Time Off

The July 4th holiday is approaching and a combination of business, family and vacation beckons over the next week or so.  Normally when coming up to a week where I know that I'm going to be out and about, I schedule a few stories in advance.  These are usually posts that I hope clients and friends of the firm find interesting, but those stories are not necessarily timely regarding current event in the markets.  The demands of my business have made it impossible to put these out right now.  I'm going to now take the next week off and recharge the batteries.  I will of course break in if something major comes about.  I don't expect that given the nature of the holiday, but one never knows.  Look for something back here starting July 8th.  

Frankly I don't know that it matters right now if I put something out on a daily basis as markets have been on this slow motion melt up now since April.  Probability suggests that we'll hold markets together through the end of the quarter.  My crystal ball right now doesn't go out much beyond that.  At some point markets will sell off and we'll see something besides a few one day declines.  But 28 years of doing this tells me that right now all the external things that the market pundits worry about don't seem to matter much.  Stocks bleed higher and that seems to be the current path of least resistance.  

Still the surface of the lake may seem calm but underneath are currents that may dictate the course of the markets in the coming weeks.  I'll try to list a few of those that I see and may add to these next time I put something up here.

1.  The Economy:  Revised 1st quarter GDP numbers down 2.9% were dreck.  Markets right now seem to be willing to look beyond these, likely using the horrific winter as the excuse.  Besides that,  corporate earnings are holding up and these have so far proven to be a solid support for stocks.  All that  being said, economic numbers better have improved in the 2nd quarter or probability suggests stocks may be in a tougher spot.  That's particularly true given that valuations seem to be a bit elevated right now on historic comparisons.  {See post from yesterday below where we put out a review of current earnings estimates.}  We'll start seeing how these numbers stack up in early July along with earnings season.

2.  Iraq:  Iraq is FUBAR.  Old timers will understand that phrase.  Anyone under the age of 30 can look it up here.  At some point maybe I'll do a post on the concept of watching two trillion of our dollars go up in smoke in about a month's time, but now is not that time.  However, there are longer term geopolitical consequences of what's occurring there now and markets may be impacted.  This is especially so if the price of oil continues to go up as a response to this.  BTW there's a longer story here that links Russia/Ukraine, China and the South China Sea, Libya, other parts of Africa and a few other places in the world but that's also for another time.

3.  Immigration:  It seems that much of Central America is moving "en masse" towards our borders and we have no effective strategy for dealing with this crisis.  This will have legs into the election cycle in the fall.  As an aside, I was required to read a book in college with the title "The Camp of the Saints".  That story dealt with mass immigration from India to France and Europe.  I thought it was a horrible read.  However, there are scenes from that book that remind me of our southern border today. 

4.  Election Cycle:  Markets hate uncertainty and the off year election cycle will have that in spades.  Probability suggests that volatility will increase as we get closer to voting in November.

5.  Interest Rates:  Anything that even hints that rates are starting to move higher could roil not only the stock market but also bonds.  

These are the primary things that I'm watching.  Of course it's likely that the thing which will finally give markets a pause and even lead to some sort of a decline isn't even registering on any body's radar.  That's the way it is sometimes.  Nobody for example thought at the beginning of the summer in 1990 that Iraq would invade Kuwait.  Or it could be that stocks have already taken all this into account, discounted the outcomes and nothing will come of any of it.  We'll have to see.  That's why we have our indicators.  The indicators, just so you know, are indicating a slight potential of change in the coming weeks. We'll hold off on discussing this till we have a better look at the tea leaves.  

Happy 4th of July!