Market Outlook: New Highs, New Month, New Reality

“Charlie and I believe that when you find information that contradicts your existing beliefs, you’ve got a special obligation to look at it – and quickly”
-Warren Buffett

Other than consensus starting to finally become bullish enough, I really don’t see anything in global macro today that should stop the upward momentum of anything priced in US Dollars. We have new highs, a new month, and a New Reality.

After trading down for the 4th consecutive week, the US Dollar was down again this morning, hitting new YTD lows. As we roll out the backward-looking barrels of Alan Greenspan's and Larry Summers' economic forecasts, the manic media will finally come to realize that they perpetuated one of the most ridiculous narrative fallacies since “Chindia” – the Greatest Depression. The only depression I saw was that of Wall Streeters who missed one year’s bonus.

As Barclays (BCS) and HSBC (HBC) printed big league profit growth results this morning, you can bet your Madoff that the bankers are going to get paid. The New Reality of Burning the Buck remains: as the US government devalues her credibility, her currency will continue to crater. As the Buck Burns, three core constituencies get paid: Debtors, Bankers, and Politicians. If you’re a Chinese holder of anything US Dollar denominated or an American commoner who saved, shame on you.

With the SP500 lassoing all short sellers of Camp Roubini/Rosenberg, we’re at least seeing one of these one-way economic prognosticators throw in his towel this morning. Nouriel Roubini is long term bullish on world travel. He loves helicopters and flying the friendly CNBC skies of fictional storytelling. Overnight he has made a mea culpa of sorts while speaking in Australia – he is now bullish of commodities.

AFTER the price of copper has moved to +92% higher for the year-to-date (trading at new YTD highs alongside the Chinese stock market this morning), and both oil and gold prices are busting another move to the upside, Doctor Doom is taking a ride on the bullish side. Stick to your new day job of selling market crash books my man – there is this thing called timing that we global market operators care about – professors shouldn’t manage the public’s daily marked-to-market risk.

As the US Dollar hit new YTD lows at $78.14 this morning, the US stock market futures were setting up to register another YTD high. This pre-open setup makes perfect sense to me. After seeing the SP500 close +7.4% for the month of July, Rosenberg bears are finding information on the Q2 earnings season that contradicts their existing beliefs.

Don’t underestimate how many people are out there who were not allowed to be bullish into these earnings numbers. Now that all of those short sellers have been put out to pasture, all they can do is whine about “valuation.” Being short “valuation” in a market that’s building price momentum alongside sequentially accelerating volume and expanding positive breadth, is something we can leave up to the brave. Yes, Mr. Abelson – that’s you again.

Abelson hasn’t mentioned his China bearish thesis in quite some time. However, this weekend he did highlight David Rosenberg’s thoughts on valuation mind you… and at the end of the day, without these guys ignoring their special obligation to look at the facts, this latest rally in everything priced in Dollars wouldn’t have this lasting kick.

Here are 3 global economic facts to add to your existing beliefs:

1. China’s manufacturing report (PMI) made another new high for July at 53

2. German Retail Sales improved again in June to -1.6% versus -2.9% last month

3. UK manufacturing PMI (July) moved into the economic expansion zone with a reading of 51 versus 47 reported in June

I know, I know… some of these numbers incorporate that silly stuff we math guys call derivatives. When rates of change improve, we do recognize them for what it they are – positive relative to expectations. At the end of the day, this investment process is agnostic. If the facts, on the margin, change to the negative… we’ll “have a special obligation to look at it – and quickly.”

My immediate term TRADE upside target for the SP500 is 998 and I have downside support at 975.

Comments

[AndrewBaker:]

Stocks and commodities are racing higher: one will turn and race the other way soon, and it won't be commodities.

Aug 03 08:57 AM

[basehitz:]

This weekend, I reviewed many articles and watched many interviews. The discipline requires hearing out both bulls and bears.

I agree with what is said in this interview and for the reasons stated:
www.youtube.com/watch?...

So the bulls have the tape, but they can’t muster the volume in spite of the nonstop cheerleading from Tout TV. The bears are breaking down. . . as seems necessary for Mr. Market. But the structural problems have not been addressed, just papered over. The consumer debt remains almost as high as it was at the peak, but his assets are worth a lot less.
static.seekingalpha.co...

With the market, it seems necessary to fool the majority of participants, then rip their head off. In March, we went the other way. I bought that. So I hope the cheerleaders can pump this a little higher as I refine my short list, which is focused on US-based retail consumption.

Aug 03 09:15 AM

[basehitz:]

Editorial note - above link to consumer debt did not identify the source. It was developed by Zero Hedge. Here's the rest of article.
seekingalpha.com/artic...

Aug 03 09:21 AM

[HunterGVL:]

1) China's numbers are even more manipulated than the US Bureau of Labor statistics. The idea that China has completely reoriented their economy from an export only nation to a domestic demand driven economy in 7-8 months is ludicrous.

2) German Retail sales have improved to NEGATIVE 1.6%. Boy, that is good news.
3) Yeah, the UK doesn't have any financing problems and it's banking system isn't in shambles.

I heard and read all these same types of justification awhile ago when the DOW was at 14,000 going to 20,000 soon! This rally might go higher and higher, but unless you are a daytrader, there is nothing here for prudent investors except the chase of ephemeral profits. If you can see the future day to day, then this market is made for you. If you can't see the future, short this market rally now.

Aug 03 09:55 AM

[RiskReturnO...:]

FXI looks like it wants to rally to $50 in the next few weeks ... personally, I would not short it here as the momentum is too strong ... the parabolic move is typically of the last stage of a bull cycle, but it could take a while for local investors (very emotional) to stop chasing performance ... suggest taking some profits on each increment up ... with most of the money out by $60-$70 as the double-top (2009 and 2007) will be very hard to overcome in the medium term.

Aug 03 08:55 PM