The last bear on Wall Street

By John Nyaradi

As the stock market continues to rally, many investors wonder when the Department of the Interior will start granting endangered species protection to Wall Street bears. Or, are any bears still living at all?

It seems that everyone on Wall Street is a bull today as the S&P 500 SPX +0.52% and Dow Jones Industrial Average DJIA +0.58%  have settled into a predictable routine of "another day, another record," despite the steady stream of negative macro economic data.

Bears, now virtually extinct, were hoping instead for a feast as the poor economic reports came pouring in over recent days:

1. April nonfarm payrolls — a mediocre 165,000 payroll jobs added which was celebrated as a huge win by markets last week.

2. ISM nonmanufacturing report showed a decline to 53.1, broadly missing expectations.

3. April manufacturing ISM report posted a drop to 50.7 from 51.3 in March. Because 50 is the threshold which distinguishes contraction from expansion, the April manufacturing PMI fell to just barely within the expansionary range.

4. Euro-zone manufacturing PMI for April declined to 46.7 from 46.8 in March while euro-zone retail sales declined by 0.1% in March. For the 27-nation European Union, March retail sales fell by 0.2%,

5. Euro-zone unemployment came in at 12.1% in March.

6. April's HSBC China Composite PMI (which covers both manufacturing and services) declined to 51.1 from 53.5 in March, indicating the weakest rate of expansion since last October. Hong Kong's PMI also settled into contractionary territory at 49.9, down from 50.5 in March.

Despite all the bad economic news, Wall Street bears look positively cadaverous as financial markets levitate higher and seemingly disconnect from the real economy. This disconnect is generating an expanding discussion, and even a name, "The Great Disconnect," which has followed "The Great Recession," as Wall Street's fortunes look decidedly different from those on Main Street.

Everyone seems to be in agreement that the recent financial levitation has been generated by global central banks, and during his presentation at last week's 10th annual Strategic Investment Conference, presented by Altegris Investments and John Mauldin, Pimco's Mohamed El-Erian emphasized that investors must be ready for the "hand off" by central banks, when the era of assisted support gives way to the era of organic growth.

Even the Oracle of Omaha, Warren Buffett, has joined the discussion by saying that when the Federal Reserve finally raises interest rates from their current near-zero level, it will be the "shot heard around the world".

As the discussion grows louder, the Federal Reserve seems to be coming under ever intensifying pressure, and that was in evidence last week when the Fed announced that it would continue its bond-buying program. known as quantitative easing. Longtime Fed critic Ron Paul emphasized that the program works only to the advantage of big bankers and politicians, while hurting middle-class and impoverished Americans. Warren Buffett echoed a similar theme when he pointed out — at Berkshire Hathaway's BRK.A -0.18% annual shareholders' meeting in Nebraska — that the Fed's quantitative easing program has made life difficult for people who live on fixed-income investments.

So with global central banks locked in a pitched battle with a steady stream of negative economic data and a growing army of critics, the question of the hour is, "Can the efforts of the world's central banks ultimately win against negative economic fundamentals that eventually cannot be ignored?"

One might find the answer by looking around the room. If you see nothing but bulls, either the last bear on Wall Street has gone extinct or he and his friends are waiting just outside the door to launch their next attack. Wall Street Sector Selector remains in "red flag" status for the week ahead, just in case the bears aren't really dead. 

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