It never ceases to amaze me how rapidly market sentiment can shift. Last week was a perfect example; from ‘Fear and Loathing’ at the beginning of the week to a “Calm sea and Prosperous Voyage” at weekend (May 23, 2014). Of course, when this happens it is usually the media driving the train, picking news items and guru pronouncements, magnifying them and obsessing on them.
The week before, sharp weakness in the small cap and momentum sectors created fears that this weakness would spread to the large caps of the S & P. This was amplified by cautionary comments from the likes of hedge fund guru, David Tepper. Layer on the fear generated by the spike upward in long treasury prices, pushing the yield on the ten-year note below 2.5% (It closed this week at 2.54%). This flight to safety brought fears that there was something lurking out there that might be ready to tank the economy, or that the economy was much weaker than we thought and was heading back into recession. This was the backdrop as we moved into last week when the market and media were confronted with comments from New York Fed President, Bill Dudley, and Philly Fed President, Charles Plosser. Neither said anything new or varied from their past positions, but the media and market focused on the negative implications of each comment. Dudley (the dove) said he expected rates to remain low for a long time (presaging a continued weak economy). Plosser (the hawk) urged a more rapid withdrawal of Quantitative Easing (which would weaken an already perceived soft economy).
Speaking of Recession
Here is an interesting clip featuring Doulas Borthwick, Head of Foreign Exchange at Chapdelaine (Tuesday, May 20. 2014), who claims that the U.S. is already in recession. (Borthwick Bio)
If this exchange does not bring a smile to your face, I guarantee that the next clip from CNBC’s “Closing Bell” (Wednesday May 21, 2014) will. It features anchor, Kelly Evans, actually doing her job, going after perma-bear, Abigail Doolittle (Founder, Peak Theories), on her consistently bearish (consistently wrong) market call. This is followed by always-bearish, always-wrong and always-obnoxious bond maven, Rick Santelli, going after another guest (who has been right) for being wrong (at least, up to now) on the possibility of a “great rotation” out of bonds into stocks. Seriously, Santelli is so rude and looks so stupid in this exchange, I am surprised CNBC allowed it to be part of their video highlights.
Birinyi believes “we are in the last stage of a great bull market…it’s the exuberant phase.” Sommer adds, to paraphrase Birinyi, “Yet investors aren’t acting exuberantly, which is good, he says, because the long rally underway since 2009, is likely to end only after the party becomes dangerously wild. From that perspective a dose of sobriety is salutary, a good sign. It suggests the bull market has plenty of room to run.”
Here is one last quote from the article, which is worth your time to read in its entirety: “Most of what passes for news about the market is noise.” I wholeheartedly agree!
What do you think?
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