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Waiting For The Fat Lady


What does the stock market do?

No, I’m not talking about financial intermediation or about bringing buyer & sellers together or price discovery or any of that academic stuff.

What does the stock market do?  It worries!

It is often said that Wall Street is forever climbing a Wall of Worry, and it is true.  Sometimes, unfortunately, the Wall is a taller than normal (like now).  That’s the reason a slight increase in uncertainty is so problematic for the stock market.  Increased uncertainty means a taller wall of worry for Wall Street to climb.

In the past two months, it has become apparent to everybody that the world is swimming in oil, that Saudi Arabia and Iran really would enjoy killing each other, that the Clueless Wonder of North Korea would enjoy killing everybody else — none of which is good for corporate profits.  Did I mention the slowing Chinese economy?  And, it is now “confession season” when companies have to report their fourth quarter profits.

These problems don’t need to be resolved, before the stock market recovers, but they must stop growing in uncertainty.  If we could “get our arms around” the oil problem, that would help enormously.  For example, if we knew the daily over-supply of oil production was exactly 1.1 million barrels, we could start dealing with that.  As it is, nobody really knows, especially in light of Iran’s re-entry into the oil market.  The sudden winter blast has temporarily pushed up oil prices nicely, but that will be temporary.  With respect to the Middle East, some cooling off of the Sunni-Shiite civil war would also help our stock markets enormously.

Many analysts have been predicting a “profits recessions,” where the profits of American companies goes down.  So far, that does not seem to be happening, but the “fat lady” has not sung yet.

Despite yesterday’s nice relief rally and today’s expected rally, I still don’t believe the bottom has been established, but we are getting closer.  If uncertainty will stop increasing, we will get over that Wall.

 I’m counting on stronger-than-expected corporate profits to hide the other problems . . . please!

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