• 6 hours Could China's Coronavirus Outbreak Impact U.S. Stocks?
  • 14 hours Tesla Stock Continues To Soar
  • 1 day What New Economic Data Reveals About Gold's Trajectory
  • 2 days The Lucrative New Tech Hijacking Your Privacy
  • 2 days The Biggest Loser In The China-U.S. Tariff Tit-For-Tat
  • 3 days Trade War Takes Its Toll On Shipping
  • 6 days Is $90 Oil Possible? An Interview With Jay Park
  • 6 days Billions Of Dollars Are Flooding Into The Flying Taxi Space
  • 7 days Is This The Most Important Energy Project Of 2020?
  • 7 days Startups Are Dying To Give You A Better Death
  • 8 days U.S. Restaurants Are Struggling With Rising Labor Costs
  • 8 days The Banking Bonanza Is Just Getting Started
  • 9 days How The Trade War Ceasefire Will Impact The Energy Industry
  • 9 days Who Is The Most Dangerous Person On The Internet?
  • 10 days SoftBank Sees First Quarterly Loss In 14 Years
  • 11 days Prepare For An Oil Glut In 2020
  • 12 days Why A Strong Yuan Is A Promising Sign For The Trade War
  • 13 days What Would You Sacrifice For A Debt-Free Life?
  • 13 days Shareholders Urge Major Bank To Stop Funding Fossil Fuel Companies
  • 14 days Tariffs Are Causing A Slowdown In U.S. Manufacturing
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

  1. Home
  2. Markets
  3. Other

Wary Investors Give US Stocks Another Go

Recently, the stock market has been roaring, with the S&P 500 up a stunning 22% from October 3, 2011, which was the low of last year. In fact, the first month of 2012 has been one of the best Januaries on record for US stocks. On top of that, last Friday's better-than-expected jobs report seems to provide further evidence that we're turning a corner.

All this comes as a relief to the financial media, who had little to crow about in 2011. They are quickly making up for lost time. Many are highlighting the fact that major stock indexes are now approaching levels that will overcome all the losses that occurred since the financial crisis erupted in full view in September of 2008. Others are now claiming we're really three years into a bull market, saying it began in March 2009 when US stocks finally hit bottom after losing more than half their value.

However, there are many reasons to question the bestowal of bona-fide "bull" status on this market. It's hard to miss the artificial props in place to push up prices. Everyday investors haven't been blind to these, and are thus highly skeptical of the market. So, both the supply and demand sides of the equation are standing on shaky foundations.

Few investors have forgotten the carnage of 2008 and 2009, when a panic of epic proportions came about with little warning from the experts. Then, as now, most professional economists and analysts predicted clear sailing for months and years ahead.

Even with the modestly better GDP and employment figures, there is now a much wider appreciation for the possibility of a financial meltdown than there was back in 2007. This is especially true given the unresolved problems in Europe and the possibility of debt contagion spreading across the West. These fears weigh down on equities, despite the continuing growth in corporate earnings.

Then again, investors likely regard corporate earnings themselves with increased scrutiny. Given the current low-interest rate environment, many are justifiably suspicious of the longer-term sustainability of those earnings. Indeed, corporate revenues have been enhanced significantly by massive layoffs and lower product quality. Meanwhile, fearing political uncertainty surrounding taxation and regulations, corporations continue to accumulate cash. Some companies have taken advantage of low rates to lock-in long-term debt capital. While these may be wise decisions, such moves do little to set the stage for future growth.

Last week, the ECB decided to fall in line with the Fed in its efforts to avoid recession. It is now more widely accepted that if recession continues to deepen in Europe, money will be created on a massive scale. It will be circulated covertly by the ECB's distribution network of banks to bail out governments, the banking system itself, and, most likely, major EU corporations.

It is also increasingly likely that problem countries within the eurozone will accept German 'overseers' to run their governments along more prudent lines. In Greece, the government finances, the economic budget, and the currency are now under the effective control of Germany.
On the surface at least, these measures render the eurozone's problems less acute. This has lent support to US stock markets. But the fiscal centralization and torrent of new euros will have a long-term cost.

Meanwhile, in January, the Fed announced that it would keep US interest rates at historic lows until at least the end of 2014. This prospect has added to the enthusiasm for risk. However, by continuing to deny the existence of inflation, despite growing visible evidence, Bernanke is building a gargantuan new bubble that can't be ignored.

Although stock markets offer the possibility of upside gain and inflation protection, it is hard for investors to shake their fears of economic uncertainty. Many long for the day when stock markets can rise on their own accord without massive support from central bankers, and when the fears of overzealous government regulators do not dominate risk analysis. They want stocks, they just don't trust these stocks. It is in their interest not to let the present euphoria overcome their justified caution.

 


For an even more in depth look at the prospects of international currencies, download Peter Schiff's and Axel Merk's Five Favorite Currencies for the Next Five Years.

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by John Browne, Peter Schiff, and other Euro Pacific commentators delivered to your inbox every Monday.

For a great primer on economics, be sure to pick up a copy of Peter Schiff's hit economic parable, How an Economy Grows and Why It Crashes.

 

Back to homepage

Leave a comment

Leave a comment