This blog post originally appeared on RealMoney Silver on July 22 at 7:21 a.m. EDT.
Slow down, you move too fast.It is hard to remember a week-long period during which investors have felt so groovy and have abruptly turned or acted as bullish as these past few days of July. Perhaps one shouldn't be surprised, as the current enthusiasm followed a shoot-first-and-ask-questions-later environment that led to what I have described as a generational market low in early March.
You've got to make the morning last.
Just kickin' down the cobble stones,
Lookin' for fun and feelin' groovy! -- Simon and Garfunkel, " The 59th Street Bridge Song"
"One hundred thousand lemmings can't be wrong." -- Author UnknownToday, concerns of the emergence and steady effect of a slew of nontraditional headwinds and the likely specter of further growth-inhibiting public tax policy have been put on the back burner in favor of the animal spirit -- that is, the professional pressures of not underperforming investment benchmarks and in the safeness of crowd or herd mentality. The confidence of buying when stocks are climbing (just like the previous confidence in selling when stocks were dropping) remains the overriding investment mantra today, but, I suspect tomorrow might be a different story. The most disturbing feature of the current business environment is the manner in which corporations are beating estimates. While it enhances the present profit configuration, it has the potential for a long and negative tail to the future. Cost-cutting, like another man's bread, will line the corporation with profits but, in the fullness of time, will not fill the belly of the consumer. Cost-containment has not only a finite life -- expenses cannot be cut indefinitely -- but has the direct impact of producing a continued, elevated and more pronounced negative effect on the future level of joblessness, providing persistent pressure on personal consumption expenditures. And, in a way, it produces an inherently lower quality of earnings and a less positive lever to P/E multiples than does the classical cyclical improvement in top-line or sales growth.