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The Worries Are Many; the Market Reactions Are Few

By

Central bankers, start your engines!

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They bend intraday, but so far, the markets refuse to break. The Dow (INDEXDJX:.DJI), S&P 500 (INDEXSP:.INX), and Nasdaq (INDEXNASDAQ:.IXIC) continue to hang tough in the face of demanding calls for an overdue correction. The Nikkei (INDEXNIKKEI:NI225), on the other hand, seems to oblige daily cries for up and down movement with laser precision and speed. Looking for volatility? Go east, young man.

This week, we are driving -- albeit at a leisurely summer pace -- toward three central bank rate decisions, some jobs numbers, a US GDP reading, a PMI, and a shopping list of other economic indictors, which will likely leave us no more the better, wiser, or worser than where we started the week. Which means it's summer, and August chillaxin' is just around the corner.

So what's a worrier to do in an environment where the worries are many but the market reactions, at least in the US, are muted? Pivot to the pressure points. China is acting more fiscally responsible every day, and Japan is plowing ahead toward economic reform. These are two tectonic shifts that should not go unworried. How they will play out, I don't know. But at least its something for the linen suit crowd to converse about over Sea Breezes. Ah, summer...

Click on the image below for an interactive version of this week's Wall of Worry, or scroll down for the text-only version and an explanation of how the Wall works.





QE: Who will be the next driver at the Fed? Yellen? Summers? The "free" markets?

UNEMPLOYMENT: TGIF... we hope. Jobs report Friday, August 2, at 8:30 a.m EDT.

US ECONOMY: ISM Manufacturing report on Thursday where greater than 50 is good, and less than 50 is.... well, I'll give you three guesses and the first two don't count.

INVESTOR SENTIMENT: Here come the inflows in equities, and here comes the bajillionth reference to the movie Wall Street's "greed is good" speech.

HOUSING CRISIS: With inventories low and home sales rising, this worry is about to be renamed "housing recovery." Press release forthcoming.

EUROPEAN ECONOMY: Germany busts through the 50.0 PMI level -- and this time, it's going in the right (up) direction. Italy, Spain, France, et al. care to go with?

VOLATILITY: Nice and low and eerie and looking for a reason to spike.

HIGH-FREQUENCY TRADING:
Lloyd: How did your systems hold up during the heat wave?
HAL: Thank you for calling, all of our operators are busy right now. For English, press 1; for Spanish, press 2. To renew your prescription, enter your twelve-digit code.
Lloyd: Got it.

CHINA: Put a five-year moratorium on the construction of new government buildings to cut "wasteful government spending." To which the Wall asks, "Is there any other kind?"

GLOBAL ECONOMY: May be bottoming out. "Can they grow without creating inflation?" asks Monsieur Killjoy.

JAPAN: Sales tax increase coming... unless it doesn't, of course. Decisions, decisions...

SEQUESTRATION: Working on a new superhero comic book: Congress vs. Sequestration! Please leave fill-in preference for hero and villain in the comment section below.

BONDS: About to take the path from financial market darling to financial market dog. And it's a long and increasingly lonely walk at that.

TECHNICALS: Rotation out of stocks you own and into stocks you've sold continues.

CENTRAL BANKS: Fed decision Wednesday, ECB and Bank of England on Thursday. "Everybody talks, everybody talks..."

THE NIKKEI: "Up is up, and down is down..."

SHIBOR: Lifting again. Giving the Wall another one of those examples of when "up" is not good.

BRAZIL: Disputing the IMF's method of figuring its country debt to GDP is at 68%, preferring to uncover a number that is less than that, anything less than that.

SPAIN: Tragic train crash adds injury to insult.

COMMODITIES: Dr. Copper starting to creep up off its lows. And as it is said here on the Wall, the world may run on oil, but it grows on copper.

EARNINGS SEASON: As we come into the home stretch, the bottom lines look good, and the top lines look not so bad. Victory!


What Is Lloyd's Wall of Worry?

by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money managers.

Typically the term "wall of worry" refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.
LK/KCLP Ownership Disclosure: SPY, DIA, GLD, TBF, LQD
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