Equities Ignoring Negative Data is Cause for Concern

This has been the trend over the last week - bad economic data comes out, yet the market plows on onwards and upwards. Last Friday, Univ. of Michigan Consumer Confidence disappointed by a point and a half (72 vs 73.5 expected). Ignoring that completely, the SPX rallied hard, investors choosing to focus on the positive but heavily engineered JPM earnings instead. It was a similar story when July Retail Sales printed a dismal -0.5% on Monday vs +0.2% expected.

The market tends to ignore bad data points in one of two situations. It does that at the bottom of long bear markets, under heavily oversold conditions,

RBA Says Enough Is Enough

The Reserve Bank of Australia published the minutes of its July 3rd Monetary Policy Meeting (at which they left the overnight rate unchanged at 3.50% - which was market consensus at the time). After presenting various reasons that the economy is slowing but not catastrophically so, that inflation is contained and will probably continue to be for awhile, the RBA concludes that the previous cuts that have lowered the rate from 4.25 to 3.50 in the space of half a year should be enough to stimulate the economy in the near term.

Given all the uncertainties about China's response to their slowdown, the future path of the European crisis and the recent slowdown in the US, it does make sense to not shoot all of their bullets at once. 

Market Musings - EUR, China

Using the time-honored headline test, this may mean that the Euro's woes are coming to an end. Technically the chart appears to be stabilizing as well. In addition, the market's focus is shifting to the inconsistencies in China's economic statistics, leading some to believe that the whole data set is actually the product of the propaganda department and not the National Statistics Bureau. Efficiency must have really improved enormously if the zero growth in electricity consumption is indeed correct, given that GDP growth was +7.6% annualized.

The Job Numbers Were Bad - But Apparently Not Bad Enough

On Friday Non-Farm Payrolls for June showed an increase of 80k versus a (revised upwards) expectation of 100k. Not surprisingly the stock market sold off on the news, but eventually closed less than 1% down on the day. The US economy is growing very slowly but it is nevertheless growing. Which in some sense is a bad thing, as it means that Big Ben will probably not have an opportunity to come to the rescue with another round of Quantitative Easing.

Will the Fed Sink the Stock Market?

OK, this headline was probably guilty of deliberate catchiness. Of course the Fed will not sink the market. But Wall Street's easy-money addiction might. Relying on "Big Ben" to save the day  has become an instinctive thought process on Wall Street ever since the launching of QE2. When bad data comes out, it is taken as a positive development, because it just might be the last straw that pushes the Fed to action.

Well, not so fast. While everyone would agree that the trillions of dollars printed by the Fed

A Famous Investor Falls for Confirmation Bias

It is human nature to selectively focus on the evidence that supports one's position and to ignore the rest. This is a layman's explanation of what behavioral psychologists refer to as "confirmation bias". It is also a very common reason why inexperienced traders lose money - they get "married" to their position and hold it long past the point at which their reason for entering it has lost validity. 

In his CNBC interview Financial ‘Armageddon’ Will Happen Despite EU Deal Jim Rogers holds the view that despite the large one-day rally, the agreement at the EU summit on Friday is

Commodities Super-Cycle Revisited

Back in January we wrote a post highlighting that money has now started exiting commodity funds for the first time in the past ten years. (See Commodities Super Cycle Reversing Course.) This event has proven quite significant, as can be seen by observing the price action of most non-agricultural commodities this year. Gold and Oil are down significantly year-to-date, despite continued calls for a rebound by commodity bulls.

It is quite clear that something fundamental has changed. For example Oil is still very much correlated with equities, but despite Friday's massive bout of short-covering, it tends to go down