One of Those Times When Contradictions Emerge to Confuse Us

Not complaining, but we've rarely, no, never, seen so many contradictions flowing from the mouths and pens of trusted sources of analysis, intelligence, and specific recommendations regarding investments. It's annoying at best, somewhat disturbing at worst.

Of course, contradictions have been spewing from many sources these days. This emerged during a recent conversation with a client. He's a pretty astute investor with a finance background and somewhat likes to tune into media sources, and read some of the opinions therein. He sees more contradictions than he's used to. 

A couple of stark examples:

Stocks: 

They're in a new bull run, having hit the highs for the year. Many sources claim this, including some of our more trusted and, frankly sophisticated sources. Evidence for this includes price action that has taken stock prices above their longer-term averages, a broadening of stocks that are now gaining (vs. the limited number of stocks that drove the run-up since October 2022), a Dow Theory Bullish Confirmation (if you follow the venerable Dow Theory). Those are the arguments for a bull market run.

Opposed to this, we've got further elevation - or rather over-valuation - in stock prices, a run-up that can still be characterized as a bounce after a Bear Market plunge last year, and the piling in of retail investors. This last factor typically signals an impending downturn, as retail investor notoriously pile in after a substantial run-up, only to get caught in a trap, thereby losing money, as they typically too often do.

Inflation:

The numbers have certainly gone down. But does this really signal the end of inflation? As we've noted in the past, the last extended bout of inflation saw the numbers go up, go down, go up, go down, but ultimately the ups beat the downs. Besides, we all know that nothing goes either up or down in a straight line. And the recent upward surge of inflation would naturally take a rest, at the least. So while inflation is easing, the results of its big surge of higher prices - in food, housing, and many other items we all purchase - hasn't reversed. We're still paying up for stuff. Gas seems an exception. But even gas remains higher than what it was a couple of years ago. We're still paying.

Retail Sales:

The consumer drives our economy. It's still the case that 70% of economic activity springs from consumer buying. We're seeing claims that retail sales are up. The numbers seem to reflect this but...much if not most of this has come from inflation: Prices are higher and this gooses the retail sales numbers. Only numbers that include actual unit sales can provide solid evidence of a "real" increase in retail sales.

Oh, and its would seem that credit card balances are up as well. So folks are apparently getting deeper in debt to keep up their accustomed consumption.

Which brings us to the bigger picture...

The Economy:

You can find lots of claims that the economy is quite peppy. Things are Jim Dandy. Just look at unemployment; It's down; and employment is up. GDP seems to have risen a bit more. Restaurants are busy (they say). Flights are jammed. Gas sales are up with folks traveling again after the Covid Mess shut-downs. And then there are those numbers of jobs that they say are going unfilled - millions of them. 

And yet a standard source - the Conference Board, that analyzes economic indicators - predicts negative growth coming up, based on weakening spreading across the economy.

Residential Real Estate:

This one finds one our sources touting the beginning of a new bull run. Flat action in house prices lately; falling prices in some parts of the country? Ignore it. We're heading for a big surge. It's all based on scarce inventory. What about rising mortgage rates? They'll come down. Why? They can't stay up there because interest rates will reverse now, after a big run up, led by the Fed curtailing its crazed goosing of interest rates over the last year.

Now, inventory is definitely down. And sellers have stopped selling. After all, they don't want to negotiate their prices down to make up for the higher mortgage rates. And those who to sell but need a mortgage in order to buy another house don't want to give up their 3% mortgages for the 7% variety.

The thing I'm not clear on is: If folks couldn't qualify for a mortgage to buy, how does light inventory change this? Banks' reluctance to grant mortgage applications won't change because there are fewer houses to buy.

But I do need to do a little more digging here to better understand the bull case.

For the bear case - that long-anticipated fall in prices - the argument says that some areas have already seen falling prices. And this will spread despite that light inventory because builders have stepped up construction and they've dropped prices to move their new construction inventory. And new construction activity has historically preceded wider market activity.

Again, I need to do a little more digging here.

So where do we go from here? It's anyone's guess, I suppose.