股市无常

It is sometimes worthwhile to take a step back and consider things from the perspective of where we were in the past compared to where we are today. Useful around times of birthdays, anniversaries and (for some) court dates, we often find ourselves thinking this way whenever an index like the Dow Jones Industrial Average nears a major round-number hurdle. In this case, the Dow is within spitting distance of 12,000, a level it has not seen since the middle of June 2008. In other words, shortly before the wheels came off the financial world.

The market teetered back and forth that summer, bouncing around between 11,000 and 12,000 on the Dow until the end of September, when Lehman failed. At that point, all bets were off and the Dow fell to just above 6,600 by March of 2009. Like many traumatic events, only those active in the markets during that time can truly understand what it was like to see the U.S.’s main equity index lose almost half its value in less than six months. It was a useful demonstration of the old maxim – made famous during other Wall Street bloodlettings a century ago – that at the end of the day, fear is actually far more powerful than greed.

How quickly they forget. With the Dow now scratching 12,000, optimism now abounds, which always makes us nervous on some level. Having anticipated stronger economic activity last fall, now that it is here we naturally worry to what degree it is priced, whether ultimately housing will prove the ball-and-chain of this recovery, etc. We expect President Obama’s State of the Union speech tonight to be full of anecdotes about how we’ve turned the corner economically, and by many measures (including those of September 2008) we have. Moreover, it is no secret that a humming economy is crucial to Obama’s re-election chances in 2012 – it isn’t for nothing that the third year of a president’s term is a traditionally a very strong one for stocks. And judging from the earnings reports we’re seeing, he is on the right track.

However, we are rapidly approaching the point when we will have to be careful what we wish for. U.S. interest rates have already backed up in response to accelerating economic performance, and while inflation remains muted in the U.S. and Europe, it is already a serious concern in emerging markets around the world. Following similar steps in Brazil and China, India’s hiked interest rates by 25 basis points again today, the seventh such hike since the beginning of 2010 and pushing its benchmark rate to a two-year high. The obvious question is how long it will be until massive price increases in basic commodities comes home to roost in the developed as well as the developing economies. As we’ve noted in the past, monetary authorities are between a rock and a hard place when it comes to this situation. Spur consumer demand via rock-bottom interest rates, quantitative easing, currency debasement, etc., and inflation will rise. Don’t spur it, a nd the recovery is at risk. For now, we think similar hawkish moves are still 6-9 months away in the United States, and even further out in Europe depending on to what degree the debt crisis there has truly stabilized. But they’re coming, that’s for sure.

In the meantime, strong cyclical trends within the U.S. economy are now firmly in place, returning us to a more traditional, positive trajectory for most equities. Although commodity prices will continue taking a breather while the more aggressive monetary policy stances are digested, we’re pretty sure they won’t collapse. Although nations like China, Brazil and India are taking aggressive steps to dampen inflationary tendencies in their fast-growing economies, basic supply-demand economics will still be at work in commodities whether India’s lending rates tick up 25 basis points or not.

- From Dr. Stephen Leeb's e-mail