I’m thinking that my eyes are playing tricks with me. Did I really see a two sided market last week? I have to stop doing mind altering drugs (just kidding). It was a refreshing thing to see that the market does actually have two sides to it. Friday’s rally really threw me off. Especially after seeing the President come on television and talk about bombing Iraq and the insurgents. The futures markets were down a good amount. Friday morning I woke to find that the futures were up in the morning and the US had bombed Iraqi insurgents with 500lb bombs.
Now, the President did say that we will not bring our troops back into Iraq on Thursday night, but I read in the paper that Saturday the President said we will bring in troops to fight and get the Iraqi army to be able to defend itself. Apparently ISIS has over run most of the Iraqi military and taken over most of the country. And these ISIS insurgents are now attempting genocide on the Christian population of Iraq. I’m all for protecting people, and I’m glad that the President sees fit to take on these bully’s. I never believed for a minute that we wouldn’t have troops back in Iraq tho.
The Middle East has been fighting for thousands of years. Why do people believe that they can bring peace to that region of the world? Anyway…I digress.
What confounded me about Friday’s trading was the large rally in the equity market. We did have a huge move up in the bond market, as one would expect given that it is a flight to safety. But to have people pile back into equities while pile into bonds was very confusing. I posed the question to myself. Is the bond market telegraphing that there is much more downside coming to the equity market, and people are just getting ahead of that move? My answer to said question was, yes. I think with the recent, large, up move in the bond market it is showing us that there will be more volatility in the markets to come.
I sent a message to a friend of mine (former CBOE trader) that Friday was the hook to sucker in the widows and orphans in the market as the last leg of people sitting on the sidelines get involved in this bull market. Now, I was joking about getting widows and orphans in the markets at the top, but my point is that it appears that they are trying to hook the last bit of John Q. Public in the markets at the top. Which we all know how that story ends.
My hope is that the volatility continues and we really start to see some acceleration to the downside of this market. I was looking at the business section of the paper this morning (Sunday for people not checking the date) and on the front page of that section it was showing how the markets have been selling off big and the DOW is down 0.14% for the year. You did read that correctly. 0.14%, not 14%, not 1.4%, but 14 1/100ths of 1%. Oh crap, the sky is falling. They also said that the Nasdaq is down 2.6% from its high and the S&P500 is down 2.8% from its high…not for the year…from the absolute highs made recently. I swear, if we get any real sell off, these people will be bleeding in the streets with a mere correction of 10%. I really hate these alarmists.
Coming up this week week we have no economic reports for Monday.
Tuesday we have the NFIB small business survey. We also have the Federal budget numbers. I wonder if they will include the extra costs of a new war in Iraq (sarcasm).
Wednesday we have retail sales with a flat estimate from the previous month. Along with that we have business inventories showing a forecast of a build that is less than the previous month.
Thursday we have our weekly jobless claim numbers. Last week we had a surprise drop of claims down to 289K from an estimate of 305K. It also looks from the estimate that import prices will be rising. I wonder how that factors in to the Fed’s assessment of inflation? (a little poke at Janet Yellen for thinking there is no real inflation).
Friday we have the Producer Price Index with signs that the cost to manufacture goods is not jumping up. Consumer sentiment numbers will be in full view as well, showing the forecast of 82.4 which is 0.6 better than the previous month. Obviously we have people more optimistic of the economy. That is interesting since I just had another friend laid off of work, my good friend in the real estate world who is busting his butt just to try to get business, and another friend seeing business at his company drop. There are a lot of complaints (other than my friend in the A/C business who is running ragged with the hot weather).