Tape vs. Growth

Since March 29, I’ve been pretty vocal in a Bear call. And to be brutally honest, I do not place a whole lot of faith in recent government statistics on GDP, NFP or CPI.

That said, there’s a simple rule that must be honored:  Don’t fight the Tape.

I can give you dozen’s of reasons why the NFP was as artificial as NutraSweet, why a core CPI is only relevant when Joe Consumer has no energy or food expenses, and why the GDP data is a farce.

It matters not a whit. The lines have been crossed, and the underlying strength must be respected.

Doug Kass has an entire missive explaining why the unwinding of home prices could prove as grave in 2006-08 as the bursting of the stock market bubble in 2000-03.

And he’s probably right about it. There’s a disaster looming out there somewhere — I can practically smell it. Still doesn’t matter. When the underlying trend shifts, as it decisively has, you must adapt to the market — not the other way around.

Sure, Leading Economic Indicators are down for the 4th month in a row; NY Fed, as well as Philly Fed, were both appreciably weaker. Its only background noise.

Looking at yesterday’s data, the Nasdaq’s volume was the best looking of the group, and I expect that’s where most  of the gains will come from. I’m still deploying cash tentatively. My stops are a little tighter than usual, a few points below our prior levels of 10,400, 1,181 and 2,000. As the markets move higher, I am moving them up to breakeven, and then higher still.


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  1. spencer commented on May 19

    If you take the point of view that the market is virtually always driven by PE moves rather then earnings growth, it is all falling in place for inflation and interest rates peaking and the PE rebounding.

  2. Chad K commented on May 19

    I agree most housing markets are in a bubble… but I ask: what about those markets which have experienced only average or slightly above average gains? When the bubble pops, do we go down with everyone else.

    I live in the midwest… in one of the nicer places to be. High on the list for high-income earners: http://money.cnn.com/pf/features/lists/high_income_zips/

    It’s cheap to live here… 100 per sqft. Over the past 5 years, houses within 5 miles of where I live have averaged approximately 5% increase per year (looking for the article that stated this).

    It would be a little dificult for housing prices to drop 10% here. Though, I suspect some areas of the country will see close to 20% when the dust settles. For the regions of the country not hurt by the pop, I’d wonder if the inexpensiveness of our properties might help us to avoid any real damage.

  3. Petra J commented on May 20

    I problem with Doug Kass i that he has been pushing the housing bubble mantra for the last five years and shows up on TV or is quoted in the press whenever his shorts are in trouble. Kass maybe right but he would be the last person I would ask for an opinion on this.

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