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Beyond the 'Wall of Worry'

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."

While 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.

>

Source:
What Could Topple Bulls' 'Wall of Worry'?
High-Risk Investments, Weak Dollar, Inflation
May Test Stock Rally
E.S. BROWNING
WSJ, July 16, 2007; Page C1
http://online.wsj.com/article/SB118454728960567186.html

Monday, July 16, 2007 | 11:49 AM | Permalink | Comments (27) | TrackBack (1)
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Comments

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.

http://www.sgvtribune.com/news/ci_6354419

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

Ciao
MS

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