来源: DonaldLuskin 于 05-03-19 18:22:36
Wall Street Over a Barrel
By Donald Luskin Published: March 18, 2005
JUST LAST WEEK THE STOCK market reached heights not seen in almost four years. That put the Dow Jones Industrial Average less than 8% off its all-time highs achieved in January 2000. Even if you bought the Dow at the top, you'd still be breaking even today thanks to five years' worth of reinvested dividends. That's not bad considering we've come through the longest and deepest bear market since the one in the Great Depression.
The story is even better for small caps. The Russell 2000 index peaked on the last day of 2004, and is now 4% below that level. If you bought small-cap stocks just about any time over the past five years, then you're probably well ahead of the game. So looking at opposite ends of the investing spectrum — blue chips on the one hand and small caps on the other — all systems are go. The case for stocks for the long run is still alive and well.
Yet it certainly doesn't feel like happy days are here again. Both Dow and small-stock investors have been made whole since the top, but technology investors are still many years away from seeing any of their money. The Nasdaq Composite is about 60% off the highs it made five years ago.
I take comfort in the fact that there's not a trace of irrational exuberance, or even complacency, in stocks today. The time to watch out below is when everyone is confident, as was the case five years ago. Today everyone is still acting sadder and wiser, carrying the emotional scars of the bubble burst. That tells me there's not a lot of risk on the downside from here.
Things are so un-exuberant, in fact, that my valuation model is saying that the S&P 500 is 30% undervalued. Seems counterintuitive? Then remember that today's forward consensus earnings for the S&P 500 are 26% above what they were in March 2000. And yet the S&P 500 itself is 22% lower than it was then. The inescapable reality: Stocks were rich then, and they're cheap now.
I'm not worried about valuation, or about investor psychology. So what is there to be worried about? I'll give you one guess. Oil? Yep, that's a good answer.
It's worrisome to see crude break out to all-time highs. Stocks have certainly been soft this week while oil has soared, but it's hardly been a panic. Let's think about why that is. First, stocks are cheap to begin with, so they simply have less far to fall when there's bad news of any kind. And second, I think stocks are treating this breakout in oil as a short-term bubble that doesn't have any real reason for lasting for more than a couple of weeks. I agree with that evaluation. There's simply no good reason for oil prices to be behaving as they are.
Inventories aren't especially short. In fact, if you include America's strategic petroleum reserve, they're at all-time highs. And there's no particular imbalance in supply and demand. Every day the world pumps about two million barrels of oil more than the world consumes. The situation today is not in the slightest like the supply shocks of the 1970s.
No shortages, yet high prices. What gives? The only answer is that the oil market is worried about something out there in the future, because there's nothing wrong with the way things are with the present.
Could it be fear of terrorism, or some kind of political instability in an oil-producing country? Could be. In fact, prices and inventories both started moving up in March 2003, when the U.S. invaded Iraq. While it seems that democracy now has a better chance than ever of taking root in the Middle East, perhaps even that good news is a form of instability that the oil market doesn't like.
Could it be that the oil market is worried that the world is running out of oil? As I wrote here a couple of weeks ago, the reality is that the world isn't anywhere near running out of oil, now or probably ever. Even if it did, by that time there would be ample substitutes. At minimum, there's certainly no proximate emergency suggesting that oil prices should have doubled over the past three years.
What worries me the most about the oil situation isn't oil itself; rather, it's the fact that oil reflects a resurgence of inflation in the U.S., the result of the Federal Reserve having kept interest rates so low for so long. I wrote last week about the inflation threat, and I've received one of the largest e-mail responses from readers ever — obviously I've struck a chord. Inflation is back, and the price of oil is a major symptom of it.
That tells me that even when the current oil bubble bursts, we aren't going back to the kind of oil prices we've known in the past. Inflation is going to make that impossible. So when oil prices finally top out, and oil stocks take a dive because the conventional wisdom is that it's all over, it won't be all over. Oil prices will stay high, on average, longer than anyone expects. And oil stocks will therefore perform better. Be ready to buy the dip.
So it's good news and bad news. The good news is that today's oil spike is probably temporary. The bad news is that when the spike is over, we aren't going all the way back down to the prices of the good ol' days.
Put it all together and I'm not willing at all to say that today's high oil prices are going to derail the economy and throw us into a recession and new bear market. Stocks may falter for a while as the oil bubble plays out, but I really don't see a catastrophe in the offing.
Stock prices, cheap as they are, have already discounted possibilities far worse than anything that's really going to happen. So if there's more weakness, I say take advantage of it and buy.
(Donald Luskin is chief investment officer of Trend Macrolytics, an economics consulting firm serving institutional investors. You may contact him at don@trendmacro.com. )
