Monday, August 2, 2010

Ball of Confusion

With the Temptations tune playing in my head (Ball of Confusion, That's What the World Is Today, Hey Hey) I have to wonder who is more confused. Ben Bernanke who said today "consumer spending is set to sustain the economic recovery" right after last week's "unusual uncertainty." Or is it the market where once again we see a huge rally on no volume where most of the gain took place on the gap up open.  Volume as I write this today at 3:30 NYT is on pace to just beat out Thursday's and there was a doji that day!

How about commodities? Risk assets are suddenly back in vogue. Crude oil soared on sugarplums of recovery dancing in everyone's heads but ugly, challenged step sister nat gas scored a monster bear reversal. Did the dollar getting crushed do that? See my story in MarketWatch today on the euro's resurgence.

I've seen reports on the market now entering wave 3 of 3 to the upside. I've seen reports of deflation. Of Dow Theory buy signals. Of death cross sell signals all over the stock market. Of Moody's warning of a downgrade of US debt. Greece and some of it PIIGS friends are rallying. Japan is falling. China releases bad news and everyone says it is good news. The TED spread is tumbling.

Air pollution, revolution, gun control,
Sound of soul
Shootin' rockets to the moon
Kids growin' up too soon
Politicians say more taxes will
Solve everything
And the band played on
So round 'n' round 'n' round we go
Where the world's headed, nobody knows
Just a Ball of Confusion
Oh yea, that's what the world is today

Except for the rockets to the moon line, these lyrics could have been written today instead of in 1970. How about this? The next lines are:

Fear in the air, tension everywhere
Unemployment rising fast,


So is the stock market doing its own thing? Looks that way. Let's just remember our job is to figure out what the market will do and not what makes sense in the world. My market sense is that August is going to suck too many willing lambs to slaughter before September comes in like a cat 5 'cane.


Paul O'Cuana said...

The consensus now is for very slow growth but no recession and certainly no inflation.

This should give a bid to bonds but also to dividend yielding stocks.

Growth stocks still want to party but they haven't discovered yet that they're not even invited to the party.

The big money will be made betting correctly on how the consensus is wrong.

I'm going with recession.

Paul O'Cuana said...

"Personal incomes were also flat in June, compared with expectations for a 0.2% rise, as private wages and salaries fell." -MarketWatch

Falling wages, is that how deflationary spirals happen?

In the 1970's the inflationary spirals were caused by wage demands.
Incomes had to increase to match consumer prices which caused a rise in consumer prices, etc., etc.

Will falling wages and unemployment cause prices to decrease putting pressure on wages which leads to less demand and lower prices?

Quick Takes Pro said...

I am getting a very bad feeling about the stock market. Can't back it up with technicals but it seems that there is too much unfunded trust.

Will your ETF really be viable when you want to sell it? Do investors know that ETNs are just promises? Is government intervention going to help or kill? Will you really have access to your cash? What happens when trading algorithms meet black swans?