David Fry's Daily Market Outlook

Includes: QQQ, SPY, USO, XHB
by: David Fry

Dallas Fed president Richard Fisher’s statement today:

"I continue to fret more about inflation than I do about growth," Fisher said in a speech prepared for delivery in Monterrey, Mexico. Fisher dismissed the benign August PPI report released last week as unreliable. The best gauges of inflationary pressures, "are not yet comforting," he said. Fisher said there was a "serious correction" taking place in the housing sector, but said outside this sector, the economy is "healthy and robust." Consumers are getting "a shot in the arm" from lower gasoline prices, he said.

All this tough inflation talk combined with some overt action has had an impact on the markets:

But, at the same time, money-printing to fuel market rallies continues as M-3 (as reconstituted by www.nowandagainfutures.com ) is growing rapidly. Is this just more government double-talk?

Then there’s the always entertaining “realtor-speak” which goes like this today (courtesy MarketWatch):

Realtors said the price decline shows the market is 'stabilizing' (NOTE: This is one of my favorite “realtor-speak” descriptions, meaning the average realtor hasn’t made a sale in months), but other economists said the correction has a ways to run.

"Sellers are finally getting it," said David Lereah, chief economist for the real estate group. "The price drop has stopped the bleeding. Sales have hit bottom." (NOTE: What are they “getting” again?)

Meanwhile, inventories of unsold homes rose to a 13-year high.

It was the first time since April 1995 that median prices had fallen on a year-over-year basis. It was the second-largest decline in the 38-year history of the Realtors survey, exceeded only by a 2.1% drop in November 1990.

The price correction is a welcome development, said Lereah. "I am confident the housing sector is picking up," he said in a press conference. Lereah said he expects prices to continue to drop for the rest of the year, which would keep sales from falling further.
If sales do flatten, "we'll have achieved a soft landing," Lereah said. (NOTE: And I’m tinker-bell! DOH!?!)

Lereah said the sales fell in the West because sellers still have not adjusted their expectations on prices. Median prices are up 0.3% in the past year in the West to $345,000.” (NOTE: Oh, nevermind...)

Lewis Carroll (Alice in Wonderland) couldn’t write such nonsense on a bet.

But, who are we to argue with the tape, since some investors are making big bets that housing stocks have bottomed.

Meanwhile stocks rallied today, more than offsetting most of the declines from last week. Stock investors believe interest rates are going lower despite all the inflation-fighting rhetoric. The leader remains SPY -— after all, this is where the hedge funds and trading desks play.

Today, OPEC finally got around to noticing the sharp drop in oil prices and issued a statement saying they were “concerned about the precipitous drop.” (Calls from Tehran and Caracas no doubt.)

This week will feature more volatility, as there’s plenty of economic data forthcoming. Leadership is confined to financials, tech and big-caps. There are numerous rally non-confirmations from a variety of sectors. This is also the last week of the month and quarter, so you should expect some serious portfolio “window dressing” to occur.

When I went to bed last night, I thought for sure today would be a down day. This continues to reinforce my belief that intuition and emotion don’t make money.

Disclaimer: The ETF Digest maintains long positions in S&P 500 Index (NYSEARCA:SPY), iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF) and iShares Lehman 20+ Year Treasury Bond ETF (NYSEARCA:TLT), and short positions in iShares MSCI Brazil Index ETF (NYSEARCA:EWZ).