As earnings season begins in full force this week, and we continue to scratch our heads with the current valuations, last week we had an ahaa moment (or maybe DOH….) that through our research and contacts we believe to be the possible recent cause of the US levitating markets. What is silly, we actually wrote the basis for our market levitation several weeks ago….answering our questions in our electronic diary, before we realized it.
Why US Capital Markets Continue to Levitate
In our post, here and another post and video here we answered our own question. Cyprus the country that had its depositors awaken one morning to a still yet defined haircut on their money, but for sure some type of haircut (depositors to lose significant percentage of their money due to governmental tax or sequestration.) Any rational person would flee or some may say free their capital, and move it somewhere, also known as a bank run and possible contagion.
We believe the US is the recipient of the fear funds
Litigious, yes, maybe overly….flashy, yes… BUT YES…… VERY SAFE! There is little doubt in the world that the US will protect its system and the legal system, while cumbersome is tough, thorough, and provides the gold standard in safety. It is for this reason that we believe funds are flowing into our capital markets with little discrimination on direction. (Stocks and bonds are rallying at the same time, which is unusual)
Not looking a gift horse in the Mouth
As we trudge through earnings season over the next few weeks, we expect “ok” to “good” reported numbers and forecasts. Given the levels of the capital markets, we need “good” to “great” numbers to support the current valuations. Given the money flows, US capital markets may continue to levitate which we will happily ride, however the downside risk does increase the farther markets get from fundamentals. We are happy for the increase and by no means “doom and gloomer’s”, just fundamental nerds at our core.
We will keep you posted, but if our beliefs are true, it is very important to stay careful as we navigate these waters.
Have a Great Monday!
John Kvale214-706-4300 http://www.jkfinancialinc.com 8222 Douglas Ave # 590 Dallas, TX 75225