THE MARKET DOES NOT MAKE THE NEWS
Yesterday, we witnessed some pretty fascinating things that were reported on
bubble-vision. We were told how the equity market was rallying on the news that
(1) Bernanke was reappointed; (2) the first increase (0.7% MoM seasonally
adjusted terms) in the Case-Shiller home price index since May 2006 in June,
and; (3) the seven-point jump in the Conference Board's consumer confidence
index in August, to 54.1 — taking it all the way back to where it was .... in May!
Uncork the champagne.
NOT SO FAST
1. Bernanke reappointed
We really fail to see how it could possibly be that the same central bank official,
who, over a span of a decade, presided over two massive bubbles and their
busts, can be viewed as being a positive force for the markets. Perhaps there is
some solace in knowing that the same person who created this awesome and
complex $2 trillion Fed balance sheet will be around to dismantle the largesse
since he’s probably the only one that knows how.
2. The first monthly increase in the Case-Shiller home price index
As for the second point, there is a difference between a trendline and the noise
around that trendline. Home prices are down a massive 31% from their peak
and have been in a vertical-down pattern for nearly three years. Perhaps a
respite is in order, but with the true underlying unsold inventory near 12 months’
supply, which is double what would typify a balanced housing market, it would
seem like wishful thinking that we have suddenly achieved a fundamental low in
residential real estate values (especially at the high end).
3. The seven-point jump in consumer confidence in August
With regard to point number three, we welcome any rise in consumer confidence
but an honest appraisal of the data would show that 54.1 is still a very
depressed level. In fact, the average index level during recessions is 73.0 —
August’s reading was nearly 20 points below that. So, if the recession is indeed
over and done, somebody forgot to tell this 70% chunk of GDP otherwise known
as the consumer.
Now, what about Mr. Market, who is still in a most joyful mood. Well, the normal
level of consumer confidence in the month in which the S&P 500 is up 55% from
an oversold bear market low is 100. So, the stock market is behaving as if
consumer confidence is twice the level it really is.
Look — nobody ever said Mr. Market was rational. Why, look at October 2007
when the market was trying to come up with new and exciting definitions of
global liquidity. Little did Mr. Market realize that we were within two months of
the onset of the worst global economic downturn in 70 years.
What caught our eye in that Conference Board survey was the investor
sentiment segment. Those bullish on equities rose 8 percentage points to
36.5% and the bear-share slipped to 26.4% from 34.0%. That 10 percentage
point gap in favor of the bulls is now the largest since ... October 2007.
Something to ponder about whether or not you share our contrarian streak.
True Unemployment
2 hours ago
