Do we want good news or do we want bad news?
At this point in the cycle, with the Fed wanting to tighten like mad we definitively and sadly want bad news, we want weaker than expected data and we literally have to hope for a weak jobless number on Friday.
How did we get to this point? Because the stock market changed its coloration, or perhaps I should say its species, on two days in October, the third and the fourth. On the third as my friend Ed Yardeni accounts in his incredibly good Yardeni Report, Fed Chief Jerome Powell told Judy Woodruff on PBS that "the really accommodative low interest rates that we needed when the economy was quite weak, we don't need those anymore. At the same time Powell was quoted by CNBC as saying "interest rates are still accommodative, but we are gradually moving to a place where they will be neutral. We may go past neutral but we're a long way from neutral at this point, probably."
The next day? That's the day that Vice President Pence laid out our cold war battle plan versus China in a speech that I think could easily lead one to believe that we favor regime change in the Peoples Republic. The speech talked about how China is waging a multi-front campaign against our nation. "Beijing is employing a whole of government approach, using political, economic and military tools as well as propaganda to advance its influence and benefit its interests in the United States. "
This was the speech that laid out for all to see that there is a much bigger agenda than trade at stake. It's multi-faceted war. First there's the made in China 2025 plan that must be stopped. To quote Pence again: "The communist party has set its sights on controlling 90% of the world's most advanced industries including robotics, biotechnology and artificial intelligence."
He then talks about how we funded Chinese expansion with our trade deficit, propping up the Communist state's ability to tamp dissent, persecute religions and fund tyranny all over the globe. The speech is about containing the Chinese and stopping their desire for world hegemony and the only way to do it is to stop trade until they play fair or until they fall.
In other words, this speech might as well be called the Pence Doctrine and the doctrine is to stop commerce with China until this regime changes its ways, something that is highly doubtful, which makes more tariffs almost a given. In what's a new twist on an old interchange between James Bond and Goldfinger, Bond asks, "Do you expect me to talk?" and Goldfinger shoots back, "No Mr. Bond, I expect you to die." Yep we don't' want talks, we want the regime to perish.
If you go back and look at the turmoil that characterized this miserable month - at least for the bulls because it's been nirvana for the bears - it all started right then, a one-two punch we are still reeling from.
Now you can tell from the "action" that each day has multiple sessions: we've had three so far but the sessions are largely controlled not by the company reports but by the Fed and the president.
Yesterday we took a header when we heard that the president is going to slap tariffs on the rest of Chinese goods if talks between he and President Xi breakdown. If you ask me it was right that stocks got hit because if you read the Pence speech it's pretty clear that there is no way for Xi to give in to Trump's demands as outlined by Pence.
However, there should be a silver lining for the market: more tariffs means slower world growth which should cause the Fed to temper its enthusiasm - President Trump might say, glee - for raising rates.
Instead, though we have to deal with the fact that the Fed regards tariffs as inflationary - they make goods more expensive so there's only a negative reaction.
I want you to understand that every single piece of data is being scrutinized with this prism of good news/bad news where definitive weaker news now drives stocks up and strong news takes it down.
This morning we got the S&P Case-Shiller 20 city index and it showed a .1% bump, the lowest annual increase in 20 months. That's the bad news a bull should want. But just a second: the hawkish Powell could say houses have still advanced 5.5% over last year. A bull would counter that at this pace, with this trajectory, home prices will decrease next month. But a bear would say, we need to see that occur and even then Powell might not care because he does not want to be data dependent like his predecessor Janet Yellen. He wants to normalize rates although, of course, does anyone really know what normal is when central banks control most rates around the world and they are ridiculously low?
Sometimes it's become downright ludicrous. I saw Marty Mucci, the CEO of Paychex (PAYX) was on "Squawk Box" this morning and he said that the his proprietary business sentiment survey showed an uptick. "Entrepreneurs are more positive in nearly every aspect of business this fall compared to early summer."
Boo. Hiss. That's' not what we want.
But wait a second: the Paychex/IHS Markit Small Business Employment Watch numbers came out today and they gave us what we want Powell to see: "Hourly earnings rose .08 to 2.41 percent year-over-year, while job growth decreased .77 percent from a year ago." Ah ha, now think of what this means. Workers have gotten too expensive so companies aren't hiring as many people as they were.
But just a second, don't get too excited about the bad news: The Conference Board released data showing that its consumer confidence index rose to an 18 year high, going from 137.9 versus 135.3 in September. Score one for Powell's intransigence.
Hey, wait just a second, oil is plummeting, having one of its worst months in ages. If oil is going down so precipitously how can the economy be too hot to handle?
This battle plays out not just with big stats but also with small ones. What does it mean that Under Armour (UAA) had a much better than expected quarter and the stock rallies 23%. David Faber asked me isn't that a convincing bit of anecdotal evident that Powell could be right? But Carl Quintanilla came right back and pointed out that a lot of the strength was in international and I said that it was really a reflection that the bad inventory has finally cleaned up.
Oh, and who cares about UnderArmour when GE (GE) reports a staggering loss and cuts its dividend dramatically and its stock falls to levels not seen since the august period of April 2009.
Now let's sum this one up. What do we really want to happen if we want to be constructive toward stocks? We need definitively mixed data like we are getting. That allows Powell to raise in December and then give an ode to his processor Janet Yellen, simply acknowledging that the data is weak enough that while the Fed needs to be vigilant it doesn't want to reach the wrong conclusion about the strength of the economy and raise too far too fast so any plans to put through three rate increases next year are now on hold waiting for more clear cut information.
There's only one problem with this. Who wants to take his cue from some television wise guy? Ah ha, the final parry, don't you wish they had taken my cue 11 years ago when I shouted to the rooftops they know nothing because things were so much weaker underneath.
Touche, Mr. Powell, touche!