Market Indicators - Investor Sentiment: Re: Parked last week due to interest.... rates

» BoltonCT - Re: Parked last week due to interest.... rates

In response to Re: Parked last week due to interest.... rates posted by Kirk:

We seem to be between the proverbial rock and a hard place.

Yes I have looked at the alternatives. The one I think most probable though is:
"These market concerns are all due to the belief the administration will do what the pundits have been saying it should have done for over a year.

These concerns presume the administration will now address the fiscal and trade deficits." Since the president is still talking about tax cuts, that leaves it up to the Federal Reserve to hike interest rates until foreign investors are convinced we are acting responsibly.

The pundits think that if we do not address this deficit problem soon we will face an economic disaster. If we hover near full employment we will move from Keynesian to the classical economic relationship and head toward a Jimmy Carter type stag-inflation. Worse yet they worry about a world economic crisis caused by a possible run from the dollar.

The third alternative is one you suggest where interest rates are stable and relatively low. That could imply a tax increase like father Bush had... only steeper. Would we have another USA 1990 or would it be a Japan 1990? It also implies the world will be patient and will wait for America to do the right thing. Somehow I don't think the president will raise taxes but who knows.

There is a possible fourth alternative that is what I thought was happening for the past year. Interest rates can and should stay low if we are in the Keynesian region and the world acts accordingly.

All the scenarios involve risk and uncertainty. What the market does will depend on what investors think will happen… not on reality.

Currently I perceive a heightened sensitivity and the potential for rapid corrections. I saw it in the stocks I held as well. They would creep up 15% and then get beaten back down in a day or two. Finally I tuned in and took profits before they were beaten down but I did not like being forced into almost becoming a trader. Another problem I noticed was that the information on the stocks was often weeks out of date and the financials were for the most part eroding as the year progressed. I doubt that I had picked just stocks with exceptional financials that were regressing toward the mean. Independent of the fundamental economic hurdles we face, we need better corporate earnings. We don't have that now either.

To me the economic situation most resembles the 1970's when we still thought we could have guns and butter, energy prices were out of control, and the dollar was taking a beating. We were caught in a wide trading range with little gains for buy and hold investors. Market psychology can turn on a dime and I sense (with MCFI) we are near the local high for this round. We need fundamental technological innovation to recharge our economies. We need nuclear energy, conservation, hybrid motors, and the other things we know we should have planned to build years ago.

Think of it as a larger longer term market channel superimposed over the channels your stocks normally move in. Potential reward turns completely to risk at the top of the channel where I perceive we are today.

-- posted by BoltonCT