Thursday, July 26, 2007

Some Late July Thoughts on Equity Markets

As I read the headlines of this week's business and financial news, and see the equity market averages see-sawing, one thing comes to mind.

It's summer.

Despite our advanced society and technological prowess, seasons matter. And in this season, many of the heavier-weight investors and traders are away for weeks during these prime two summer months.

Equity trading volumes are lighter. Analysis can be less insightful than even its typical mediocre level.

So, when events occur which move markets, the real reactions, those that count, may be weeks in the offing. Or never really materialize, as many deputy investment managers and traders simply keep the seats of their managers warm for a few weeks.

This week's housing-related news is a case in point. Sub-prime mortgages are simply not likely to bring the entire economy down. They were overdone, and badly done. By some mediocre, unwise lenders. Those originators and buyers will likely feel some pain.

Yes, it will cascade a bit to home-related companies, such as those engaged in furnishing homes.

However, it's unlikely to affect global economic growth very much. And large US companies are currently reaping the benefits of being well-positioned for primary construction and economic growth in many other countries, particularly in Southeast Asia and China.

On the whole, like last quarter, corporate earnings are coming in above analysts' expectations.

So, we will probably see equity price volatility continue to be high, as expectations are surprised. But the overall global trend for the next six to twelve months continues to look good.

At times such as these, I am happy that my equity strategy focuses on buying and holding, rather than frequent trading. Volatility is something that I watch my portfolio absorb, but into and through which I rarely trade.

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