Welcome to the Blue Money Report

After spending a long four day weekend in central Oregon without access to my computer (which I brought but never touched) and away from stacks of financial information (which were waiting for me on my return), I do feel refreshed and ready to make some sort of interpretation of what has been happening.

The Week Ahead in Equities
While there was always a lot to worry about, now we are asked to worry about the growing difference of opinion from the executive suite and the investor pool. The execs seem to be of the notion that there are more than a few reasons to be discouraged. The investor as we well know has snubbed any and all worries about fundementals and valuations and has begun a real downhill chase carrying what I believe to be the proverbial bucket of water.

I have mentioned deflation before and the specter of it remains as an undercurrent to corporate spending. Even with the newly skewed way the job numbers are reported, even with economists saying that the ratio to those that were unemployed in previous downturns as minimal by comparison, even with the recent rallies in the markets all worked into the mix, there is substantial reason to worry.

These same execs realize that spending has only kept pace because of increased borrowing and much of that against the equity in the family home. They also understand that the limits to such spending are quickly being approached. The overall effect of mortgage spending has actually dropped compared to the flat lower rate refinance. If that cash flow is suddenly withdrawn from the marketplace, their worries now would prove to be the safe bet later.

They also understand that ramping up of production kept lean and at the ready by a core group of workers that were left employed would be relatively easy. So why haven't they gambled on a better economy in much the same manner they are gambling on a further and more prolonged downturn in the cycle? Because they suggest that this rally on Wall street, now being given such terms a bumblebee flight (not aerodynamically pretty but flying nonetheless) and religious rally (based on continued faith that someone somewhere will continue to buy) is really being caused by those that are chasing big cap dividends and bargain basement pricing. For the later, the chase to $5 leads to a chase to $10. For the former, the execs have saw the only sign post up ahead as "sell". And that is exactly what they are doing. Top dogs selling is not usually a good indication of upcomin improvements on the economic scale.

The deflation expected by the head honcho comes not from pricing problems that come from supply. Instead it will come, they fear from lack of interest in their product at any price. Jobs will follow downward under either scenario. In other words, this economy still has few current workers to add to the line at the government scholarship office.

Fortunately, this new disconnect is not structural. Overall the economy should be doing an inflationary reversal if demand ever picks up. All of the elements are in place. The big "if" that remains is demand.

The Week Ahead in Bonds
Bonds and fixed income are as worrisome for the opposite reasons. The growing belief in the possible commitment by the Federal Reserve to keep long term interest rates low even after the short terms ones begin to rise will play havoc with investors in the safety net of bonds. There are numerous ways that the Fed could do this (but probably won't) and it is a great leap of faith if you believe that they will do so. Much of this possibility is the basis for the most recent bond rallies. Keeping fixed income short will help to alleviate any inflationary pressures that will arise in the long term as yields continue to push lower.

The Vanguard Group has closed its High Yield Corporate Bond Fund adding to the worry that should be in the back of everyone's mind. Too many people have been chasing the high yield sector hoping to offset the dismal returns in the equity markets. By closing the fund, the long time investors will be better protected from capital gains as a result of transactions.

What the Vanguard could be telling the markets and has even gone so far as to offer words of caution, that no longer is the performance and high yield results of the previous years the right benchmark to use for investing. Many major players are looking at an extremely short term approach, a sort of fence straddling that will pay off handsomely should this equity rally find itself retreating or worse, retrenching for the rest of the year.