It almost seems as being orchestrated. A chatarsis of market mayhem and scary news, followed by.. a bright new shiny day. It seems too good to be true, or is it?
A week is a very long-time in the markets. We already reported on some optimists appearing. But this is not all:
- Earnings so far are actually very decent, even some nice beatings of estimates (IBM), even in the financial sector (JP Morgan Chase, Wells Fargo even increased dividend!). However, Merrill Lynch, Google, Microsoft, and AMD did not so well
- Ok, there is a slowdown in Asia. Signapore even experiences something of a recession, but China, well, it’s a curious slowdown from 10.6% growth the first quarter to a still whopping 10.1% this one..
- We had the first increase in housing starts, but this turned out to be related to a change in building regulations in New York: “The overall gains stemmed from a 103 percent increase in construction of multi-family dwellings in Northeastern states. The rest of the country showed a decline in groundbreakings. “This report is much weaker than it looks,” Ian Shepherdson, an economist at High Frequency Economics, a research firm, wrote in a note. “All the increase in headline starts and permits reflects a rush to begin multifamily construction projects ahead of a change in the N.Y.C. building code.”
- Cramer argued that he was seeing the bottom in the housing market though (this time next year) because new construction is down pretty dramatically, although the foreclosure problem is still very much there
- Off course, oil prices were sliding again, although not on good news, but on fears of slowing demand from a slowing world economy
- The IMF actually raised growth targets for the world economy. “The IMF said it now expects the global economy to grow 4.1% in 2008, up from an initial forecast of 3.7% in April. That compares with 5% growth in 2007.” The fallout from the credit crisis are not as bad as first feared.
- The IMF expects US growth of 1.3%, up from an April forecast of 0.5%. However, it warned that the US economy was projected “to contract moderately during the second half of the year”.
Well, well. Last week ended in mayhem, this week starts with large rallies and a brand new world. What happened in the weekend?
Here is one thought we are entertaining: how about hedgefunds rotating out of their short positions in the financial system due to something on which we reported earlier (sand in the wheels of naked shorting and even legal action against spreading false rumors). And of course, earnings could also be a risk for their large short positions (naked or not)..
They also rotated out of energy, which explains some part of the good news show. All this rotation is the good old Wallstreet washing machine, spinning around and around. En-masse sector rotation is one of the most profitable games in town. Follow that money!
Now, where is all that money going?