Deciphering Data on a Dreary Day

 | Aug 19, 2011 | 7:10 AM EDT  | Comments
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Stock quotes in this article:

mcd

First things first: An enthusiastic two thumbs up to fellow Real Money columnist Alan Farley, who made this observation in a Columnist Conversation post yesterday:

"Realize that many folks telling you it's a buying opportunity don't understand just how bad things are on Main Street, because they don't live on Main Street."

That very statement gets to the heart of the matter of trying to learn whom to trust (and whom not to trust) when the market is up and down like a seesaw, and was at the root of my column one week ago in which I said the bottom calls were "hasty."

There is a decoupling in the brains of many market mavens holding court with a 25-person committee in New York, after a trip during lunch to the Saks flagship store, and the real-life economic data here at home that are heavily influenced by real-life human beings -- that is, Main Street. Sure, that Saks store may be packed to the brim, but it will mostly be with foreign tourists who have made hay at the currency exchange booth at the airport and the well-to-do members at committees at other companies.

Keeping the discussion domestic, the market is bearing the brunt of Middle America's debt hangover from 2008 (household debt as a percentage of income is roughly 112%, 28 points higher than the 1990s) and a still-difficult job market. Sprinkle each of those factors with a chemical known as EU, and the endless drip of super-subpar macro data becomes self-sustaining. Initially, we had economic readings that were narrowly missing consensus, but in few weeks' time, huge drops from previously weakening trends have arisen. From bad to worse, basically.

I reiterate that although the selling may appear to be overdone, it's not until some degree of clarity is brought to the EU contagion and our data shift from worse to bad and then to incrementally good. In the meantime, the jittery market is left to decipher a Philly Fed report that contained no silver linings.

Observing the Adjectives: August Philly Fed

The topsy-turvy session was not a function of Morgan Stanley's downgraded viewpoint on FY11 GDP growth (I still think the revised numbers in the report are too lofty). Rather, it was the market being sucked back into reality after dead-cat bouncing, a reality dominated by continued souring economic data and stronger cautionary tones on second-quarter earnings calls. The market is in adjustment mode, trying to find its happy medium of properly discounting future negative outcomes to the point that makes stocks too attractively valued to ignore. How the market deciphered the August Philly Fed:

• "Much" weaker: As if weak was not enough, time to cliff dive
• Dropped "significantly": Suggests material change in conditions, swift
• Declined "sharply": See above
• "All indicating declines": If you are looking for sun, better bring the umbrella

Small, but Telling Minutiae

• The 10-year yield breached 2% yesterday. Investors are more concerned with capital perseveration than ringing the register by assuming greater risk.

• Dow Jones Utilities Index is only down 1.89% since the Dow Transportation and Russell fell below their 200-day moving averages on Aug. 2. Boring utilities stocks holding up well on a relative basis are saying there has been an alteration in the macro picture that the Fed may not be able to solve this month at Jackson Hole.

Key number to watch: S&P 500 11 month low of 1,119.46 hit on Aug. 8. I think McDonald's (MCD) has to be on the radar screen.

No positions.

Deciphering Data on a Dreary Day

 

 

First things first: An enthusiastic two thumbs up to fellow Real Money columnist Alan Farley, who made this observation in a Columnist Conversation post yesterday:

"Realize that many folks telling you it's a buying opportunity don't understand just how bad things are on Main Street, because they don't live on Main Street."

That very statement gets to the heart of the matter of trying to learn whom to trust (and whom not to trust) when the market is up and down like a seesaw, and was at the root of my column one week ago in which I said the bottom calls were "hasty."

There is a decoupling in the brains of many market mavens holding court with a 25-person committee in New York, after a trip during lunch to the Saks flagship store, and the real-life economic data here at home that are heavily influenced by real-life human beings -- that is, Main Street. Sure, that Saks store may be packed to the brim, but it will mostly be with foreign tourists who have made hay at the currency exchange booth at the airport and the well-to-do members at committees at other companies.

Keeping the discussion domestic, the market is bearing the brunt of Middle America's debt hangover from 2008 (household debt as a percentage of income is roughly 112%, 28 points higher than the 1990s) and a still-difficult job market. Sprinkle each of those factors with a chemical known as EU, and the endless drip of super-subpar macro data becomes self-sustaining. Initially, we had economic readings that were narrowly missing consensus, but in few weeks' time, huge drops from previously weakening trends have arisen. From bad to worse, basically.

I reiterate that although the selling may appear to be overdone, it's not until some degree of clarity is brought to the EU contagion and our data shift from worse to bad and then to incrementally good. In the meantime, the jittery market is left to decipher a Philly Fed report that contained no silver linings.

Observing the Adjectives: August Philly Fed

The topsy-turvy session was not a function of Morgan Stanley's downgraded viewpoint on FY11 GDP growth (I still think the revised numbers in the report are too lofty). Rather, it was the market being sucked back into reality after dead-cat bouncing, a reality dominated by continued souring economic data and stronger cautionary tones on second-quarter earnings calls. The market is in adjustment mode, trying to find its happy medium of properly discounting future negative outcomes to the point that makes stocks too attractively valued to ignore. How the market deciphered the August Philly Fed:

• "Much" weaker: As if weak was not enough, time to cliff dive
• Dropped "significantly": Suggests material change in conditions, swift
• Declined "sharply": See above
• "All indicating declines": If you are looking for sun, better bring the umbrella

Small, but Telling Minutiae

• The 10-year yield breached 2% yesterday. Investors are more concerned with capital perseveration than ringing the register by assuming greater risk.

• Dow Jones Utilities Index is only down 1.89% since the Dow Transportation and Russell fell below their 200-day moving averages on Aug. 2. Boring utilities stocks holding up well on a relative basis are saying there has been an alteration in the macro picture that the Fed may not be able to solve this month at Jackson Hole.

Key number to watch: S&P 500 11 month low of 1,119.46 hit on Aug. 8. I think McDonald's (MCD) has to be on the radar screen.

No positions.

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