Long a part of Wall Street lore, the Wall of Worry is a quick, handy way to gauge the emotions of investors. As interpreted by money manager Lloyd Khaner, a low wall, with seven or fewer blocks, indicates a complacent, even overconfident market: Time to take profits. A high wall, with 15 or more blocks, suggests a squeamish market: Look to buy at bargain prices. In the middle range, reading the wall gets tricky; knowing not only where the wall stands but whether it’s headed up or down is the key.
this month’s wall:
The verdict is not yet in: June gave us either one heck of a correction or the start of a bear market. The Wall rises for the second straight month as the three-way tug-of-war between inflation, interest rates and an unpredictable economy continues to create a whole lot of uncertainty for the markets. Despite the violent rally at the end of the month, stocks are getting cheaper as multiples contract, but we’re not exactly looking at a flood of bargains at this point.
The worries
1. U.S. economy: If it’s so good, why do we all feel so bad?
2. Interest rates: Coordinated global credit tightening is squeezing
liquidity out of the financial markets. Bye-bye, punch bowl.
3. Inflation: The Fed promises a fight to the death, and it may be more than jawboning.
4. Oil prices: Decomposed dino-saurs, a.k.a. fossil fuels, are once again taking the blame for the world’s many ills.
5. Consumer spending: If we’re workin’, we’re spendin’, but our monthly nut is bigger, so there are fewer extra goodies for now. Bummer.
6. Housing prices: Can a bubble deflate? Unfortunately, we may be about to find out. P.S. Rents are going up.
7. Iran: Playing its cards masterfully, but if oil prices drop, look for a quick cash-out.
8. Corporate earnings: Paranoia will destroy ya. Good numbers may not be good enough, and bad numbers could prove ruinous.
9. U.S. dollar: Much maligned. Maybe its new PR team, Paulson-Bernanke, can help.
10. Volatility: Itchy trigger fingers are ready to pull out fast, as a “the-bear-ain’t-gonna-get-me-this-time” attitude takes hold.
11. Emerging markets: Buy the dips... or are the dips buying?
12. Stock option pricing: The scandal du jour has the potential to trap more companies in its web than any other to date.
Looking ahead
Stagflation: Economic purgatory.
Hurricane season: It will be the most closely watched in U.S. history. ESPN coverage is not out of the question.
Trade deficit: No one’s buying our new stuff, so we’ll just keep selling them the old. Now on the block: Route 66, opening bid $2 billion. Deal or no deal?
North Korea: Wants attention, needs money. A global payoff should suffice.
Midterm elections: Let the mudslinging begin!
