“Let me take my chances on the Wall of Death”
– Richard Thompson
The common adage has most every rally climbing a wall of worry. “If I buy now, I might get crushed for the fifth or sixth or seventh time in the past 10 years… but if I wait, the market might run on me, and I won’t see a decent entry price like this for years to come…”
An astute observer can easily see how Wall Street and Washington have been trying to push investors toward the latter position. For the past few weeks, we have heard endless examples of lagging corporate profits and failing economic numbers spun as “better than expected” buying signals.
Sometimes the stories are completely contradictory – like when the Fed claims one day that it has to pump out more cash so we can start adding jobs, and the next says not to worry about all that excess cash crashing the dollar, because the lack of new jobs for the foreseeable future will keep inflation under control.
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“Well You’re Going Nowhere When You Ride on the Carousel”
The lyrics come from a wonderful song – “Wall of Death” by Richard Thompson, a songwriter and master guitarist out of London’s Notting Hill. Several of Thompson’s lines are more apt descriptions of the current situation than anything I could gin up on my own.
For example, for the past year or so, United Parcel Service (UPS:NYSE) management has sworn up, down and sideways that they would make their annual nut. Didn’t matter how badly they fared with each successive quarter. They would still spin out some yarn as to how the market was stabilizing and the next quarter would be soooo good, the company would up profits in the end.
So far, it has not been working out too well for them... or for the investors who have drank their Kool-Aid. As a result of all this smoke and spin, UPS earnings surprised to the downside by -2.4% last December and by a whopping -7.1% last March. By the time the dust had settled, shares were off their highs by some 57%.
Climbing the Wall – Again
Now, for the past few weeks, UPS shares have been rising again as anxious bulls fling themselves madly at the wall of worry: “Washington and Wall Street keep saying that the situation is stabilizing. What if UPS declares major gains, and I miss the boat?”
The mere thought of getting out of the gate late had buyers in such a tizzy, they drove UPS shares up more than 15% over a few short trading days. And then UPS announced that, once again, they were in the soup. Volume was down 4.6% in the U.S. and 5.5% globally. Revenue was down 17% – far below the levels investors had been led to expect. And profits were down more than 49% quarter over quarter.
One could certainly understand why UPS shares fell like a rock when word of this debacle began to circulate. What is a tad harder to wrap one’s mind around is what happened next...
The End Is Nigh – and This Time We Really Mean It
In an effort to stem the bleeding, Chief Financial Officer Kurt Kuehn claimed: “Declines in both our domestic and international businesses appear to be stabilizing.” Now even Kurt couldn’t just say such a thing with a straight face, so he added a bit as to how volume would remain significantly below last year’s levels.
Not to worry friend Kurt! Despite seeing such promises like that broken month after month, investors jumped back aboard, and drove UPS shares back up to a new multi-month high.
Down 2%, up 2%… all off the same set of really rather miserable facts – heck, all in the same damned 6 ½-hour trading day!
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“You Can Go With the Crazy People in the Crooked House”
This isn’t about worrying, folks. One might worry that the economy isn’t growing fast enough. Despite billions in stimulus spending, this economy isn’t growing at all.
One might worry that the central bank’s plans might not be adequate to the task of husbanding our nation’s currency. St. Louis Federal Reserve Bank President James Bullard has publicly warned that the Fed has no such plan in place, and no plan appears to be forthcoming anytime soon.
One might worry that corporate profits aren’t climbing at an adequate rate to support the rise in share prices. Most every report I read indicates down in the very fine print that corporate profits have been falling and will continue to fall like cartoon anvils.
This is not a wall of worry.
This is a wall of death.
Sincerely yours,
Adam
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