Market Commentary for the week of May 7, 2012

Global.
Just as intermediate cycle waves are maturing (from a rally point begun in October of last year), investors are feeling a sense of new-found confidence that anecdotal and fact-based evidence are improving.  To me, this is a perfect set-up for disappointment because no matter how good the data, you cannot fight the prevailing trend or its stochastic probabilities.

Owing to significant heft behind Apple (AAPL), the averages are responding to mixed messages unfairly influenced by real demand and real earnings from one of the world’s most innovative corporations.  But all that influence doesn’t lower taxes, tuition costs, milk prices, unemployment, or consternation.  Thus, Friday’s unemployment figures take on less significance than they otherwise would.

We would have to, and wish to, see that type of growth, demand, and profitability from across a spectrum of industries and a host of companies in order to consider that an economic renaissance has begun.

Even though we have witnessed a temporary suspension in global market’s crises, patterns have been firmly established that our secular bear creates limits to upside breakout probabilities.  The best one can do is to mirror upside short cycles while allocating cash for use at a later, more prolific, opportunity.

In effect by moving up so quickly and so far, the global equity markets have gotten us to “neutral,” hardly a place from which one’s strategic upside probabilities have improved.

In fact, by inflating prices thus, one might argue that probabilities are hugely negative, setting up a famine after the feast.  The point is, we are less sure of a market’s direction from the Zed-line than from either a point of nadir or zenith.

Local,

More significantly, fewer equities are participating in the upside phenomenon than previously.  Tripped by decreasing demand and profitability, corporations are looking, still, to streamline operations than to grow them, obviously putting more pressure on wages, employment, and job security.

I am not negative as a rule.  But I feel more cautious today than in January, more proactive against loss than seeking gain.  Bonds might become a short-term surrogate for solving portfolio appreciation concerns.

The root causes of the credit/financial crisis are still pervasive.  The real estate market is simply a barometer of all things credit-related, and its decline is slowing but not yet completed.  At a time when discretionary economics is a misnomer, monetary policy is hamstrung to do anything but keep the spigot open and wait for consumers and corporations to act.  Momentum and imagination are absent.  Someone needs to be first in the water.

All the while, daily and hourly data are depicted as the inflection point that might turn the markets around.  Unfortunately, there is no predetermined timetable nor a syllabus for whatever needs to be done.  The markets are unsynchronized right now.  What’s up one day is down tomorrow.  Tendencies are not trends.

Investors should be cautious.