Good morning! Markets are tumbling around the world.
The news is so bad out there, it is hard to find something positive to write about here.
- Not only was there absolutely no progress on any kind of “deal” but on the Sunday shows, John Boehner insisted that the U.S. was on the “path” to default if Obama refused to negotiate on the debt ceiling, which is something Obama has absolutely refused to do.
Blah. Blah. Blah. Speaker Boehner is throwing around scary language because that is what serves him best right now. After all, he wants to keep his speakership, which means keeping his ideologues salivating, at least until the authorities round them up and make them behave.
- Now Boehner’s rhetoric, to some extent, might be just red meat for his right-wing base, but the market doesn’t like this kind of language.
On top of the bad news coming from our 24-7 media, the financial media is also letting out the crazies, because there is nothing like a crisis to sell the “news.”
- At the end of the day, companies in the U.S. economy are really not selling more. They are just cutting costs.
Okay, if the above is true, what does one do with auto sales increasing year-over-year, housing sales (new and old) increasing year-over-year, and retail sales increasing year-over-year? All the aforementioned sales, along with cutting costs, in fact, are pushing corporate profit. So, the message here is be careful about who you believe in the financial media, because more than a few of these folks, no matter how learned they seem, are misleading, mistaken, and often just saying stuff to make their case.
As well, one must also be careful of “stories” about historical correlations in the market. They too can be just as misleading as the financial writers and talking heads. Although the correlations might seem to work mathematically, never forget the “market R us” and that means humans are unpredictable.
- A story that ran in Bloomberg on Monday said the movement we see in the S&P 500 now is an almost exact duplicate of what we saw in 1954—a year in which the S&P 500 rose 45%. The research found that the S&P 500 is moving pretty much the same on a day-to-day basis as it did in 1954. The correlation coefficient (a statistical measure that looks at the movement in two variables) is 0.95. The maximum you can have is 1. (Source: Bloomberg, September 30, 2013.)
So, given all of the heat in the market today, it might be wise to keep on the sidelines and wait for the hot wind to blow through. Make no mistake, there is lots of hot wind still to blow.
Trade in the day; Invest in your life …
