This week could definitively determine the route U.S. equities are going to take. Tuesday: Procter & Gamble and Intel; Wednesday: JP Morgan, Thursday: Goldman Sachs and Citigroup; Friday: Bank of America and General Electric. I suspect banks will report something similar to previous quarter; but the market impact would not be so profound. I still believe that the banking crisis will have round two, but not at this moment, probably in few quarters. Interesting Bloomberg article today on bank earnings composition. Bloomberg story: Writedowns on Mortgage Servicing Make Even JPMorgan Vulnerable . We will see when the reality catches up with accounting.

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Asian markets closed marginally lower on indications that credit crunch is returning. Nothing major jet, but worth of giving some thought on that, especially having in mind recent decrease in US bank lending and falling monetary aggregates. Indication how excess liquidity isn’t finding its way to real economy. Doubts on the strength of recovery still remain. Bloomberg story: Aiful to Seek Debt Reprieve as Refunds Roil Consumer Lender.

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New highs everywhere, but the feeling, at least for me is unsettling. Setting aside my skeptical mind, looks we could fly even higher. Still waiting for the right point to initiate short SPY position.

Today’s news from China was taken by the media as a positive surprise. China’s industrial production rose 12.3% yoy. New lending was at 60.1 billion USD up 15.3% mom and 51.1% yoy. M2 rose 28.5% in August. Everything is blooming. On the other side. Exports on the other side fell 23.4% in August yoy. I wonder who is buying the stuff they are producing and how long can this last?

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The S&P 500 hit the new high for the year yesterday, but it didn’t sparked interest from the mainstream media. The market looks as it is looking for clues in which direction to move. Its similar like in June/July, everything was pointing to move lower but all went in the other direction on “better than expected” earnings. Earnings season is months away and I’m feeling tempted to start a short position.

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The short term top I wrote about in earlier posts evolved to nothing more than just a dip buying opportunity and it looks like we are going to stay range bound unless we have some surprise news. The economic data from the last week was boring, nothing interesting even a bit, and nothing that would change my views. Only piece of data that occupied my mind (for few second at least) was unemployment report. Non farm payrolls for August came at -216k vs -230k consensus and -276k in July (as usual revised downwards from -247k). Unemployment rate hit 9.7% vs. 9.5% consensus. Obviously the pace of job losses has slowed down, but with such high unemployment the recovery is not just around the corner. Off course, media can find optimism in the worst piece of data. According to Bloomberg this is positive for company earnings. Yeah, sure…. Bloomberg link: U.S. Recovery Leaving Workers Jobless May Spur Company Profits

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The market has come down slightly in last few days. Again, major theme was health of world banking sector.

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Same as the day before, yesterday we saw mostly “better than expected” data from the US. Most notably new home sales were up 9.6% in July. Durable goods orders came 4.9% higher in July vs. 3% consensus and -2.5% the month before. Better than expected orders were mostly result of US government “cash for clunkers” program from which, by the way, mostly benefited Japanese auto makers. Durable goods ex transportation came at 0.8% vs. 0.9% consensus and 2.5% the month before.

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We have had some spectacular runs from the recent lows both in the equity arena and among commodities. As I am writing this introductory post markets are hitting new highs for the year. Common to these diverse markets is that we have seen little or no material improvement in underlying fundamentals only consolidation at initially depressed levels.

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