Beyond the 'Wall of Worry'

Monday, July 16, 2007 | 11:49 AM

There is an interesting article in the Money & Investing section of the WSJ this morning: What Could Topple Bulls' 'Wall of Worry'?.

"The "wall of worry" idea is that stocks can still flourish when people are nervous. Skeptics hold money on the sidelines. As their fears are alleviated, they put money into stocks, pushing the market higher. The market keeps climbing only if worries are held in check. Here are some of the main concerns and what it could take for them to knock the market down."

Earnings_q2_07While I agree with the thesis, I reach a somewhat different conclusion. All of the issues raised in the article (detailed below) -- are at this point, very well known to the market.

1. High-risk investments: The biggest fear now is that some risky corner of the market could blow up.

2. Global growth: Strong global growth sustained by a U.S. consumer who refuses to stop spending, and by strong growth outside of the U.S.

3. Earnings: Investors now widely expect Q2 corporate profit reports to surpass analysts' lowered expectations of low-single-digit growth.

4. Inflation: Inflation fears knocked down stocks this spring. The worries pushed the yield of the benchmark 10-year Treasury note above 5.0%,

5. The weak dollar: The dollar has been trading around a record low against the euro and a 26-year low against the pound.

6. Liquidity: Cash available to investors has been one of the market's main drivers. Created in part by low interest rates, by a booming world economy and by big dollar-denominated trade surpluses in the Middle East and Asia.

Are any of these factors likely to derail the markets? Or, is it more likely that the risk factors have been fairly well known, and have become more or less discounted in the overall markets?

And, whatever it is that may eventually derail the overall market momentum -- is it more likely to come from the list above? I suspect the markets have discounted most of the impact of those well known, well written about, well blogged factors.

Rather, what is more likely to derail the markets is something not well known or highly expected: Consider a major rally in the dollar, 7% interest rate, collapse of a major trading partner, sudden loss of liquidity, famine in a developed nation, War with Iran, $100+ Oil, Political turmoil in the US -- something that is not currently on anyone's radar screen.

UPDATE: July 16, 2007 7:32pm

Perfect example of the unexpected: The Triple AAAs and Double AAs CDOs got whacked nicely today. So while everyone is focused on the true junk, its the supposedly clean stuff that is the surprise.


What Could Topple Bulls' 'Wall of Worry'?
High-Risk Investments, Weak Dollar, Inflation
May Test Stock Rally
WSJ, July 16, 2007; Page C1

Monday, July 16, 2007 | 11:49 AM | Permalink | Comments (27) | TrackBack (1) add to | digg digg this! | technorati add to technorati | email email this post



TrackBack URL for this entry:

Listed below are links to weblogs that reference Beyond the 'Wall of Worry':

» WTF is going on in the ABX Markets? from The Big Picture
Its one thing when we see that the BBB- bonds -- the junkiest sub-prime crap in the Residential Mortgage Backed Securities (RMBS) universe -- getting shellacked due to foreclosures. But today, we see that the AA and even the AAA are getting whacked. It... [Read More]

Tracked on Jul 16, 2007 7:36:28 PM


not to poo-poo what you've put up as I do agree with most of your reasoning for this but as an article it does nothing for me as most of these factors are widely known (it depends on how "open" your eyes are)and who is doing the reading. Obviously the large institutions care very little about any of it and are busy trying to make sure that we are getting over that wall that , to them, does not exist.

Of the eight things you've listed at the bottom of the post: four of them (the first four)are all under "control" other wise all the things listed in the article WOULD matter. The last four are by-products of the first four( who cares about War with Iran-especially when $100 oil does'nt really matter to the fed's calculations on inflation- when there are all these LBO's to consider-etc.) with famine being so far down as a reason to worry by wall street since (by definition of the fed) the costs to feed people are not rising so what me worry about a famine.

Neat little story on why "it" matters and when:

Nixon library in Yorba Linda, Ca. has, for years, described the watergate break-in as a democratic conspiracy to thwart re-election, by calling it a coup. The presentations in the library have all been geared to present that version. They have even described the missing minutes of tape as a "technical glitch". Now fast forward to 2007.......this library has existed on private money for years and now it requires public money (i.e. gov't funding) to operate. The catch to getting the said gov't money?? changing the version of events to reflect what we all know and accept as the truth about watergate. So in order for the fed to fund and thus take over the property the real story had to be told.

SO when it all of a sudden matters. Or in the case of the "wall of worry" it does'nt until it does.


Posted by: michael schumacher | Jul 16, 2007 12:29:43 PM

The comments to this entry are closed.

Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      


Complete Archives List



Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:

Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo



Odds & Ends

Site by Moxie Design Studios™