Blind Bulls, Tortured Bears, and the ISM Oops - Real Time Insight

Investors like me are sometimes called "blind bulls," because we seem to know only one tune: buy the dip. And in the bears' eyes those dips are shallow because the market is somehow artificially supported by QE bond-buying.

Some bears like Peter Boockvar of The Lindsey Group, who six months later is still calling for a 15-20% market correction as the Fed winds down the program, have good arguments about the structural imbalances caused by massive and unprecedented monetary stimulus.

But where do these arguments show up in the economy, the ultimate driver of earnings growth in the aggregate?

I don't track every economic stat myself. I trust many different quants to do that and then I compare their analysis, knowing full well that a long-only money manager could have some undetectable biases operating on his or her interpretation of the data.

One of my favorite such bulls is Michael Shaoul of Marketfield Asset Management with $20 billion AUM. A recent note of his was featured in Barron's where he started by briefly pointing out that we are quite far from an inverted yield curve, the typical bull killer. Then he summed things up thus...

"Furthermore, both economic data and corporate earnings continue to look healthy. We would therefore be more open to the premise that this period of volatility constriction is preventing the market from moving higher and that the eventual violent break will be to the upside."

In other words, as I've been saying, the VIX isn't telling you to get ready for the correction. It's telling you buyers are reluctantly coming back to the market after the spring shellacking in the growth indexes.

Speaking of data, we had an interesting morning with the ISM Manufacturing release for May. When I saw the "miss" of 53.2, my first reaction as a "blind bull" was "Yippee! We are going to get a sell-off and I'll be able to buy more stuff lower as the S&P tests 1900!"

Why was I so excited about a bad economic number? Because I expect all these data to be somewhat volatile and subject to revisions. In my simplified view of the quants I listen to, the overall trend of the economy is on a good track. And because I am very bullish right now, I welcome emotional dips. Too bad it didn't last very long.

The Tempe, Arizona-based Institute for Supply Management corrected the release to 56 at about 11:30 am ET, saying it had applied incorrect seasonal adjustments on the first go. And so we rallied back quickly as the StockTwits universe of traders railed about government conspiracies and "another stick save."

Even some professional asset managers were greatly annoyed. In a Bloomberg story by Eric Lam and Lu Wang at 1:30pm ET, they offered this quote...

"There will be a lot of upset people who probably lost money on this," Joe Saluzzi, co-head of equity trading at Themis Trading LLC in Chatham, New Jersey, said in a phone interview.

And guess who else they interviewed. Our Mr. Shaoul...

"If this embarrassing episode has one useful outcome it is to remind us all how capricious seasonal adjustments can be," wrote Michael Shaoul, who oversees more than $20 billion as chief executive officer at Marketfield Asset Management LLC in New York. "But the net effect is to transform the report from being slightly below expectations (but still OK) to one which shows a slight acceleration of activity from April to May."

Great summary of the situation from Michael. But another quote in the Bloomberg article was the icing on the cake and offered a sentiment I completely agree with. Barry Schwartz, a fund manager at Baskin Financial Services Inc. in Toronto with $600 million AUM, said such adjustments are too common in economic data generated by the government and private groups like ISM to take any of them seriously.

"If traders get their heads handed to them, good," said Schwartz. "The data screwed up, so what? A fat finger happens all the time in this environment. There's just too much data, it's overkill, and nobody should be making moves based on these types of numbers anyways."

I think this will be a lesson for the fast money and even some of the slow money. Take your time reacting to a fresh report. And try to put it in the context of lots of other data trends.

The place I am going with this winding river of ideas and market players is to the notion that we "must" have a stock market correction soon. I tell bears lately, "In your analysis of the sub-par economy and its sub-par corporate earnings, if all you think that needs to happen is a 10-15% market fall to 'correct the imbalances,' then it probably won't happen."

The market seems to be telling us that (1) the spring growth correction was good, (2) market gridlock for the first six months around S&P 1850 was good, and (3) that institutional investors are still looking forward to growth that keeps them "heads down, picking stocks."

Where do you stand on the economy and earnings? Do they justify a stock market quietly grinding higher with 2013-style corrections of 4% to 7%?

I think they do.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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