I like the money supply increase answer for what’s been driving the market up recently. The WSJ had an article about individual investors staying out of this one, and it certainly hasn’t been from improving news on the economic front. Here are the two views I heard (I know pitting Jim Cramer against Dave Rosenberg is a bit unfair, but I still find it amusing).
I was listening to CNBC on the drive to campus today, and heard the ever-bullish Jim Cramer cracking the eggheads who call for a double-dip recession (sound effects included). A caller asked how he would answer to the negative interpretations of the employment data, housing data, auto sales, business confidence and consumer confidence. The answer he gave was amusing (I’m paraphrasing from memory here):
“I’ve (Jim Cramer) got 30 years experience and have personally met many of the top CEO’s. I knows which ones to believe in the conference calls and when they’re bullish, I’m bullish, so throw out the economic indicators and focus on individual business earnings on conference calls.”
Dave Rosenberg, on the other hand, suggested that perhaps part of the story behind the stock market has been jolts of liquidity from the money supply and banks. The M2 money supply has been expanded $38.5 million in the past 2 weeks as the M1 money multiple has risen from 0.839 to 0.862. At the same time, “trading assets” on commercial bank balance sheets expanded to $325 billion from $297 billion. We can just think of this as volatility rather than the ongoing trend.
I thought it was funny the different questions posed to each of them and how they reacted. The bull Cramer was asked how he could explain his positive view despite the sluggish economic data, and after making his point he said that the stock market was confirmation of his view. The bear Rosenberg was asked to explain positive movements in the stock market despite his bearish view and after making his point he explained how the sluggish economic data was confirmation of his view.
Personally I still like the income theme – safe high yield stocks and bonds, combined with a steady long-term position in Gold.
I’m still thinking about playing with January puts, betting that the lame-duck congress will bring back cap-and-trade and other unpopular job-killing legislation after the November elections (explained in a WSJ article) and that this might move markets. Keep in mind though – options are a zero-sum game and are priced against the holders, so buying naked calls or puts for speculation is gambling rather than investing – but it can be worth doing in small amounts if you learn something from it.
On a side note, there have been interesting articles on Oil in recent weeks. The one today (WSJ) on the Gulf Moratorium killing off much of the US production in the area was interesting – especially next to the article about a Spanish oil company with foreign manufacturers looking into a deepwater rig in Cuban waters 40 miles from the florida keys. The gulf of Mexico is surrounded by many countries which would love to bring in employment and tax revenue from oil production – many which will now have lower political risk than the United States – and it is likely that quite a few of the underground oil wells are connected across these boundaries. BP is contemplating on selling US assets in Alaskan oil fields- a good idea to sell off some of its still valuable US investments to reduce it’s exposure here. Russia has recently completed a Siberian pipeline to their East Coast to supply the Chinese market, only to find most of the demand to come from the US West Coast, so we’ll have no problem with oil supply. Our oil will just come from foreign countries in tankers rather than domestic production in oil rigs.