With the upcoming July 4th holiday approaching and the stock market being closed, next Monday will really be the start of the second half of 2014.
We all pretty much know what happened during this year's first half, so an appropriate question now might be: What's up for the second half?
The realistic short answer is nobody knows for sure. But many are expecting more bumpiness, a pretty safe call it seems to us, given what's gone before it. Among this group you'll hear such hedged terms as "stretched," "not cheap" or "fair valued" to describe valuations.
Much of the concern centers on the end of QE and when investor attention shifts to the possibility of rising interest rates. Some would suggest the reality of rising rates. But these two suspects just might be the most anticipated events since the turn of the century and the predicted Y2K melt down that never melted down.
Granted there are many more factors involved now, more dreariness seemingly afloat around the globe, not to forget fears about rising inflation that many seem inclined to taking a head-buried-somewhere-the-sun-don't shine approach to.
We'll leave out the deflation worry mongers for now because they've been the darlings of MSM for some time. Perhaps a more accurate term would be uncertainty. But if past is any kind of prologue to the future, stretched valuations can remain stretched for a while as in longer than most think.
In our view, however, many of the assumptions about those valuations have a built-in fallacy. That valuations must always reach previous bubble or, to quote a term making the rounds today, outrageous proportions for something ugly to occur.
That's brings up another interesting question: Just what is ugliness? The kinder, gentler response is the absence of beauty. Most asset classes from bonds to gold to stocks have been up during the first half, not a normal thing in markets. It happens about every once in the twelfth of never.
As any bookie worth his bets will suggest the odds against that continuing are ones he just might want to discuss with you.
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