Monday, August 2, 2010

Bizarro Market & Nikkei Redux.

The more the economic data gets worse the more the market rallies.

Today it was the ISM Manufacturing that disappointed.

Manufacturing slows in July for 3rd month

Now obviously its all in the spin and expectations. Why the market is rallying on this you ask? Simply, PhD economists who always get forecasting wrong - surprise got it wrong once again  as the ISM was better than expected although it has dropped three months in a row. New Orders and Backlog both fell for the month. Bottom line to this, while the ISM remains firmly above the important 50 level, just 10 of the 18 industries surveyed reported growth with 4 reporting outright contraction. The market is in rally mode at the moment as futures have further ramped since 10am.

In case anyone is paying attention, this is what we have:

-Consumer Confidence has taken a nosedive.

-US Trade Deficit unexpectedly worse as the export sector has taken a hit.

-Retail Sales weak.

Do I need to go into housing and jobs?

But the market is ramping on one word. STIMULUS.  The good ship QE2 has already left the docks.

Last week there was speculation that the Obama Administration was close to announcing a program that would allow homeowners (That are current in obligations) a way to refinance mortgages and replace them with market interest rates. This would automatically bring in $30B in consumer savings.

So there you have it. As the economy gets worse, the government will just throw more money at the problem, temporarily lifting stocks.

This is the same ludicrous behavior that has been happening in Japan over the last twenty years.

The Nikkei topped out at near 39,000 in early 1990. All the way down to its current level of 9600, the Nikkei has enjoyed many 50-60-70% moves to the upside over the last 2 decades. Every one of these moves got Japanese investors excited. Each time new lows were made and equities were liquidated. Japanese 10 year treasury yields have plummeted to near 1% as many in Japan have given up on the Nikkei. US investors have a similar fate ahead ahead of them as the Fed/Treasury continue to toss money at the problem, temporally getting many excited, but at the end of the day it will all end in tears.

To quote Chris Rock...

"There Is No Sex In the Champagne Room"

Especially for US Stock Investors.

No comments:

Post a Comment