This morning’s Empire State index fell the 2.3 from May’s 17.1 showing the weakness in the US economy’s manufacturing. The Michigan Consumer Sentiment Index is back to December levels. Unemployment is up, housing prices remain weak and Europe looks like it is about to implode. Other recent readings on the overall growth of the US economy are pointing to a slowdown ahead and investors rather than fretting are liking the numbers they see and pushing the market direction higher. It’s because they believe the Federal Reserve will be forced to act and pump more money into the US economy in what will undoubtedly be known as Quantitative Easing 3.
Headlines like those seen today remind me that investors remain irrational at best. Investors can complain but almost always they are the culprits for their own losses. While Investing shouldn't be taken as gambling, it is obvious that most investors treat it as such.
Market Direction and Lots More Behind The Scenes
There may be a lot more going on in the US economy than the headlines are telling people. More people are out looking for work as students fresh from Universities and Colleges are now in the workforce. This will bring about differing unemployment numbers for May, June, July and even August. Perhaps the most telling image of US savings is that Americans have put more of their savings into paying down their home mortgages than at any other time in the past 60 years. This is money that might have found its way into spending on large appliances or smaller goods. Americans have reduced travelling more in the past 4 years than in the past 40 and international travel are at decades low.
With Americans keeping their cash at home and paying down debt this will be reflected in US economic numbers.
Investors Believe Fed Is Back Stopping Market Direction – Maybe They’re Right
Meanwhile investors are pushing stocks back up believing the Federal Reserve will have no choice but to spend even more billions to keep the US economy growing, which can only be helpful for stocks and should inflate commodities, particularly oil and gold, once more.
Greece Could Vote 3 Different Ways
The Greek Vote this weekend could end in three ways. Either the Greeks face tough austerity measures and finally pay taxes for the generous services they receive or vote for an anti-Euro anti-austerity political party and continue the song and dance routine Europe has witnessed for three years now or Greeks remain undecided and there is still no clear winner. In a basket case economy like Greece anything is possible.
Into this mixed outlook, investors remain convinced that stocks cannot fall much below present levels because as one analysts on MSNBC said yesterday, “the Fed won’t allow it!”.
Market Direction and Staying With The Cautious Bull Strategy
Myself I will be watching individual stocks and continuing with put selling those that I would own in a crunch. My plan remains to stay with the cautious bull strategy which has served me well over the years. I will be selling smaller lots of puts, watching for spy put opportunities and keeping cash available for opportunities that I am sure lay ahead. My goal for the year is a 12 percent return and have my capital emerge at the end of the year unscathed.
Politicians Now Try To Fix Their Problems
I try to remember that the economic problems facing Europe and North America have been created by politicians who for the past 20 years have been elected on platforms that told voters they could have their cake and pay lower and lower taxes too. It is these same politicians who now think they can fix the problem of massive debt loads and keep the economies chugging along but continue to refuse to make the real tough choices of slashing their spending and realizing that you have to pay for what you promise voters.
When The Majority Are Right About Market Direction
With the majority of investors believing the Fed will backstop any decline in equities through back stopping the economy I try to remember that it is a rare event when the majority are right. But perhaps this time it truly is different. Now you know why I believe in trading options as a financial investment strategy.