Confusion And Delay

Confusion and delay ultimately have a price to pay. That's the case whether it is the perpetuating of a 'bad news is good news' monetary policy of low rates for an infinite period of time, or whether it's a lack of cohesive strategies to engage terrorists in Europe, 'as if' it's still early enough to just do so in the Middle East or for that matter delay in maintenance of Washington's Metro, which may partially be shut-down for several months, because of lack of will to do repairs sooner.

That seems to be the decision-making hallmark these days; procrastination. The stock market doesn't actually 'like' this; it just appears that way as rates are low; risk is high, but money managers scramble to 'presumed' safety, never realizing that (unless properly hedged), there's essentially no safety-net to catch a fall.

Now that doesn't mean a big capitulation is imminent, nor that it was going to be in the past couple weeks. To the contrary, we regularly opined that this would be an irresolute pattern, sort of horsing-around until we got through the FOMC, the Quarterly Expiration, the Yellen address to the NY Economic Club, and Dudley's speech (NY Fed President) on Thursday; as well as the very end of the Quarter.

But you never know what happens when horsing around (not to suggest things as bad as a London newspaper 'says' occurred in Saudi Arabia, where officials are said to have executed a stallion for fondling a similar horse). Eerily in equity markets, stocks have been romping around, volatility has been quelled, and one would be forgiven, not executed, for misidentifying day-to-day market gender as being any flavor of bull or bear. Classify it as neutral with an upward bent maybe as the futures worked higher, without real gusto; and clearly responding to Fed Chairperson Yellen's repudiation (or at least equivocation) of her colleagues sort of mixed messages of the week following her uber-dovish post-Fed conference.

Bottom-line: this week (similarly to last's) continues the irregular foray into old resistance zones. Getting through it would cause some media celebrations, at the same time as the irrelevance of it would be ignored 'as if' Yellen magically is changing the prospects for the future. She is indeed contributing to upside that's enhancing the overbought nature of the markets; and as you saw Wednesday; a bit of improvement in the Dollar occurred after the initial spike lower dissipated.

Yellen laid-out the issues; and actually noted how fragile the economic situation is; while sort of acknowledging that global risk is higher, not lower. Yes the stock market 'likes' that, but gets-ahead of itself based on event-risk; and because the gains in some sectors looks like temporary at best. Plus corporate profits remain expected to fall, not rise, with forward guidance pretty negative too. That should be the market's focus after this Fed-led romp into fluid-bull-bear-bull behavior.

Bottom-line profits and sales are expected to drop as results come forth; and as we move into that period we'll likely get no meaningful deals from Doha; and the minimal relief implied by less dire numbers perhaps for the 2nd Quarter, even as there will be nothing particularly robust about it. At this point it's been 'relief', and actually Apple's rebound (that we expected given the nature of 'how' the FBI got into the single terrorist iPhone as shared Monday evening); and so the hope will simply be deflecting the headwinds of energy and belief that things look brighter.

Of course the problem with that is the level of the market at absurd levels which would not be feasible if not for the low rate environment and lack of safe havens for the risk-averse. That's not encouraging and leaves the market vulnerable, as if it were a horse in the desert blinded by sand storms and not knowing who's on the other end of the reins. We think the sand-storms will clear and that while we don't expect the worst imminently (this is a process, not event); the horizon view is murky at best, and foreboding at worst.