It’s been a crazy few days. After clearing my head (and getting my riding butt in shape for summer) I can’t help but marvel at how perfectly my indicators (outlined in ‘A Maverick Investors Guidebook’ – HOT off the presses and in bookstores) usually work. One of them is headlines. As mentioned in yesterday’s brief comment, China raise rates and in today’s news:
Treasuries fell for a second day, pushing the yield on 10-year notes to 3.53 percent, as speculation the Federal Reserve will maintain stimulus measures sent inflation expectations to almost three-year highs.
and
The euro advanced to its highest level against the dollar in more than 14 months on speculation the European Central Bank will increase borrowing costs further after raising its target lending rate tomorrow.
This at a time when most investors are still focussed on ‘yield.’ The danger is that any security (other than very short term paper….which has been and ‘is’ avoided like the plague) with a yield will decline in price as yields rise. It’s quite probable that stocks will respond some on the downside also, but this is a complex scenario. Stocks with growth rates sufficient to overpower yield considerations will hold or even outperform if the economy remains in good shape.
As I’ve mentioned previously, there will no doubt be some stumble due to the impact of Japan’s crisis, and as we’ve heard from some tech companies (like RIM) and automotive manufacturers there’ll be some short term delays simply due to disruptions in the supply chain. Despite the fact that global industrial production is and will be influenced (see chart), the stock market seems in a matter of a week or two to have assigned a zero probability to any material impact. No doubt the global economy may skate through it, but there will be a negative effect on a number of industries that is unforeseeable…and it won’t be ‘zero.’ For example, much of the steel used for current pipeline building is rolled product from Japan. If there is a shortage, steel prices will ratchet up and dampen the earnings of buyers in need of it. Fewer containers from overseas have been carrying fewer shipments.
These are the sorts of inevitabilities that will create some near term opportunities for nimble investors. If you have ideas, leave a comment. I’ll keep my eye out also now that I’m back from my hiatus. FYI – I’ve some great photos of my road trip posted on the “NEW – Touring Arizona High Desert” page – check it out.
Invest to Live, Live to Ride.
Hi Mal
i sent along an e-mail to your rogers e-mail , a piece from Lombardi on China/Russia initiative re: US currency..interested in your thoughts..is it even valid?