There are times over the past few years that we have heard the bull is back, then the market is turning bearish, then it's a Goldilocks market -- not too hot, not to cold -- just right. What the heck is going on... absolutely nothing! And at the same time we are also told we are entering periods of potential earth shattering events!
If we made a list of all the reasons for negative sentiment in the market it would be a long one. Interest rates have been rising consistently for several years. The housing market is cooling off (I'm not a bubble believer). Our trade deficit and national debt have been rising unabated. The dollar has been weak. We are at war in Iraq and in conflict with a half dozen countries, the scariest being Iran. Some of our "allies" set new records for backstabbing and limp support of what should be our common interests. Israel/Lebanon are again in direct conflict. Hurricanes hit hard and global warming has become a hot topic (sorry, couldn't resist). And did I mention what seems like the staggering prices for fuel and basic commodities like steel, and concrete and, and... that's enough. You would think on the surface of it this would be enough to sink the market. However, give or take a few percentage points the stock market seems to be OK.
The Wait and See Market
So all that said how are we coping?
1) employment levels remain high, 2) expectations remain low, 3) we have grown accustomed to bad news, and 4) most of the bad news seems in some perverse way to be consistent, and consistency rules economics! So as all of this negativity pervades our lives we can live with it because it is consistent. So we 'wait and see' what will happen next and weigh the severity of the events. We are very resilient.
In truth the list of negative things affecting our lives is not that bad. We see short term reactions to bad news and then after further thought, with some maturity, we move on thinking we will just have to deal with it. All of it.
Yes interest rates have risen and may rise some more, but they are now at historically moderate levels and have risen with relative consistency: the Fed has been smart not to shock the market. The housing market was on fire and is now cooling off, that was to be expected. So what if your house is not sold in a day? The hurricanes in the Gulf were devastating and the aftermath equally so, but this year, nothing. Yes Iraq is a mess and seems like it might get worse, but what did you expect? Yes the Israeli/Lebanese conflict is very very bad but we have seen it before. Energy prices have climbed dramatically, but inflation adjusted are just not that high. I do not see lines at the pumps, I do not see protests in the streets, and I do not see large numbers of people screaming to ban Hummers and mandate higher fuel standards and I definitely do not find the freeways moving any faster. Just about every one of the negative things on the list can be understood even if they cannot be solved, but we do not expect to solve them all.
If there was one single thing that I would be watching closely it would be employment. We do not want idle hands. As long as people are working, they are shopping. As long as they are working they do not have time to be protesting (the reason colleges are the centers of most protests). As long as they are working they are not out committing crimes. As long as they are working they are productive and have a sense of self worth. Given our current demographic trends with baby boomers now starting to retire we may find that there will be shortages in meeting the workforce demands of our nation and the off-shoring of jobs becomes less controversial and more a necessity. Either that or import labor in large numbers. Since employment data is stable our biggest potential problem is not showing any current signs of weakness.
So we have up days and down and readjustments and re-balancing, but everything will work itself out eventually just you Wait and See!
Sheldon Liber is the CEO of a small private investment company and the vice president for Design and Research of an Architecture & Planning firm.
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Reader Comments (Page 1 of 1)
8-12-2006 @ 8:56AM
Mr. noitall said...
I'll have to agree that we must wait & see. But what I'm starting to see don't look too good. Now you might not believe in a housing bubble, but I think you're wrong on that point. So what if you can't sell your house in a "day" you said!!! Try 6 months or a year, that's what I'm seeing. And because of this slowdown in housing I'm starting to see more "idle hands". Maybe you should read that story posted right here in the AOL business section "Border Group Now Tracking U.S. Companies".
I think you're underestimating the housing slowdown, and also the problems that the weakening dollar will create. But we'll wait and see how the stock market holds up. Yes, it seems to be o.k. ....for now.
8-13-2006 @ 9:46PM
boston said...
the housing market is going to bring more bad news as inventories and new housing starts slow. The non-farm payrolls were worse than expected and inflation is still not as well contained as the fed would like for it to be even though the economy has cooled off. So I am going to have to agree with Mr.Noitall about the fact that it is definitely not looking good.
8-13-2006 @ 10:25PM
Sheldon said...
I do agree that housing will slow down and be a factor in the economy but I also see areas where you cannot find a house to save your life and getting building permits is not getting any easier. We had some bubbles markets in Las Vegas, San Diego & Miami and they are seeing most of the pain but there are other areas that are just fine. Interest rates have not reached a level that make loans difficult except for those that were over reaching in the first place. The market will be tougher but there will still be plenty of housing developed. The speculation will evaporate, and that is a good thing.