Thursday, August 20, 2009

Logic Need Not Apply

Another just unbelievable day. Large increase in jobless claims and the market ignores it. What may be even more surprising is the huge increase in deliquencies reported by the MBA setting yet another record and today's rally is being fueled by financials. Just doesn't makes sense from any fundamental standpoint but it has been this way for the last 200 to 300 S&P points.

I said in a post earlier after Monday I was putting 50 50 odds that the top was in. I have been calling for a top by the end of September and I am still calling for that top but the probability that the top was in has to have dropped. It is the way of probabilities. There has been absolutely no follow through from Monday's sell off despite dismal economic data. The really "bullish" data should be coming tomorrow and next week. As a result I think probabilities that the summer top is in probably have dropped to 20%. Tomorrow is existing home sales. That should surge and beat expectations. Next week is the Case Schiller Home Price Index which also should be very strong along with a whole slew of manufacturing data from July which should be the peak of the data. I was hoping we would have some additional follow through from Monday's sell off to give a cushion to when this data comes out. Yet the market has powered higher and so now setting up for yet a probable additional high.

How the market can be up today on dismal data for arguably the two most important economic metrics for the market, jobs data and mortgage delinquencies, is beyond me.

The absurdity of it all.


The Duke said...

Maybe all of the new saving America is doing is causing an increase in cash to equities despite any news that would typically move the market. People sure as hell aren't putting it in real-estate, and most know better than to put it under their mattress. Just a random thought.

Market Seer said...

What your describing indirectly is exactly what is going on. It isn't savings, it is liqudity that has flooded the markets from the Fed. Liqudity drives bubbles. The governments world wide have flooded the markets with liqudity. This is also why I have believed the top will be August or September. There is a six to 9 month lag for the liqudity injection to have its full impact on the markets. The Fed's balance sheet peaked last December. The composition has changed but the Fed's balance sheet has actually shrunk slightly since then. August marks the 9th month. I personally think you are already seeing that in China. The emerging markets are the liqudity canary in the mine. That is why they have the last couple of years faltered first and rebounded first.

The liqudity bubble could go on longer than I think but I still think by the end of September we will be done.

Carol said...

Increase in jobless is very bad criteria it needs help!!
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