June 16, 2003
Uncertainty Times Greenspan Divided By Deflation Minus The Dollar
Other than last Friday’s COT report – which showed that commercial short interest on gold dropped by 10% after climbing by 13% the previous week (which is moderately bullish news for gold) – there is not many financial market brass tacks to elaborate on to begin the week. Rather, money market funds may soon cease to exist, the baboons are pounding their chests trying to suck some more liquidity into the markets, and the US economy is still waiting for either a slumping dollar, another Greenspan cut, a housing upsurge (X2), or an even more insane rush into stocks before it starts to solidly recover. Quite frankly, trying to make sense of what impact this collection of extraordinary events will have on the financial markets is next to impossible. In fact, trying to make sense of why stocks are not capsizing at this very moment following last weeks decline in consumer confidence is pretty much impossible. Lets be honest – the only thing remotely ‘fundamental’ about the stock market rally since March, save the better than expected manipulated 1Q03 earnings, has been the post-Iraq jump in consumer confidence.
* How can any bull that ignored what has been 3 months of horrible economic news because confidence was rising now ignore declining consumer confidence? Hope springs eternal – the Fed will cut interest rates next week…
In short, I don’t have a clue what is going to happen in the financial markets in the near term. Quite honestly, I can not recall a more perplexing marketplace. The moment bond yields begin to creep higher there is going to a groundswell of analysts saying ‘I told you so’ -- yet shorting bonds right now seems like a death wish. Similarly, when the equity markets capsize there is going to be bears coming out of the woodwork saying ‘I told you so!’ -- yet shorting stocks right now could be a death wish. Lastly, and unless recent fluctuations in the currency markets miraculously enter a period of perpetual calm, sooner or later there is going to be another run against the U.S. dollar that spooks investors. I am not exactly sure what the outcome of this run on the dollar will be…perhaps it leads to bond yields creeping higher and the stock market capsizing? Come to think of it, maybe I do have a clue…
Regardless, all that can be assured is that there are plenty of baboons:
A recent surge in volume “tells me people are coming off the sidelines and feeling more confident we’ve hit bottom. The greater risk is not being invested even though we're probably not going to have a huge shot up on the upside”
Paul Cherney, chief real-time market analyst at S&P MarketScope
Who are these ‘sidelined’ investors wadding back into stocks? Are they the same go-go fund chasers that got hammered during the bear market that have now finally acquired the courage and bankroll to forge back into stocks? Are they desperate state and corporate pension plans rolling the dice for a beautiful bull market so they can avoid default? Whoever ‘they’ are – their capital is banking on Greenspan. Illogical as it may seem, Sir Alan is the only logical explanation for what is going on a daily basis in the financial markets today.
* Greenspan must be on the ball since he lived through the Great Depression?
This Week
Following last weeks 0.3% decline in producer prices (0.1% rise when excluding food and energy), CPI will be watched closely this week for any signs of deflation. Again – keeping with the ‘I don’t have a clue theme’ – one cannot be certain of whether or not a high/low reading in CPI would have a negative/positive impact on the markets. The more negative the economic news is the more likely it is that the Fed will cut by 50bps rather than 25 bps (and this is good news for stocks?)
Weekly jobless claims remain important. Since the recovery story began being told in late March claims have yet to arrive below 400K. Other notables include the Philadelphia Fed for June, and the NY Empire State Index for June (which beat estimates to the upside this morning).
|
All data and information within these pages is thought to be taken from reliable sources but there is no guarantee as such. All opinions expressed on this site are opinions and should not be regarded as investment advice.
Copyright © 2000-2003. FallStreet.com