Market Commentary

Investor pessimism is intense.
July 13, 2010

Investor pessimism is intense.  Analyst earning optimism is great.  What group is correct?  And then there are forward looking statements which are tantamount to economic forecasts.  Will companies offer cautious statements that conflict with economists more upbeat assessments?

Similar to recent surveys, today I too am feeling more apprehension than days past.  Is this a function of last week’s 5% rally in the popular averages?  Is it the result of nervousness that this advance is not sustainable fearing a return of the events of fall 2008/winter 2009? 

Bull markets always end when there is not a cloud in the sky.    I vividly remember some past “end of Bull Market statements” such as the economy has entered into a “New Paradigm” where the business cycle is dead.  Or Wall Street has diversified risk away via synthetic investment products and complicated asset management strategies.  At the end of all bull markets the vast majority are euphoric and to heck with risk.

Conversely bear markets end in great fear, lack of conviction and paralysis in making any investment decision outside of cash.  Several years ago a 50 year veteran once gave me a description of a bear market.  It is one that we lose more money than we ever thought we could, income’s drop exponentially, fearing the dawn of any weekday especially Monday and living for Friday as there would be two days before anything bad could happen.

As inferred above, both institutional and retail sentiments are around March 2009’s lows.  It is generally accepted sentiment are often lagging indicators offering no predictive qualities as they only tell where we have been not where we are going. 

It is against this backdrop I reiterate my long held view because of negative sentiment and strong profit reports the averages cold potentially rebound to April’s highs, a rebound that perhaps is the base for a greater advance at year’ end predicated by the simplistic attitude that “next year will be better.”

Last night Alcoa did not disappoint.  Profits were 18% higher than expectations and the aluminum giant increased it global consumption views.

Last night the foreign markets were mixed.  London was up 1.72%, Paris up 1.71% and Frankfurt up 1.65%.  Japan was down 0.11% and Hang Sang down 0.18%.

The Dow should open moderately higher on Alcoa’s results and Greece was able to sell bills less than rate charged for European bailout funds.  The 10-year  is off 4/32 to yield 3.08%.