Home > Uncategorized > The Market Grows Thinner; I Do Not

The Market Grows Thinner; I Do Not


As the year grows older, it gets more and more difficult to attribute market moves to particular motive forces. In thin conditions, a particularly motivated buyer or seller can mean a lot more than flows from investors who care about, say, the economic data…but who don’t have the desire to increase risk at this point of the year.

So I resist the inclination to read too much into the fact that Housing Starts, Initial Claims, and the Philly Fed index were all stronger-than-expected today but the bond market and stock market both rallied. To be sure, Housing Starts and Claims were insignificantly stronger-than-expected, but I really thought when Philly Fed printed 24.3 – a new 5.5-year high – the bond market was going to be toast. The Employment subindex declined to 5.1 from 13.3, but this is too subtle for mid-December. Bonds dribbled lower, but then rallied for the balance of the day.

There was news today that the ECB is planning to roughly double its capital by adding €5bln over the next three years, at least in part as a buffer against losses on government bonds it has been buying. This isn’t to cover potential mark-to-market losses on money-good bonds, because the ECB (like the Fed) isn’t required to mark to market. The only way these bonds would become losses is (a) if they were sold at even lower prices than where they were bought, in which case there would a realized loss, but in that case then the program didn’t do a very good job, did it? or (b) if those bonds default. Either way, this is hardly a vote of confidence about the solidity of the system!

There were a number of earnings announcements today. RIM, Oracle, and Accenture (disclosure: I own none of the stocks mentioned in today’s commentary) all beat the expectations for their earnings, but FedEx missed. Quick quiz? From a macroeconomic standpoint, which do you think is a more important bellwether: the tech companies or FedEx? This is a surprising miss if the economy actually is improving as it appears to be.

Yes, it’s true: the fact that the news these days is occasionally good, rather than being entirely bad, is a qualitative change that is worth noting. But to me, it appears as if this qualitative change is already discounted in the stock market (and stocks rallied 0.6% today). It may happen that the market now decides to discount a further qualitative improvement, but it may also happen that the market declines because bonds also discount such a qualitative improvement and yields rise!

That didn’t happen today, though. 10-year Treasury yields declined to 3.44%, but 10y TIPS outpaced them again. The rally in fixed-income, despite this improving news, may indicate that the bond sellers are finally exhausted and bonds are ready to bounce. In September, I might bet that way. In December, I’m more cautious about that view and since buying bonds at 3.44% for me is at best a short-term trade, it isn’t one I wish to make at this time.

And that is the effective end of data for this week. Friday sees Leading Indicators, but that isn’t a significant report.

As we approach the solstice, the days and the commentaries get shorter and shorter. What is more, a dozen years or so of writing this sort of comment has convinced me that also ebbing is the number of people who have the time and the desire to read remarks about markets that are twisting randomly (and mostly, gently) like a wind chime in a summer breeze. Too, the pundit needs a mental break, and this is a good time to take one.

Accordingly, this is my next-to-last planned commentary of the year. Tomorrow’s comment will present the 10-year expected returns for various asset classes that I am using in my own portfolio modeling, and make some general wrap-up observations; after that, the next scheduled commentary will be on January 4th (the Tuesday after New Year’s Day, since I am traveling January 3rd). It is unlikely, but possible, that if market conditions warrant I may post something in the intervening two weeks, but I don’t plan on it!

Thanks to everyone who has taken time to read these comments this year. On the various places this column is “syndicated,” it has collected something on the order of 600,000 comment-views this year. That’s not John Mauldin territory, but it makes a guy like me feel useful! Thank you, and thank you for continuing to refer the material to your friends.

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Categories: Uncategorized
  1. BobJ
    December 16, 2010 at 11:34 pm

    Thanks for all of your commentaries. I make it a point to check every day for updates. It really has been an education for me since I discovered your blog.

    • December 17, 2010 at 1:36 am

      Thanks for the kind words, Bob! I hope it is as useful in 2011 as it has been in 2010. Spread the word!

  2. Stephen Kiersch
    December 17, 2010 at 5:51 am

    Beau•ti•ful
    [Byoo-tuh-fuh l]
    –adjective
    1. Having beauty; having qualities that give great pleasure or satisfaction to see, hear, think about, etc.; delighting the senses or mind: a beautiful dress; a beautiful speech.
    2. Excellent of its kind: a beautiful putt on the seventh hole; the chef served us a beautiful roast of beef.
    3. Wonderful; very pleasing or satisfying.

    Michael, I always got a charge out of my father’s (born the same year of the Federal Reserve Act) renowned answer to numerous questions or statements that I had thrown in front of him during the early budding years of my life.

    The answer to most was “beautiful” or it’s beautiful! He had a tight philosophy on positive communications and said many times at the supper table (yes, I was fortunate enough to live in an era where families actually sat together to eat/converse at a given time!) – If you can’t say it in a positive manner; don’t bother saying it at all! Keep it beautiful. Of course, I’ve spent my entire life keeping things beautiful. I have learned to look for the “beautiful” in everything.
    I have learned to live a “beautiful” life and share “beautiful” thoughts with everyone.

    With this “beautiful” epiphany-on the table, I must say that discovering Seeking Alpha was and is one of the most beautiful happenings of my quest for personal financial design skills to help keep what assets that we have left – intact to pass on to our son – so that maybe, just maybe, he doesn’t have to put up with finding something “beautiful” relative to our awe inspiring economy Gods that dress on behalf of our nations people as the FOMC.

    That aside, I just want to say that after spending voluminous morning hours reading the daily take of the menagerie of economic/financial consultants, that you have become my first read every morning. Why am I passing this on? Because your style personifies “beautiful”!
    You tell it like it is – in a style that transpires only from Michael Ashton. I watch the evening news on television to see and hear what is not being said and I come to you for spirited authenticity.

    I have even purchased several of your books and passed them on to some fellow confidants.
    I haven’t finished it yet, but enjoy and savor as a nightly read.

    Thanks for doing what you do and I wish you the best in the years ahead!

    P.S. I know what you’re thinking- could this “beautiful” philosophy be applied to Allen Greenspan in some unique possible way? No. My father also said that on rare occasions, there are some instances when “beautiful” doesn’t apply.

    • December 17, 2010 at 7:51 am

      Wow, what a wonderful comment Stephen! I am humbled by your generous words! I do believe I will see if I can fit this philosophy into my own life, and I thank you for sharing it! -Mike

  3. Lee
    December 17, 2010 at 12:45 pm

    Thanks again and have a Merry Christmas.

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