Up and Down Wall Street
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SATURDAY, AUGUST 11, 2012
.
No Problem
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By ALAN ABELSON
.
Relax, the world is not running out of worries. Why 2012 isn't 2010 and 2011 all over again.
If the neat rally in equity prices made you uneasy for fear that magical wall
of worry that stocks are hot to climb might be crumbling, you can relax. For
while it's true that you wake up like clockwork at 3 every morning lately in a
cold sweat, after dreaming that the European Union has gone kaput or the dread
fiscal cliff is no longer a looming threat but a reality, you can rest reassured
that their absence as market constraints is only temporary and reflects nothing
more than investors' inability to focus on anything short of the Apocalypse—and
maybe even that—for a few days.
.And you can take heart, recognizing that if anything, a deepening recession in the euro zone is affecting not only the impecunious members like Greece and Portugal but also a number of the supposedly core countries, even the paymeister, Germany. Just in case you were too busy tinkering with your old air conditioner trying to get the darn thing to work lest you melt away, China has reported some awful economic numbers that were all the more unpleasant because they were worse than expected.
.Most unsettling was that China's exports, the great spark plug of its phenomenal economic advance, rose a miserly 1% in July. Sino watchers has been forecasting 8%. In June, by contrast, exports had risen a more than respectable 11.3%, and in the corresponding month last year, they were up a resounding 20.4%. Over all, the nation's trade surplus shrank to $25.1 billion, from the $31.5 billion in July of 2011. It's no secret that Beijing likes to embellish the data, so there's always a possibility that the figures were even droopier than the official count showed.
.
But more to the point, China has been the world's No. 1 shopper for just about every commodity imaginable. A diminishing of its acquisitive appetite and the corresponding drying up of global demand would obviously have dire consequences just about everywhere. China is also suffering from a common complaint: a real-estate boom gone bust. Gosh knows, we and the Europeans can attest to how tough it is to repair the damage wrought by overzealous home builders, aided and abetted by overly indulgent lenders.
.If you're still uneasy about the lack of worry, you might consider the Middle East and in particular the newest hot spot, Syria, where a motley crew of rebels is locked in deadly warfare with the murderous dictatorship of Bashar al-Assad. According to a report in Friday's New York Times, what's happening in Syria spotlights a somewhat different and less fanciful facet of the Arab Spring. Apparently, as if a bloody civil war weren't enough, the country is being ravished by waves of thievery and kidnappings, where the motive is not political, but rather to get the victims and their families to "spring" for as much as they can cough up.
.
Iran, jealous perhaps of being rudely replaced as the bad boy of that seething region, has taken on itself the role of grand kibitzer of the Syrian conflict and held a meeting attended by the usual suspects, ostensibly to find a solution. Which is a little like appointing a pyromaniac as fire chief.
.
So we're happy to send the glad news to investors: Rumors to the contrary, the world is not running out of worries. That should be more than enough to enable you to get a decent night's sleep, but keep the snoring down, please.
.
FELIX ZULAUF IS A COMPARATIVE rarity among portfolio pros—he invariably is cool, calm, and collected. It could be his admirably contained demeanor owes in part to his being Swiss, a people who as a rule rarely are overly emotional about anything save for bank secrecy. But in Felix's case it no doubt also reflects the fact that he has weathered the investment wars, his sanity and his purse intact, and so takes a longer, more philosophical approach than his typical counterparts in the U.S.
.
In any case, Felix is a longtime and treasured member of the Barron's Roundtable and the top dog at the asset-management firm that bears his name, and we decided it was a good idea to get his invariably worthwhile take on the global investment scene. The least we can do for sturdy readers like yourself who have endured our scribbling is to pass along some of his insights.
.
He notes, for example, that last week Tim Geithner, our peripatetic Treasury secretary, was spotted in Sylt, a small lovely German island in the North Sea and a favorite vacation locale. As it happened, Felix was in Sylt as well, but as he says in mock ruefulness, Tim wasn't there to see him or even to partake of the wonderful beaches or the bracing air. Rather, it was to visit Wolfgang Schäuble, Germany's finance minister.
.
Felix's conjecture is that Geithner is on a mission to gain assurances from the Germans and the European Central Bank to forestall another crisis before the U.S. election. Sounds more than plausible to us. Adding a note of urgency to Tim's request is the manifest loss of momentum in the global economy. Felix points out that, in contrast to the deteriorating fundamentals, markets on occasion take on a life of their own. Which explains the recent action of global equities, very much including our own, where the economy is, in his words, "anything but robust."
.
He worries that this divergence between markets and economies cannot, obviously, go on forever. Corporate earnings in the most important part of the world economy are slowing and will continue to do so for quite a spell. In the U.S., he hazards, profits could hit the skids sooner than most observers think. He sees a choppy market ahead for stocks, with one final thrust upward perhaps in the fourth quarter. He's not at all sanguine on the prospects for next year and cautions that global bond markets are "overbought and overloved."
.
He suggests that serious long-term investors (an increasingly endangered species) be insistently selective in their equity purchases. Felix does concede that short-term traders may find some attractive pickings, but reminds one and all that such trading is strictly for the nimble and that the gains achieved in a late-stage advance will vanish in a flash when the markets go south in earnest.
DÉJÀ VU (AND, AFTER EXTENDED deliberation, we decided to leave out the Yogi Berra's tag line to that familiar French bon mot , a tag line that has become much the worse for wear). It is among the reasons, and by no means a lesser one, that explains the market's rather quixotic action in bucking those less than inspiriting fundamentals. More specifically, the tendency of Street shills and even sensible folks to contend that investors should expect a replay of 2010 and 2011, when the markets took their lumps, but survived the thumpings and eventually rewarded patient bulls with some nice juicy gains.
.We've never bought the replay argument, if only because it struck us as a pretty shallow notion that has the virtue of simplicity—or is simple-mindedness?—as an explanation of why and how markets act. And we're glad to see RenMac (which stands for Renaissance Macro Research) isn't buying it, either. In an analysis published Friday, it asks, "What is the near-term catalyst?" And it goes on to point out that in 2010 and 2011, "negative shocks faded, supporting growth," even if it was kind of grudging growth.
.
In 2012, though, "positive shocks are going away and persistent headwinds linger."
.
To be more specific, the analysis notes that in the summer of 2010, the going was particularly rough: Vibes from the woes of Greece, increased tension with North Korea, the Gulf Oil spill, and the launching of financial reform here at home took their toll on economies and markets around the globe. As these shocks faded, however, investors were able to concentrate "on positive underlying fundamentals."
.
In like fashion, in the summer of 2011, there were various and sundry bouts of bad news, including the Arab-spring oil shock, the problems that befell the auto-supply chain, the fallout from Japan's nuclear troubles, concern over the budding European recession, the existential threat to the euro zone, and evidence that China might be headed for a hard landing. As those harrowing events and even more harrowing prospects gradually diminished or became less imminent, markets began to rally.
.
.
This year, in sharp contrast, as Ren Mac observes,began with a positive economic shock, namely the extraordinarily mild winter.
.
But of course, that's now history. And in its stead, we have a pretty full bag of negative elements, including sagging global trade and "risk flares" from Europe.
.It goes without saying that if we could wave a wand and make all those things go away, we would. But they don't make wands like that anymore, so all we can do is urge you to tread carefully and give short shrift to the Street barkers who are trying to convince you that lightning strikes thrice.
.And you can take heart, recognizing that if anything, a deepening recession in the euro zone is affecting not only the impecunious members like Greece and Portugal but also a number of the supposedly core countries, even the paymeister, Germany. Just in case you were too busy tinkering with your old air conditioner trying to get the darn thing to work lest you melt away, China has reported some awful economic numbers that were all the more unpleasant because they were worse than expected.
.Most unsettling was that China's exports, the great spark plug of its phenomenal economic advance, rose a miserly 1% in July. Sino watchers has been forecasting 8%. In June, by contrast, exports had risen a more than respectable 11.3%, and in the corresponding month last year, they were up a resounding 20.4%. Over all, the nation's trade surplus shrank to $25.1 billion, from the $31.5 billion in July of 2011. It's no secret that Beijing likes to embellish the data, so there's always a possibility that the figures were even droopier than the official count showed.
.
But more to the point, China has been the world's No. 1 shopper for just about every commodity imaginable. A diminishing of its acquisitive appetite and the corresponding drying up of global demand would obviously have dire consequences just about everywhere. China is also suffering from a common complaint: a real-estate boom gone bust. Gosh knows, we and the Europeans can attest to how tough it is to repair the damage wrought by overzealous home builders, aided and abetted by overly indulgent lenders.
.If you're still uneasy about the lack of worry, you might consider the Middle East and in particular the newest hot spot, Syria, where a motley crew of rebels is locked in deadly warfare with the murderous dictatorship of Bashar al-Assad. According to a report in Friday's New York Times, what's happening in Syria spotlights a somewhat different and less fanciful facet of the Arab Spring. Apparently, as if a bloody civil war weren't enough, the country is being ravished by waves of thievery and kidnappings, where the motive is not political, but rather to get the victims and their families to "spring" for as much as they can cough up.
.
Iran, jealous perhaps of being rudely replaced as the bad boy of that seething region, has taken on itself the role of grand kibitzer of the Syrian conflict and held a meeting attended by the usual suspects, ostensibly to find a solution. Which is a little like appointing a pyromaniac as fire chief.
.
So we're happy to send the glad news to investors: Rumors to the contrary, the world is not running out of worries. That should be more than enough to enable you to get a decent night's sleep, but keep the snoring down, please.
.
FELIX ZULAUF IS A COMPARATIVE rarity among portfolio pros—he invariably is cool, calm, and collected. It could be his admirably contained demeanor owes in part to his being Swiss, a people who as a rule rarely are overly emotional about anything save for bank secrecy. But in Felix's case it no doubt also reflects the fact that he has weathered the investment wars, his sanity and his purse intact, and so takes a longer, more philosophical approach than his typical counterparts in the U.S.
.
In any case, Felix is a longtime and treasured member of the Barron's Roundtable and the top dog at the asset-management firm that bears his name, and we decided it was a good idea to get his invariably worthwhile take on the global investment scene. The least we can do for sturdy readers like yourself who have endured our scribbling is to pass along some of his insights.
.
He notes, for example, that last week Tim Geithner, our peripatetic Treasury secretary, was spotted in Sylt, a small lovely German island in the North Sea and a favorite vacation locale. As it happened, Felix was in Sylt as well, but as he says in mock ruefulness, Tim wasn't there to see him or even to partake of the wonderful beaches or the bracing air. Rather, it was to visit Wolfgang Schäuble, Germany's finance minister.
.
Felix's conjecture is that Geithner is on a mission to gain assurances from the Germans and the European Central Bank to forestall another crisis before the U.S. election. Sounds more than plausible to us. Adding a note of urgency to Tim's request is the manifest loss of momentum in the global economy. Felix points out that, in contrast to the deteriorating fundamentals, markets on occasion take on a life of their own. Which explains the recent action of global equities, very much including our own, where the economy is, in his words, "anything but robust."
.
He worries that this divergence between markets and economies cannot, obviously, go on forever. Corporate earnings in the most important part of the world economy are slowing and will continue to do so for quite a spell. In the U.S., he hazards, profits could hit the skids sooner than most observers think. He sees a choppy market ahead for stocks, with one final thrust upward perhaps in the fourth quarter. He's not at all sanguine on the prospects for next year and cautions that global bond markets are "overbought and overloved."
.
He suggests that serious long-term investors (an increasingly endangered species) be insistently selective in their equity purchases. Felix does concede that short-term traders may find some attractive pickings, but reminds one and all that such trading is strictly for the nimble and that the gains achieved in a late-stage advance will vanish in a flash when the markets go south in earnest.
DÉJÀ VU (AND, AFTER EXTENDED deliberation, we decided to leave out the Yogi Berra's tag line to that familiar French bon mot , a tag line that has become much the worse for wear). It is among the reasons, and by no means a lesser one, that explains the market's rather quixotic action in bucking those less than inspiriting fundamentals. More specifically, the tendency of Street shills and even sensible folks to contend that investors should expect a replay of 2010 and 2011, when the markets took their lumps, but survived the thumpings and eventually rewarded patient bulls with some nice juicy gains.
.We've never bought the replay argument, if only because it struck us as a pretty shallow notion that has the virtue of simplicity—or is simple-mindedness?—as an explanation of why and how markets act. And we're glad to see RenMac (which stands for Renaissance Macro Research) isn't buying it, either. In an analysis published Friday, it asks, "What is the near-term catalyst?" And it goes on to point out that in 2010 and 2011, "negative shocks faded, supporting growth," even if it was kind of grudging growth.
.
In 2012, though, "positive shocks are going away and persistent headwinds linger."
.
To be more specific, the analysis notes that in the summer of 2010, the going was particularly rough: Vibes from the woes of Greece, increased tension with North Korea, the Gulf Oil spill, and the launching of financial reform here at home took their toll on economies and markets around the globe. As these shocks faded, however, investors were able to concentrate "on positive underlying fundamentals."
.
In like fashion, in the summer of 2011, there were various and sundry bouts of bad news, including the Arab-spring oil shock, the problems that befell the auto-supply chain, the fallout from Japan's nuclear troubles, concern over the budding European recession, the existential threat to the euro zone, and evidence that China might be headed for a hard landing. As those harrowing events and even more harrowing prospects gradually diminished or became less imminent, markets began to rally.
.
.
This year, in sharp contrast, as Ren Mac observes,began with a positive economic shock, namely the extraordinarily mild winter.
.
But of course, that's now history. And in its stead, we have a pretty full bag of negative elements, including sagging global trade and "risk flares" from Europe.
.It goes without saying that if we could wave a wand and make all those things go away, we would. But they don't make wands like that anymore, so all we can do is urge you to tread carefully and give short shrift to the Street barkers who are trying to convince you that lightning strikes thrice.
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