Random Thoughts: It's Now or Never for the Bulls

By Todd Harrison  AUG 03, 2011 10:00 AM

S&P 1250 is the bovine backstop.

 


"Last dance with Mary Jane, one more time to kill the pain."
--Tom Petty

It’s a beautiful morning in Manhattan, and we’ll take rays of sunlight whenever we can get ‘em! That’s easier said than done with societal acrimony running rampant, but all is not lost. In fact, I would argue we’ve got a lot to be thankful for if we view the dew with the proper perspective.

Perhaps I’m being Pollyannaish -- imagine that! -- or maybe I just said my piece this morning when I wrote, Economic Issues Remain in Wake of Debt Resolution. We can put as much lipstick as we want on the political and economic pigs but they’ll still “oink” and roll around in the mud.

The question is whether the negativity has become too pervasive (right at the bottom of the 2011 trading range) or if social mood has officially turned -- and we know that social mood and risk appetites shape financial markets. While I have and will share my inclinations on the matter, I’ll ask that you see both sides and respect the competing agendas.

The bulls will offer that over 70% of earnings beat Street estimates, and that corporate credit will benefit from the growing discomfort regarding US government securities. As corporate credit improves, they’ll argue it will manifest through higher stock prices, stock buybacks, M&A, and LBO’s.

As Blue Steel Bennet Sedacca used to say, “Credit players are much smarter -- and less emotional -- than the stock market.”

The bears will counter that earnings have already been baked into the cake (given the lift off the lows) and we’re playing duck-duck-goose on an active landmine. If and when psychology shifts, they know all the tape-painting and jaw-boning in the world won’t stop the bleed. Credit of a different breed -- that of credibility -- will be the issue at hand for markets at large.

“They’ve thrown a lot of money at this market,” Boo told me this morning, “and the tape is right back where it was before QE2!”

Both sides are valid, and the friction between those variant views will be what moves the market. S&P 1250 is huge, technically and psychologically, so keep your right hand up and an eye on a seat if you’ve tossed a hat in the risk ring.

Some Random Thoughts

R.P.

Twitter: @todd_harrison

No positions in stocks mentioned.