Irrational...Illogical?

I'm confused. Are retail sales strong or weak? On the one hand, we have this:

"The Dow surged to a record on Thursday as Wal-Mart reported better sales, suggesting consumer spending is holding up despite rising oil costs and falling home prices."

"The encouraging retail figures and merger activity in the mining sector drove up the Dow up more than 1 percent to a lifetime record high of 13,828.48, and propped the Nasdaq to its highest in more than six years."

First of all, I think it shows complete ignorance to view WalMart's sales as some sort of retail bellwether. Although I agree that they've been a mega-strong player in retail, their sales are representative of the lowest prices in retail. That alone should be a reason NOT to give them much weight in terms of predicting the rest of the retail industry. Perhaps it's indicative of the fact that people cannot afford as much as they used to; thus, WalMart racks up more sales. But what happens when people decide against shopping at all other places because their prices are 'too high'? Then, we've placed all of our eggs in the WalMart basket and the rest of retail declines.
Secondly, I noticed this report:

"The big chain stores beat very low expectations in June, but total retail sales are expected to be anemic when the government reports its figures on Friday, economists said."

"'Consumption is looking anemic in the second quarter', said Leslie Preston, an economist for CIBC World Markets, in a note to clients."

Well, did we just place all of our eggs in the WalMart basket? I hope not (as I'm about to change course on a few items), but it does appear that the market was acting irrationally. To increase the way it did based on M&A activity and on a couple retail reports is ludicrous. I'm not a perma-bear, but I'd rather err on the side of caution in most cases, especially when the downside risk is so much higher than the possible returns. Tomorrow will be the day of reckoning. According to the economic calendar, retail sales are reported on Friday. Why all the hullabaloo prior?

Another reason why I'm bearish comes from an MSN Money article I've read in the last year. It comes from Michael Brush:

"Money managers chiefly put money in two assets: stocks and bonds. One way of deciding whether stocks are expensive is by comparing their performance to that of bonds. If bonds lag while stocks advance, according to some market watchers, fund managers will be more likely to sell stocks and buy bonds."

"To compare them, Goepfert contrasts the current ratio of the SPY to the TLT with the average ratio over the past three months. Since the ratio typically doesn't change much in 90 days, the two values should be about the same. Now, though, with the recent rally in stocks, there's a big gap. The current ratio has moved up to 1.58, compared with an average of 1.5 over the past 90 days. That may not sound like much. But since the ratio usually stays fairly constant in any 90-day period, this is a huge move compared with what normally happens."

That's a lot to quote, I admit, but dammit, it's important. The cost of owning stocks right now far surpasses the cost of owning bonds. Based on my personal projections, the 90-day averages go like this: the SPY is around 150.93 while the iShares Lehman Twenty Year fund is at about 85.70 for the three months ending 07/11/07. The SPY has increased by $7.53 while the TLT has decreased by $2.34. Currently, the ratio is at 1.76. The three month moving ratio for the three months prior to that is 1.60. So, either Michael is a goof and I followed the wrong advice, or he's right on and his prediction is way over due. Are stocks overpriced? I still can't tell, but I'm one day away from changing course on some ideas. Stay Tuned!

FED Releases Money Stock Stats

The FED released June's money supply numbers this afternoon. M2 increased again, while M1 declined slightly. Retail money funds, which are a component of M2, have increased by six percent since the first of the year. Institutional money funds have increased by 10.5 percent over the same period of time. Ironically, the Dow has increased by 11 percent since the first, nearly identical to the increase in institutional funds.
Since we can't count on the FED to corral the money supply, we have to estimate where these funds will be allocated. Currently, a heavier proportion is being placed in the stock market; thus, the Dow broke another record today. It doesn't matter if all the stocks deserve their current pricing or not. If there are extra funds laying around, institutional investors will place them somewhere. They buy the stocks, increased demand causes upward price pressure, and viola: record breaking numbers.
What I've been betting on this whole time is that the funds will be moving from stocks to commodities. It's just a little hard to believe that despite all the bad news in the housing sector and the subprime mortgage market, coupled with the increasing trade deficit and federal deficit and the consumer deficit, the stock market continues its upward trend. When will it end?