Battle Royale

Today is a good microcism of what the markets are bouncing back and forth between: housing, sovereign debt and consumer worries vs. the formidible foe of pure liquidity and 0% interest rates indefinitely.

Responding to positive earnings reports from large, multinational companies (which unlike small busiensses and consumers are showing profitability due to low employee expenses via Mexico, etc and high profit margins), the S&P started out today up about 7 points.

Then came the 10am hour and the new home sales report that showed an 11% drop in new home sales for January! Expectations were for a rebound after such dismal reports in Nov. and Dec. The market quickly came back near even for the day on the S&P in response to this news. Consider also yesterday's report that consumer confidence fell back to April 2009 levels and caused the market to drop 13 pts on consumer spending doubts/worries.

Then came Ben Bernanke and his 10am Congressional testimony in which he stated that (despite recent actions by the Fed to raise some insignificant discount rates) the Fed Reserve Rate (responsible for flushing liquidity into the system/economy) would stay at near 0% levels for a very long time. And then the markets shot back up to a +10 pt level.

Also accompanying the 10am hour were reports/squabbling from Greece that Italy has been more mischevious in hiding some of its debt issues than Greece and that they (nah nah nah nah) have worse debt issues. Childish but potentially true.

And so the markets bounce back and forth between doubts of a balanced, consumer safe US/global recovery and comforts of the Fed Reserve that the crutch of low interest rates and easy financing money for banks will continue. So far the recovery doubts have kept the market from breaking higher in 2010 - but the question becomes - will those doubts and the negative data continue and continue with such magnitude that they outweigh the stimulative efforts of the government or will they subside as the recovery takes stronger rooting? It could be awhile before an answer is found - data will continue to pour in weekly, some stimulative measures are being removed in the next 3 months, new jobs bill simulative measures are being enacted and sovereign debt deadlines of March for Greece have yet to come due. I'm keeping a particular eye on housing and consumer confidence. A dip in those camps tend to strongly correlate to market dips (or lack thereof) as well.