I feel better today. The crankiness that has pervaded my mindset recently seems to be fading. The market is behaving better, if not more rationally, and that helps. Although the market behaving better is not a sign that the volatility and the wackiness is over, it is a sign that it is beginning to see reality again, at least for the moment.
Speaking of volatility, one good sign that the market is becoming sane again is the VIX. Currently, it sits in the 16-17 range, just where I think it should be because that speaks to not to the Goldilocks notion of not too hot, not too cold, but just right.
Another good sign is the talk about the Fed tapering QE is no longer the talk du jour of the breathless media. That topic is so not hip anymore. Unfortunately for the breathless media, it lacks another fearful storyline to replace the Fed/QE boogeyman. It almost had China’s supposed credit collapse to peddle, but that faded as soon as the market realized the breathless media came in too hard and too fast on that one.
Still another positive sign the market might be coming back to reality is what happened when the market began flipping out a couple of weeks ago.
- Investors have sold Treasuries after Fed Chairman Ben Bernanke signaled last week that the central bank will start “tapering” its bond purchases later this year.
Interest rates rose because investors fled bonds in droves. The question is: where did the money go and where might it go?
Currently, it seems much of that cash is flowing back into equities, as the market has had three and maybe now four good days, but there is still plenty more out there. Gold is not a recipient of the money flow, as it appears headed toward a floor well under $1200. Oh, by the way, I have been writing about the fall of gold for some time, long before it became fashionable to do so. I have argued since gold sat at $1900 the price would not go to $2,000, much less $5,000 and that it would drop as soon as the market realized inflation would not go crazy and that the recovery in the US economy was quite real. My point, aside from giving myself kudos, is both realities are now firmly planted in the back of the market’s mind, and the money flowing from bonds will probably end up in equities, no matter what happened recently with the panic trade, and no matter what Bill Gross wants you to think.
- Bill Gross, the manager of Pimco’s Total Return bond fund said the U.S is much further away from a recovery than the Fed is currently predicting and the 2 percent inflation target is a “distant shore.”
I understand why Mr. Gross is pushing the fear again. His bond fund is hemorrhaging clients, so he needs to tell them something, but his words ring hollow when one looks at reality.
- Consumers spent more at retail businesses in May, buying more on cars, home improvements and sporting goods. U.S. factories are fielding more orders.
- Higher home sales and prices are signaling a steady housing recovery.
- The number of Americans seeking unemployment benefits fell last week. The four-week average declined 2,750 to 345,750. That’s near the five-year low of 338,000 that the average touched last month.
The spring swoon appears to be over. As we head full bore into summer, the consumer is gaining confidence, which suggests more money flowing back into the economy, which leads to good things in all ways, including the market. Expect the summer market to be unlike summer markets in the recent past. In fact, the market could be a victim of global economic warming. Yes, I believe in global economic warming. I am not one to reject facts in favor of charts and other such non-fundamental thinking. In that light, the market summer could be one of the hottest on record.
- Several American firms, including Caterpillar, GE, and Ford, have announced they’re shifting some manufacturing operations back to the United States, mainly because of increasing production and energy costs overseas.
- Since January of 2010, the United States has added 520,000 manufacturing jobs, according to the Bureau of Labor Statistics. There are currently 12 million manufacturing jobs on record in the United States.
The world is changing; the US economy is changing, and even though the market falls prey to non-reality now and then, in the end, the facts on the ground affect corporate profits and those are the life-blood of the market. Hang in there. Keep looking for bargains and opportunities, as they are surely out there. Think technology …
Trade in the day; Invest in your life …
