|
Portfolio strategy update
The risk of uncertainty David Gottstein Editor’s note: The following column was written in at the end of May. David Gottstein is with Dynamic Research Group in Anchorage. A good definition of risk is what you have to lose.
Uncertainly then is what you may not know about the future.
Because there is a lot of uncertainty, beyond normal economic factors, there still is significant risk in the market.
We stand by our assessment that we are most likely trading through a range of between 9,000 and 10,500 on the DOW.
Some will argue that all the bad news is already priced into the market, and others will say that all the good news is priced. Productivity rising The good news is that productivity is on the rise and earnings seem to have bottomed and are inching their way upward, albeit tepidly.
The federal government has a very significant spending program in place for security and other reasons that will likely stimulate the economy to a degree.
Housing and autos remain relatively healthy. Unemployment seems to have stabilized, at least for the moment.
Europe may be starting a mild recovery, however weak.
Inflation still seems to be largely in check, even though commodity prices have sustained a healthy bounce off their recession lows. Which is an indicator of economic performance. And consumer confidence has risen again. Bad news still possible However the potential for bad news is still out there.
There of course is the increased threat of a conflict between Pakistan and India. We don’t believe either will resort to nuclear weaponry, but one can’t rule it out.
If it does happen, then all bets are off for any type of stability in the near future.
Talk about lack of visibility from that point forward.
There is the continuation of the threats in the Middle East, both on the human side, and for orderly flows of oil.
The recovery here is so weak, even though there have been reports of rapid GDP growth in the first quarter, that we won’t believe it is for real until there is good momentum in employment, personal income and corporate earnings growth.
Seen any of that lately? New growth will come from China We believe that when there is a recovery, a significant portion of consumer growth will be supplied by new plants in China that have replaced hundreds of thousands of jobs here in America.
Usually we get a terrific multiplier benefit of consumer demand creating jobs and more personal income, generating even more consumer demand.
Don’t count on that formula being a driving force this time.
And with a weakening dollar, don’t expect our friend, the foreign investor, to bail us out in purchasing U.S. dollar backed assets, including debt.
And of course the big uncertainly that hangs over everybody’s head is the threat of some kind of new terrorist act here on our own shores.
So at 9,925 on the Dow Jones Industrial Averages, we are close to the upper third of our target range, with more downside than upside within current visibility.
| 