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A disappointing morning for those hoping for the reflation trade:despite Mr. Kuroda's bold action at the Bank of Japan, gold and oil are down, though there is a modest bounce in steel and commodity stocks.
But energy is flat, after a couple terrible days where drillers and exploration and production stocks were hit hard.
And the rest of the market isn't show much signs of life, either.
My take: hopes for future reflation can't trump the string of weak U.S. economic numbers this week. ISM, ISM Services, ADP and today's weekly jobless claims all were disappointments.
Meantime, big bond ETFs are up for a second day in a row...no sign of that Great Rotation out of bonds, into stocks.
So who's right...stocks or bonds? The bond market is saying that with yields remaining at their lows, the economic growth is sluggish. The stock market, sitting near new highs, is saying corporate profits are near record highs.
Who's right? They both are a little right. Economic growth is sluggish...two percent GDP...that's sluggish...but corporate profits are at record highs. How did they get there with sluggish growth?
Corporate America has become cost cutting monsters and have learned to do more with less.
My sense is that the bond market has got it a little more right...but here's my problem: they're both being manipulated by the Fed. The Fed is standing on the head of the bond market, keeping rates low, and they're inflating the stock market. How much? I know people who think the Dow would be 1 to 2 thousand points lower without QE2 or QE3.
