NON BIZARRO WORLD

Is the investing world heading back to common sense where bad news is in fact bad and good news is good? Not sure, but the long bond is back at 4.8% indicating the bond guys are expecting a weaker economy and they are usually better forecasters than the stock folk.

The stock guys wanted the fed to pause and that they did and the market rallied on the heels of the good news that was probably bad news as the economy is/was weakening.

On the inflation front, the data changes often and at times seems good and other times bad. Bottom line, the fed heads will be more concerned with the state of the economy and the markets than inflation as the all important 2006 elections get closer.

My point, the news will probably get worse in spite of the CNBC contention that earnings are good and will probably stay good. Yes, they are good but I suspect that earnings growth will slow and hence the "low" P/E's that we have now will not be perceived as that low when the growth continues but slows. Companies will be perceived as less valuable if the rate of their earnings growth slows.

The also often mentioned CNBC hope of large cap outperformance is probably right around the corner as the shape of the trend lines turns south. Big caps will outperform the little guys when the markets head lower although I don't think that is what the CNBC "journalists" mean when they say big cap outperformance.

And isn't it interesting how now the "journalists" are trying to shrug off the lousy housing/personal economic numbers by anticipating that business spending will improve and therefore the economy will continue growing. Funny how they said the reverse when business spending was slowing (if anyone remembers).

My take is that there will be opportunities on the long and short sides but for now I anticipate the period after Labor day and through the middle of October will be challenging for the longs.