts of Best Buy (BBY), Nordstrom (JWN), Sears Holding
(SHLD), and Coach (COH).
It does seem
odd that the consumer can continue to gobble up goods while oil continues ever
higher, gold
clings onto to its long-term uptrend, numerous other resource stocks seem
to be turning around, and the Fed desperately, albeit "measuredly,"
pushes up short-term interest rates, but we did see a surprisingly strong wage
growth report a few weeks ago. We are
also probably witnessing the consumer's increasing willingness to allocate more
of his or her household income to servicing housing debt and costs. Regardless, the leveraging up of the global
economy continues nearly unabated. Where
the wheel will stop, no one knows…just make sure you are careful out there! Things will really get "interesting" if the market can finally make a
convincing move higher from here. Stay
tuned. The second quarter of the year
ends in less than two weeks. Let's
measure the mood again in July as the institutional pressure to buff up
performance subsides, and we can
get back to fearing the next batch of earnings reports.