View Full Version : Why Is The Stock Market Rallying?
12-01-2004, 10:10 AM
I'm kicking myself-I sold out in October (I figured the markey would do an end-of-year tank)! So why are both the Dow and NASDAG indexes up? Face it, wehave:
-oil prices heading for the moon!
-a vicious war that is dragging on, with NO end in sight
-a huge budget deficit (and a Congress that apparently doesn't care)
-an enormous deficit in foreign trade
-a dollar sinking like lead
So why is Wall Street on a party? My 3rd quatrer analysis said that the Dow should be dropping..what is going on?
12-01-2004, 12:38 PM
Those factors all account for the market having gone down over the last 4 years - with the exception of the falling dollar. The government's impending encounter with insolvency or inflation affects bond prices, or perhaps should, but not necessarily stock prices. The cheap dollar should be expected to make US-made goods more affordable in the rest of the world, and perhaps the stock market is anticipating an increase in industrial activity because of it.
Just a guess.
12-01-2004, 01:53 PM
Its been going down a bit the last two days... haven't seen news today though. Still the market is bullish.
If government and congress are spending a lot... someone is making money... so the market is happy. Until the deficit causes a financial disaster... it will be heating up the economy.
... plus a low dollar of course helping exports.
12-01-2004, 02:58 PM
I don't have figures on how much effect this is having, but the weak dollar also encourages foreigners to purchase US securities--driving up demand, and thus, price.
Knowing how much everyone here loves Fox (http://www.foxnews.com/story/0,2933,140130,00.html) (I've taken to using them as my primary cite these days just to annoy folks :)), here is what they have to say in reference to the OP (there is a similar story on AP...just an FYI):
Stocks Jump on Upbeat Data, Crude Price Tumble
Wednesday, December 01, 2004
NEW YORK — Stocks soared Wednesday, with the Dow posting triple-digit gains, as investors welcomed an encouraging consumer spending report and a sharp decline in crude prices due to a large buildup in the nation's energy inventories.
The blue-chip Dow Jones industrial average (search) gained 162.20 points, or 1.56 percent, to end at 10,590.22, according to preliminary data. The technology-packed Nasdaq Composite Index (search) rose 41.42 points, or 1.98 percent, to close at 2,138.23. The broader Standard & Poor's 500 Index (search) ended higher 17.55 points, or 1.5 percent, at 1,191.37.
The Energy Department (search) reported an increase in distillate reserves — heating oil and other derivative products — of 2.3 million barrels, far higher than Wall Street had expected. Gasoline and crude inventories also rose substantially.
So, looks pretty straight forward to me...encouraging consumer spending reports and a decline in crude prices. The real question is...will it last?
12-01-2004, 05:02 PM
Mostly, because Alan Greenspan's outlook on the economy, previously thought to be overly optimistic, seems right now to look exactly correct. The "soft patch" we hit during the summer seems to have ended and was never as soft as originally believed in the first place. The economy seems to be adjusting to $45-50 oil, which many thought couldn't happen (though that's not particularly expensive on an inflation-adjusted basis, the magnitude and sharpness of the increase to that level certainly qualified as a price shock and the U.S. economy has never previously endured an oil price shock without going into recession). The falling dollar, while creating or exacerbating many problems, makes US products more competitive in world markets and helps big manufacturing exporters like Deere and Boeing and the like. Consumers are reporting themselves to be concerned about the economy but their behavior indicates that they're not too concerned -- they're reentering the workforce, getting jobs, spending money and travelling.
The war is already in the numbers -- everyone has a good idea of how much it will cost in dollars and the cost in American lives is small relative to other wars of this magnitude which the United States has fought. The deficit is huge, but looks like it will shrink before transition costs to a new social security system (and even the borrowing for that will be replaced by private capital flowing into the system). And since we've grown out of deficits before, I think I may be the last deficit hawk around anyway.
Corporate profit growth is slowing. This would seem to be bad for the market, but in fact profits had been growing too quickly to be sustainable -- spreading some of the money to workers will be better for the economy long term and the market knows that. So the portion of the slowing attributable to real wage increases is something the market is happy to stomach. The other main contributor to the slowing growth, increasing commodity prices, seems to be abating a bit. The commodity price squeeze looks like it will work its way through the economy with less disruption than previously feared.
Consumer debt is up, and it's too high, but debt service remains at manageable levels because of low interest rates. Homeowners have shown themselves to be smart consumers, converting variable mortgages to fixed when appropriate (ask poor Fannie Mae how their derivative book is looking these days!).
In short, things are acutually pretty good right now and look to stay that way for a while.
12-01-2004, 05:32 PM
I'm in the opposite situation. I was going to transfer a lot of my 401k into bonds and money market, since I am currently unemplyed, but first I was going to roll em over into an IRA. I havent done either of those yet.....neener neener! :p
12-01-2004, 06:43 PM
On a different level, the falling dollar (that, IMO, has very adverse long term consequences) and some increases in inflationary aspects are both partly responsible as well.
As the dollar gets "cheaper" and as inflation nudges, then the price of stocks have to rise to basically stay even.
12-01-2004, 08:12 PM
Renewed faith now that most of Bush's cabinet has resigned.
Mostly, because Alan Greenspan's outlook on the economy, previously thought to be overly optimistic, seems right now to look exactly correct.
I almost hate to agree with you, Manhattan, but I agree with you. Greenspan has been pretty reliable.
The war is already in the numbers -- everyone has a good idea of how much it will cost in dollars
Ah, I'm disagreeing with you again, back to normal.
The war is not already in the numbers. Not only have we not resolved the extended troop deployment, we've barely started rebuilding Iraq's infrastructure, and who knows how deep into hell it will fall if we just up and leave it to chaos. I forsee that Iraq will cost us a lot more than the long-quoted $120 billion (hasn't it already?)
and the cost in American lives is small relative to other wars of this magnitude which the United States has fought.
Yea, and the cost in Iraqi lives is insignificant, huh?
America hasn't operated in an intense combat situation since Viet Nam. Most of what we've done since then is send in highly trained troops equipped with the finest weapons and body armor, supported by massive accurate artillery, operating from a large base and fighting in a small theater with close evac lines to top-quality field hospitals. We're now exchanging fire with insurgents and maybe conscripts with poor training, archaic weapons, literally no armor of any kind, with no medical care, food and ammunition supply, and are generally surrounded. Their single advantage is blending in with the civilian population.
And what "wars of this magnitude" are you comparing Iraq to? At last count, over 1,100 US soldiers have died in Iraq. The number injured is far, far, far above that. The GW1 cost us 300 Allied lives, IIRC. I don't know what other war on this magnitude you are talking about. I suppose you mean Viet Nam, but I don't think you can really compare the two. Viet Nam was fought by a US military at least 2 generations past. The main reason we don't have as many deaths as we did in 'Nam is because
1) we have better armor and weapons (including GPS-guided missiles and bombs
2) we have better medical conditions
3) we can go about picking our fights by blockading ourselves and the enemy rather than fighting them
4) Iraq: 2 years
5) Iraq: volunteer professional army
'Nam was different in that
1) for all intents and purposes, the arms were about equal. We had an advantage in air power, certainly, but it was less accurate. We had the concept of body armor, but it was primitive
2) primitive medical conditions
3) The VC took the war to us. We were surrounded and ambushed as much (if not more) than we surrounded and ambushed)
4) Viet Nam: 2 decades
5) Viet Nam: Viet Nam: Draft/conscripted soldiers
You're comparing a hard fight with beating the holy crap out of a crippled kid.
The deficit is huge, but looks like it will shrink before transition costs to a new social security system (and even the borrowing for that will be replaced by private capital flowing into the system).
Ooh, we get a magical new social security system? Is this a real one, or one where you say, "eh, fuck it" and privitizeit all?
In short, things are acutually pretty good right now and look to stay that way for a while.
Are those rose-colored glasses, or normal ones covered with Iraqi blood?
12-01-2004, 09:25 PM
The reason the market is up at this particular moment has nothing to do with economic indicators and everything to do with the price of oil, which has dropped 23% in the last three months. If you believe oil will continue to drop, then you will invest in the market. But if you believe that the fundamentals of the international oil are changing as a result of new demand in Asia, then you know that this is a temporary gain, and there is going to be a world of hurt when demand catches up to a transient rise in the oil inventories. The recent market gains serve to emphasize how dependent our economy is on oil; when oil is down, the market is up, and when oil is up the market is down. It ain't rocket science.
12-01-2004, 09:45 PM
Well, Fear, that's the short run, but I do think we're in for a few years of good gains. You could almost look at it purely as a dead cat bounce from the depressed levels we achieved post the dot-bomb and 9/11, but really it doesn't matter, not if you can still look forward to 50% plus on average overall gains in the next few years, if you can be patient and keep from being panicked out by the inevitable next terror attack or even the seemingly inevitable dollar crisis.
I've come to the conclusion that the dollar, and Iraq, will wind up being that classic "wall of worry" the stock market needs to go up. It'll look like the mid-Eighties market, during which the dollar mostly fell. It'll probably last about as long too. Whether it ends with a crash or a whimper I have no idea. But the true dollar crisis will come some time after the end of this bull market. I think you should keep one eye on it at all times, but I don't think the crisis will come until after the party is over. I'm certain of the inevitability of the crisis, but the odds of it happening during this bull market I'd say are probably 3 to 1 or even higher, against it.
This is purely my intuition speaking, based on the fact that there are too many dollar bears out there; it's become such an obvious trade that there's just no way it's going to pan out. The markets are never that easy to figure out.
12-02-2004, 04:29 AM
You'll notice that many, many people can come up with perfectly rational-sounding explanations of why the market did what it just did (be that a big tumble, a big run-up, or drifting in a narrow trading range), but that no one can reliably tell you what the market is going to do tomorrow. What does one conclude from this?
OK, I won't be coy. What one concludes is that no one actually knows why the market does what it does. You can take almost any piece of news (economic or otherwise) and trot out a theory about why it will be "good" for the market. Or about why it will be "bad" for the market. Same piece of news. If you spend enough time listening to the analysts, you'll soon realize that you're hearing the same rationalizations over and over again, but that their predictions for the future are right only about half the time. Funny about that.
Then you get the technical analysts, who actually seem to believe that the passage of time plays a causative role in the price of stocks. Whenever you see a line graph in which the X-axis is time, and on which a prediction of the future is based upon some sort of curve-fitting to the prior data, ask yourself what it is about time passing that necessarily drives stock prices. What, precisely, is the cause-and-effect relationship between the two?
I recall an interview with a denizen of Wall Street during the big collapse of 1987, in which he stated that putting money into the market isn't investing, it's just high-class gambling. That's hyperbole, but not by much.
12-02-2004, 05:57 AM
Renewed faith now that most of Bush's cabinet has resigned.Nonevents, really.
LexisNexis: Cabinet Resignations Not as Prolific as Past Presidents (http://biz.yahoo.com/prnews/041115/clm094_1.html)
The flurry of resignations from President George Bush's cabinet seems significant, but, compared to past administrations, is still not all that monumental, a study of data on LexisNexis has revealed.
With the exception of his vice president, Reagan saw all but one of his cabinet positions change hands during his two terms in office from 1981-1989. Only Samuel Pierce made it through both terms in his position as HUD secretary.
Eight of Jimmy Carter's cabinet members eventually resigned during his one term in office. Only his secretaries of education, labor, agriculture, interior and defense made it through Carter's four years.
The last Democrat to head the White House is Bill Clinton. Before he finished his second term in office, he had 10 of his original cabinet members resign and several of their replacements also resign. Clinton had four commerce secretaries and three secretaries of treasury, defense, and energy. Only his attorney general and secretaries of the interior, education, and health and human services endured all eight years of Clinton's presidency.
His non-cabinet senior leadership also saw a lot of turmoil. His chief of staff, Mack McLarty, was "encouraged" to leave the White House to allow for some controls and organization to be instilled. White House administrator David Watkins resigned after it was reveled he used a government chopper to go on a golf outing. White House counsel Bernard Nussbaum resigned amid the Whitewater scandal. Associate Attorney General Webster Hubbell was also a Whitewater victim. And, Surgeon General Jocelyn Elders finally packed it in after her highly criticized stance on abortion, drug legislation and sex education.
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