Goddamn Right, It’s a Beautiful Day

October 28, 2011 9:15am by Barry Ritholtz

Its a Friday, the sun is shining, we were positioned correctly for the face ripper. And yet . . .

There remains an undercurrent that should give one pause. The ripper was based on some rather ephemeral news, some bad sentiment, and too many people on the wrong side of the boat.

Consider:

• US GDP: While the economy in Q3 grew at the fastest pace in 4Qs, it was primarily driven by Corporate spending, and household reduced savings. GDP improvement occurred despite the biggest drop in household incomes in 2 years, on top of the ongoing decline in home prices, and near rock bottom consumer confidence. Can spending drive GDP in Q4 and beyond? Is it repeatable? Hey, 2.5% is better than 1.3%, but I have my doubts that it is the start of a new trend.

The girl with the curls and the sweet pink ribbon in her hair
She’s crawling out her window ’cause her daddy
He just don’t care

• European Debt Crisis: Can it really be that easy? Deeply indebted Europeans decide to go deeper into debt, and that somehow is a solution? These is a high probability that Greece will fall out of the Eurozone, go back ont he Drachma, and start printing (Maybe they can borrow Ben’s chopper). A recession in Europe is a very high probability, assuming they are not in one right now. And yet, on this ephemera, we

The clown with the frown driving down to the sidewalk fair
Finger on the trigger let me tell you gave us quite a scare

• Take ’em higher boys: Hedge funds are dramatically under-performing, and it seemed to be a group decision to rally ’em hard yesterday. This was not based on fundamentals, but rather, something else entirely. We started with short covering, saw some under-invested hedgies pile in, then it was off to the races. (Mutual fund managers are not as lucky, investors have been dumping funds, even as stocks rally)

The kids flip their lids when their ids hear that crazy sound
My neighbor digs the flavor still he’s moving to another town
And I don’t believe he’ll come back

• Breakout/New Trading Range: Last Friday’s breakout saw S&P and Dow break free of the range they had been mired in for 3 months. The breakout seems to have stuck, and barring any catastrophic reversal, we should be in rally mode for a short while.

Well I don’t know how you take in all the shit you see
No don’t believe anyone and most of all
Don’t believe me
Believe you

Which leads us to:

• Year end rally: I have mentioned seasonality several times over the past week, and this rally seems to be running (or perhaps front running) into the best 6 months of the year. This does not mean the secular bear market is over, but it could very well clear us for a few weeks as we “melt up“.

Come on! Goddamn right it’s a beautiful day.

~~~~

Full lyrics from “Mr. E’s Beautiful Blues” after the jump

“Mr. E’s Beautiful Blues” from Daisies of the Galaxy

The smokestack spitting black soot into the sooty sky
The load on the road brings a tear to the indian’s eye
The elephant won’t forget what it’s like inside his cage
The ringmaster’s telecaster sings on an empty stage