Tuesday, September 27, 2011


You have to laugh when the business media trots out the same glib talking heads that:

1. were bearish last week but now they are bullish; or
2. are always bullish (i.e., perma-bulls).

I continue to be mildly surprised by how many traders and investors are simply momentum players with little sense of underlying company values and how many are simply bulls forever (regardless of the whether the facts have changed).

There remains numerous structural concerns about a European super bailout. Among other issues:

* Is it legal?
* It requires unanimous approval of 17 member nations.
* The issue of leverage (which got us into the problem in the first place!) has been renewed.
* Monetary financing of state budgets are forbidden by treaty.

The national ISM will be reported on Monday. Expectations are for a 50.4 print, but in light of the release of all of the regional ISMs, a disappointing number in the high 40s is likely.

Notwithstanding the omnipresent eurozone news issuances, the question is whether the sharp rally in the last two days has been discounted in the weak national ISM expected for Monday.

It will be interesting to note the future direction of home prices after the sentiment downturn in August.

The July Case-Shiller 20-city home price index rose negligibly month over month (in line with forecasts) but is now down by over 4% in 2011 over 2010.

With the benefit of hindsight, this past weekend was associated with some market panic and a nearly universal (fundamentally and technically) belief that the near-term investment outlook was dicey. In retrospect, we learned again on Monday (and this morning) to stay independent in thought and judge value not be the crowd's opinion but by weighing the rewards relative to risk on current prices and within the context of reasonable (not hyperbolic) economic expectations.