Half Of A Pedestrian Day

By: Michael Ashton | Mon, Jul 12, 2010
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At the risk of sounding bored, I don't know that there are any deep inferences that we can draw about the state of the markets on the basis of the last two days of trading. Sure, stocks managed to eke out another win today, but the sum of the volume from Friday's session and Monday's session was only 1.6bln shares or so - or, in other words, the combined volume was just slightly above July 1st single-day volume. You don't remember July 1st? Well, there is really no reason you should - it was a fairly pedestrian day. Today was, in fact, only half of a pedestrian day (and, as it happens, the boring half).

Okay, so that's not entirely fair. Two developments presented themselves as worth commenting on.

The first of these is that Richmond Fed President Lacker today said that any further monetary policy easing is "very far away." Now, we need to look at this in context, because up until a couple of weeks ago Fed officials were worrying about how quickly they might have to withdraw the stimulus, and testing procedures to do so when the time came. As of now, Lacker is talking about easing, although he says he is comfortable with policy where it is now (of course he is, or he would have dissented at the recent meeting). While Fed officials generally have an abysmal track record with public predictions and posturing about the state of the economy, we are still bound to listen for subtle changes in central bank perspectives. The second wave of quantitative easing is, I suspect, ahead, but the real question is how far ahead. Fed officials are, publicly at least, still very resistant to the idea. But they are moving in the right direction. Hopefully their delay will not worsen the crisis, as their hesitation in 2008 clearly worsened that stage of the crisis.

The second development is more ironic than illuminating. Thanks to my friend BN for pointing out this story. It seems John Paulson, who made billions in the collapse of the housing bubble and the ensuing mortgage crisis, has endowed two chairs at New York University. One is named after himself, and the other is in honor of...former Chairman Greenspan. This is wonderfully ironic since, after all, Chairman Greenspan's policy flailings are a major reason that Mr. Paulson was able to make such lucrative bets against the bubbly housing market. It's nice to know that he's so appreciative.

I cannot endow a chair, but in honor of Chairman Greenspan (and of Paulson's profiting from his errors) I am offering a special deal on my book, Maestro, My Ass!, if you order through my website (link). Only ten bucks, or twenty if you want it signed. That includes "slow way" shipping domestically.

Still, Paulson has made more money on Greenspan's errors than I ever did. That being said, I'm just really happy to have not lost scads and scads of money, like many Americans did.

There is no more data due tomorrow, but on Wednesday Retail Sales (Consensus: -0.3%/-0.1% ex-auto) is expected to show a second consecutive decline in core sales, which hasn't happened since the end of 2008 and is fairly rare in general - with the exception of the last five months of 2008, consecutive-month declines in core Retail Sales have only happened three other times this decade: once in 2001, once in 2005, and once in 2006. Needless to say, it isn't a great sign. Also on Wednesday, the minutes from the recent FOMC meeting will be released.

For what it is worth, here is a musing about the market quiet over the last two days. Today after the close Alcoa kicked off the quarterly earnings season. Could the markets really be that quiet merely in anticipation of earnings? If so, it seems to me that implies something less than total commitment to the market - if stocks offer long-term value against long-term earnings, then who cares what short-term earnings are? And if they don't, then...frankly...who cares what short-term earnings are?

But observers seem to be hanging the bunting in preparation for a celebration of rip-roaring earnings; at least, sell-side analysts have been telling us to be looking for such. If everyone believed it, then wouldn't the market already be higher than it is? To be sure, I imagine most companies will hit this quarter's targets. But I will be surprised if a number of them don't try to talk down the analysts' ebullience about future quarters a bit.



Michael Ashton

Author: Michael Ashton

Michael Ashton, CFA

Michael Ashton

Michael Ashton is Managing Principal at Enduring Investments LLC, a specialty consulting and investment management boutique that offers focused inflation-market expertise. He may be contacted through that site. He is on Twitter at @inflation_guy

Prior to founding Enduring Investments, Mr. Ashton worked as a trader, strategist, and salesman during a 20-year Wall Street career that included tours of duty at Deutsche Bank, Bankers Trust, Barclays Capital, and J.P. Morgan.

Since 2003 he has played an integral role in developing the U.S. inflation derivatives markets and is widely viewed as a premier subject matter expert on inflation products and inflation trading. While at Barclays, he traded the first interbank U.S. CPI swaps. He was primarily responsible for the creation of the CPI Futures contract that the Chicago Mercantile Exchange listed in February 2004 and was the lead market maker for that contract. Mr. Ashton has written extensively about the use of inflation-indexed products for hedging real exposures, including papers and book chapters on "Inflation and Commodities," "The Real-Feel Inflation Rate," "Hedging Post-Retirement Medical Liabilities," and "Liability-Driven Investment For Individuals." He frequently speaks in front of professional and retail audiences, both large and small. He runs the Inflation-Indexed Investing Association.

For many years, Mr. Ashton has written frequent market commentary, sometimes for client distribution and more recently for wider public dissemination. Mr. Ashton received a Bachelor of Arts degree in Economics from Trinity University in 1990 and was awarded his CFA charter in 2001.

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