I awoke this morning in a lousy mood. Not sure why considering the sun is out and I had a relatively stress free sleep (given my current flat positioning in the trading portfolio - aside from the volatility exposure which has not been profitable....yet). Could it be the dinner I had last night? Nope. Could it be the underperformance of my investing portfolio versus the market? How about the burned english muffins? Nope though that did not help in setting the tone. The reason that I am in a dour mood is simple: I listened to the radio while on the road yesterday and watched the news on the bubblevision last night!
Huh you might ask? Well the sentiment everywhere on the economy is so bad. Ever since the flash crash, the economy has been wavering and the economic stats, at least on the headline basis, have missed or basically inline with the consensus...not big beats for the most part. And when there is a miss, get out of the way if you are a long holder of stocks! If there is a beat, such as the claims figures last week, it is shrugged off as an aberration. And this negative sentiment is not only in the biz world but also on the many other news stations - skeptics are many and believers are thus few!So in watching these news outlets and listening to them on the radio, I can't help but be on edge!
So when the press gets me into a bad mood, I go to the tape - and the tape for me is my many models for the markets. First, my net econ activity model is leveling off after a solid 2yr run (it turned up in late 2008). The CEO index jumped in August leading to an upward bias on the corporate side of things but in terms of small biz, sentiment is stuck in a rut...not really getting worse but a good deal of nothing being the current situation. If you look at the monetary conditions, there is some reason for optimism as loans and leases on bank balance sheets is turning upward. MZM is rising a bit at the moment and the multiplier appears to be stable. All in all, not double dippish but not runaway growth either.
And there lies the problem. We are not growing at the great rates of the last century. And with slowing growth comes less job creation comparatively which means that unemployment rate will take longer to fall than in the past. This will continue to put consumers on edge and spending and growth will remain mediocre. All in all, the speed of the recovery is the problem. If it were faster, then the consumer would be consuming and CEOs would be hiring.
This negativity has moved into the stock market as well. Everyone is a bear because corporate earnings "are supposed to sink" according to ______ (pick any bear which there are many). As a result, "stocks will fall off a cliff once again!" Another popular thought. We have too much debt and not enough fiscal constraint - yet another argument for the bearish argument. And now econofrauds such as Roubini and Rosenberg, both of which have permabearish slants to their arguments, are saying that the stock market is going to fall "x" because of these economic problems. These are the guys getting the headlines these days - and the reason sentiment is so lousy.
This all contributes to the continued bubble in bearishness which has lived with us ever since the bubble in stocks popped in 2000. And as long as the variables remain weak, headline wise, the econofrauds and the permabears will put forward persuasive arguments why we should fall - just as the Blodgets of the world argued way back when that AMZN should trade to $1000 and QCOM to $800. And just as the bubble in bullishness lasted a few extra years last decade with sharpe moves upward followed by "death by a thousand cuts" down, we are now in the opposite environment. Long methodical moves up and quick ones down.
Problem is the sensational is the move that is quickest and till the variables change, the radio and the television will continue to focus on the negative and ignore anything to the contrary. And that will probably lead to more burned english muffins in the morning....at the same time, it should lead to a continued bull market - sell when things get positive!
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