The Day Ahead: Pinning Down Your Identity

 | Jun 07, 2012 | 8:40 AM EDT
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Shhh -- keep quiet and sit real still. Do you hear it? If you listen closely, you'll hear a faint toot of a horn from a train leaving the nearby station. The sound is oh-so-alluring to those bulls who are always ready to gallop upon the back of the train, magically seeing "risk on" rallies while everyone is in "risk off" negative mode. (For the record, I hate the terms "risk on" and "risk off.") As for the bears, well, they are a mean and nasty bunch who hear no train horn, preferring instead to remain in their external surroundings, growling at bulls eager to leave town. If they do hear the air horns a-blowin', they are known to gather up their friends and throw themselves in front of that train in an act of self-sacrifice.

Have I lost my mind? Am I playing with a full deck? Only I hold the truth to those questions, but what I am attempting to do is to illuminate a couple of important things. First, I'm trying to tap into that sense of uneasiness that you now have, as an investor, having watched a 280-plus point Dow rise as you either sat 50% in cash or wondered whether to add to positions at a lower cost than the initial entry in early April. Now that I may have captured the essence of your present experiences, perhaps I can better help you to understand your identity as the market treks up an ant hill on unconvincing volume.

You must choose an identity, and do it today, because there are events that are about to occur that will be interconnected. They include the following: (1) Bernanke testimony; (2) the Federal Reserve possibly providing concrete numbers behind a new round of easing at its next policy meeting; (3) Spanish bond auction and weekend potential for action over in Europe; and (4) the upcoming Greek election, talk of which has receded into the background. (Anyone else think Italy is the next in line for Spain-type focus by the markets?)

Here's a quick outline of the bullish and bearish arguments, which may help you decide which identity defines you.

Bullish Arguments:

● Given the European Central Bank's lack of big-time action, coupled with an "are they living on the same planet" moment as it pertains to growth estimates, prospects can rise for a grander bargain that stomps out rising equity risk premiums across many sectors. (The premise here would be debt flare, or flares.)

● Australia's delightful gross domestic product number is an indication that China's growth will not sunset to the 6%-to-7% range, as predicted by the doom-and-gloomers -- otherwise known as the non-Steven Roach-ers.

● Fed chief Bernanke says to heck with very low yields on U.S. Treasury notes. He sees risk in growth and in tame inflation -- both in the hard numbers and within sentiment indicators -- and he will drill a new easing well to promote risk asset re-inflation.

● The Fed's Beige Book for May was actually the Green Book. It told us growth was steady, having shown no additional weakness from the first quarter, and it gave us a counterpoint to the negativity found in just about every other piece of macroeconomic domestic data in the past two months.

Bearish Arguments:

● The toxic seawater flowing onto the shores of second-quarter earnings season -- with warnings from Tempur Pedic (TPX), Fastenal (FAST) and Men's Warehouse (MW) that clobbered their stocks -- and this speaks to more than just company execution.

● I acknowledge that value of markets rises and falls in anticipation of news. However, there is zip, zero, zilch, nadda fundamental change in the debt-ridden European Union periphery countries, nor in a trend change in macro data flow. In fact, European data has incrementally worsened. #NoBottom, as Twitter folks would point out.

● Beyond the first line in the Beige Book that generates the most attention (the read is super dry), there were concerning aspects. First, there was the modest price inflation that screams "global slowdown." Second, there was the modest wage pressures that yells "second half consumer spending risk."

Since this morning read was self-created, I have developed my own identity. It's called the "BearBul." Note the precedence of Bear and the missing final "L," both of which are shows of disrespect to the bulls. But, seriously: I want to see more volume, stronger bases and more evidence that the Fed is not jawboning markets. Most important, I want to see definitive action by EU policymakers. Give me something so we can punch the "on" button in stock-picking.

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