Today's Perplexion

The market has continued to astound. Tim Knight, perma bear extraordinaire, has almost capitulated, read his blog, Electile Dysfunction (http://tradertim.blogspot.com/). Rev Shark (Real Money, subscription required) calls the market "frothy. "

In my amateur view, there is a dissonance in the market that has to be resolved. That dissonance is the actual state of the US Economy and the global economy v. the perceived state of those economies. Part of the US economic dissonance (all call that ED) is the error rate in the jobs data. With the BLS making such an enormous error in the past--finding 800+K new jobs--it's hard to take the current information at its face value.

While I find conspiracy theories titillating (I'm an accountant, we get so few opportunities to be titillated), I don't necessarily subscribe to them. But one has to wonder IF the Fed were aware of the "real" employment numbers, would our rate hikes have been accelerated a bit. My answer to that hypothetical question would be yes.

When one is trying to find his/her way through the enormity of conflicting information, getting to basics helps (which includes throwing a few things out).

• While corporate profits have been phenomenal, the guidance has been lower for a majority of corporations. CAT and HON were notable. I'm surprised (okay, not really) how little air time has been given to this statistic This was pulled from Birinyi Associatiates and you can find it here http://tickersense.typepad.com/ticker_sense/2006/week44/index.html. To be fair, the % of companies guiding lower is declining; therefore, I would find this graph more compellingly ominous if the lower guidance were higher than the 6% guidance. There seems to be quite a few silent companies regarding future guidance...

• Gold is going up. Inflation worries? Demand fundamentals? (The same could be asked regarding oil, non-precious metals) Some mixture of both that confounds the average person? I'm betting on the latter.
  

• Election jitters....puhleeze....there's enough mischief and shame shared between the two parties that if they monetized it we'd have no national debt.
  

• Economic indicators? They are pointing to a slow down. Watch inventories. Increasing inventories mean decreasing prices and slowing production (margin squeeze). The ISM number is key. 50 is the magical number that is tell tale of a slowdown. We are only getting teased now.

• Housing? Greenspan says the worst is behind us. Is he even relevant now? I'm not really looking for an answer to that. It may be bottoming, but I see a long, flat bottom. The real key to who is ultimately right in the expected market direction will be the effect of housing slowdown on the economy. If it is benign, then that is fuel for the rising market fire. If it is malevolent, then you have the makings of a shock. I'm not sure if benign is the middle ground. I do think that we are still unfolding this data, and we'll have greater clarity in the next 90 days.

• Interest rates--I think that they will go up, or at least not come down for a while. So the inversion lasts a wee bit longer.
  

• Propensity of surprise indicator? High on each of these, so it throws out the whole thing! Just hang onto your seat and squeal with glee!