3 Things to watch instead Yellen's trading game

oldpigwang

Yahoo Finance
By Jeff Macke
1 hour ago

World markets are sitting at or near generational highs, driven by pretty dang solid consumer news, a dash of animal spirits and Fed Chair Janet Yellen's ability to play the obfuscation game just as well as Greenspan and Bernanke before her. Here's some stuff to keep in mind as we cross the halfway point of the week.





#1

The S&P 500 (^GSPC) made its 4th record closing high of the year yesterday. The official catalyst was Yellen's testimony on Capitol Hill but you and I both know better. Even if you concede all the participants are intellectual agile that doesn't mean any actual debate is going on in these meetings. Yellen and the pols are all observing what carnies and pro-wrestlers call Kayfabe; the portrayal of staged events as real or true. Yellen's job was to show up, say some confusing stuff and not terrify the market. The politicians were simply hoping to come up with hard-sounding questions they can use as a soundbite for future ads. Everyone did their job. There won't be another of 2013's "Taper Tantrums" today. That means our officials did literally the least they could be expected to do. If you really think that's a reason to change your portfolio you are the sucker at the table of the poker game called trading. You're the mark in the wrestling audience. The truth is the debates are staged and the Fed is making it up as they go along, depending on the data. They don't really make a secret of that fact.

#2

You want to know what really scares the Fed? Interest rates. Check out the yield on the 10-year bond over the last few days. It's back down below 2% and still in a downtrend as tracked by the CBOE Interest Rate 10-Year (TNX). The Fed's biggest fear is that they try to raise rates and the bond market doesn't go with them. The Fed like all financial institutions survives on the trust of its customer base. The Fed can't get out of sync with the bond market. So far, they aren't. Whether or not they lost control once a hike cycle starts is a problem for later this summer

#3

A far better reason for buying stocks is the action and news out of the consumer discretionary world this week. Lowe's (LOW) is out this morning with earnings that came in better than expectations just like Home Depot (HD) did yesterday. The company reported better than 7.9% overall store comps and 8.9% U.S. comps respectively. The world’s largest home improvement retailer does $100 billion in revenues annually and Lowe's just isn't all that great as a retailer. Trust me, they aren't posting those numbers without a tailwind.

It's not just in the states though. Everything is also awesome at Lego which reported annual sales up 13% and profit growth of 15%. In times of scary globalization it's important to remember that business is a universal language. When you're Lego, meaning you're well managed and churning out product customers want you take share in strong economies. When you're Mattel (MAT) you whine about Barbie's being out of style. You can't invest directly in Lego but the lesson applies to all businesses.