You know the story about the shepherd boy who thought it was a kick to, on a whim, cry “wolf” alerting his village to a wolf attack on the flock that wasn’t really happening. When a wolf finally did attack, no one paid any attention to his pleas for help.
I think we have recently seen a comparable situation in the stock market, and it has to do with the weather. For years we have heard weather used as an excuse for poor corporate or economic performance, and like cries of “wolf” market participants have begun to ignore it as a lame explanation. Back in January, when the first really-below-par jobs number was issued, the market tanked. Weather was ignored as the culprit and everyone started speculating on the beginning of a U.S. economic slowdown. Like the boy’s cries, weather was dismissed as a causal factor. Bill Saporito was one voice crying for calm and reason in “Why Today’s Miserable Job Numbers Are Probably Wrong” (Time-Business and Markets-January 10,2014). I think Saporito had it right and had it early.
At any rate these economic fears were magnified by threats of certain emerging market countries (a la Turkey) being on the ropes. As we melted, those emerging markets, as well as, China and Japan melted…Voila, the long-awaited correction begins!
I’m not sure. Since the market break at the beginning of the year, the Dow trimmed of 7%, the S&P 6% and NASDAQ 6%. All have bounced significantly off their lows. In fact, the NASDAQ made a new 52-week high today. If the market holds true to recent form, not giving really attractive entry points to those with money to invest, while crushing the shorts, with due deference to Leiber and Stoller and Ms. Peggy Lee, this may be “All There Is.”
The Yellen Factor
I am willing to accept the weather as a primary culprit in the recent soft economic data, but there was one other uncertainty facing the beleaguered market, the new Fed Chair, Janet Yellen. We had to start to worry about what her policies were and how she would acquit herself during her first House and Senate Finance Committee hearings. She aced the House examination. Her Senate grilling was postponed (weather related). I’m sure she will do just fine in front of that illustrious body.
Ms. Yellen basically said …’No change’. The economy is OK, could be better. The taper will continue as planned, barring any unforeseen economic or geopolitical event that might call for re-examination of the policy (pretty much what Mr. Bernanke would have said). As of this post (2/14/14), the ten-year U.S. Treasury note is at a 2.75 % yield…and they said tapering would drive rates up. Here we are two turns ($10 billion turns) into the taper and rates are down. When the first round of tapering was announced (12/18/13), the Ten-Year was trading at 2.88%, 13 basis points higher in yield.
One of these days, like “the Boy Who Cried Wolf,” these guys are going to be right. Let us hope we are paying attention.
What do you think?
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