Everyone it would appear is ready to grasp for an easy victory, or better put ‘easy money’. No, there is nothing wrong with making money and we do not begrudge the accomplishment. What we question are the methods and what it means for the next person or group who will try to emulate his friend or nearby finance house. Wall Street climbed to new highs yesterday making it nine straight winning sessions for the Dow Jones. Some will say that Retail Sales data helped feed the frenzy yesterday, but is that a fact? Probably not. This in Digital Markets Advisor’s opinion is not a data rally. It is a creation per the monetary policy of the Federal Reserve. Not since the Fed helped create the housing bubble has such a sight been witnessed by the masses. At this juncture if you are a member of a financial house not participating in the rally and urging caution, you might be starting to feel the pressure of nagging phone calls from your clients asking why you are on the sidelines.
The rally in equities has been strong, but the catalyst for the climb is under deep suspicion. And anyone who begins to line up now in order to join the parade towards victory – easy money – may find the old theory of diminishing returns standing in the way. Maybe we are wrong, maybe there is a long way to go, but a study of history should give some a reason for reflection. During the depression of the 30’s Wall Street had these type of seasonal rallies, it climbed steadily only to be smacked down by a cold dose of reality being thrown on those who were declaring ‘happy days are here again’.
And lets not forget that Europe was a lynchpin for the depression of the 30’s and Europe’s economic woes as of today should be enough to make the most optimistic even a bit worried. Industrial Production from the E.U. missed it estimate with a result of minus -0.4%. The ECB will issue its Monthly Bulletin today and will begin a summit meeting, but there are unlikely to be any surprises. Mario Draghi has insisted that the E.U. will climb out of its recession by this summer, but as each day passes that looks only like wishful thinking. On the agenda will be Cyprus and its needed bailout and it can be certain that in backrooms that Italy’s political mess will be spoken about. The EUR as of this morning is continuing to test short-term lows. The Single Currency has been trending lower.
Gold as of this morning is around 1585.00 USD. Crude Oil has been range trading near its short-term lows via WTI (West Texas Intermediate). The U.S. will publish weekly Unemployment Claims and have a 30-Y Bond Auction. Tomorrow will see a fistful of data from the States including Industrial Production, the Empire State Manufacturing Index, and the Prelim Consumer Sentiment reading from the University of Michigan.
If the data is bad tomorrow it might continue to be downplayed by officials. The confidence game that is being played right now has reached a critical and entertaining level. Traders who are long equities and have been able to take advantage of forex ranges are likely wondering if and when trouble will ensue. The U.S. budget debate is not close to being solved. Republicans and Democrats seem to be lining up already in preparation for the elections of 2014. While smiles abound from both sides of the floor little in the way of compromise is taking place. As of yet the American population seems comfortable with this situation and while many are complaining via social media, little in the shape of grassroots efforts seems to have had an effect on their elected leaders. And you can be sure members of both major political parties are happy that Wall Street is climbing as they accomplish nothing themselves politically besides reaching dead-ends. Why work for real change when easy victories abound when you really had nothing to do with the result? Problems however could begin to take a toll if Wall Street suddenly lurches on any thing from bad economic data which causes dwindling confidence, European contagion, or when the clock strikes twelve for the Central Banks. In the meantime however, easy money seems to be ruling the day.