Market Commentary for the week of August 22, 2011

Stumbling.

My market overview continues to be moderately bearish, supported by quantitative data which, despite the turbulence of the past few weeks, indicates relative strength quotients resting at or near intermediate resistance levels.  In other words, cycle measure projections are more likely to gain downwards acceleration than to break out above technical and psychological upside barriers.

And yet, the Federal Reserve Board’s announcement that it intends to keep monetary policy “easy” flies in the face of chronology, rhythm, common sense, and secular redirectedness.  By their words they introduce a perplexing dilemma for investors and the markets:  at what level does “easing” become inhibitive to savings rates, employment, and speculative borrowing rather than supportive?

Business pretty much answered that question.  No new capital spending, no hiring, and no additional capacity until demand returns to the economy.  In this game of “chicken or egg,” corporate America and corporate Globe is fine waiting to see when/if the consumer returns.  In the meantime, my data shows a deterioration in momentum, earnings acceleration and breadth.  My belief now is that we will have to wait until the end of the year, at the earliest, before any traction or clarity is gained.  In between, the secular bear bias extends.

As a result, my asset allocation favors defensive, yield oriented investments, including utilities, telecommunications and high yield paper.  My enthusiasm for speculating in the indices is diminishing.  I am focusing upon global opportunities, but the wealth of ideas is smaller “at the top.”  America’s monetary policy is hoping to create an expansion in exports, but competition isn’t always bound to the value of currency, moreso to the quality of ideas, products and services offered.  Political and fiscal weaknesses in the Eurozone help to create the illusion of U.S. economic strength.  In reality, we are all too aware of our own difficulties in moving off of square one.

Promise denied.

By far, the markets are influenced more by decades of avarice which preceded us than by any inspiring theme or objective which lies ahead.  Inevitably, cycles play out to their own rhythm, but our current aversion to risk and capital spending means we keep one foot in the past.  These factors give rise to the volatility quotients of today.  Either by force or by inference, no one wants to get caught in a “Tech-Wreck” or a “Credit Crisis.”  The limitations of our psyche play a greater role in market activity today than do fundamentals.

The very nature of today’s global political discourse is punctuated by a conservatism, and a retreat to simpler values.  Fiscal policy discourages the “have-nots” from participating with full vigor.  As a result, financial instruments which were inflated by political and business rhetoric previously, are today being deflated by the same influences.  It’s as if one’s wealth was one’s entertainment yesterday, one’s greatest disappointment today.

A new political dynamic is overspreading the globe.  It is a force not only of political will, but fiscal interests.  It sets up a defensive, cash-only paradigm which favors no one but those who have capital.  Ironically, this new renaissance is concentrated not in regions of vast wealth already, but in the more distressed areas of the globe.  The countries which most could use capital are now demanding capital.  Hopefully capitalists can find a productive return on investment without immoral exploitation.

The implications are vast.  Foreign investment in these regions in agriculture, water purification, industrial development, and manufacturing could prove to be the next revolution in capital spending that saves the markets and people in need at the same time.