Clowns to the left of me,
Jokers to the right, here I am
Stuck in the middle with you!
- Stealers Wheel, 1974

The recent data on the economy is stronger than was expected. Does this mean that the slowdown we have seen for the past few quarters is behind us? Other data suggests the economy is weakening (witness the very slow 1.3% GDP growth last quarter). This week we look at the seeming disconnect in the data, briefly examine where the real stock market booms are happening, and re-visit the housing markets. It's a lot for what will be a quick letter (and lots of charts), as I am trying to leave town, so let's jump right in.

(And yes, I was supposed to finish a letter I started two weeks ago on black swans, but a technicality is holding up that letter. It will be resolved next week.)

One of my favorite cartoons of all time is that of a very scrawny mouse caught out in an open field with a rather large hawk swooping down on it. There is no place to run, no place to hide. All the mouse can do is face the hawk and give him the bird, so to speak. The caption runs something like, "In the face of total disaster the only appropriate response is utter defiance."

And while the economic data is not a total disaster, it has not been good this week. Yet the response of investors everywhere is defiance, or at the very least serious nonchalance.

Recession possibilities? "What recession? I spit on your talk of recession." They continue to assume that things will turn out much better than merely OK. All manner of investments are priced for perfection, perfection being defined as growth slowing enough to take out inflation risk yet not enough to hurt the ever upward rise of corporate profits. Goldilocks is the name of the game.

I had occasion to be in my car this morning, listening to CNBC, when the host of the show (Bob Pisani, a very nice gentleman on the few occasions I have had the opportunity to meet him) was arguing with a modestly bearish guest. Yes, there are a lot of reasons for concern noted by bears, but the market is clearly disagreeing with their pessimistic views. Stock indices are hitting cycle highs and seem poised to go higher. He and many other optimists seem to be of the opinion that since the market is going up, it is telling us that the economy is ready to find a Goldilocks "Ahhh, this porridge is just right!" soft spot on which to land.

However, as I remember it, the end of the Goldilocks fairy tale is not so sanguine. The final lines are "Just then, Goldilocks woke up and saw the three bears. She screamed, 'Help!' And she jumped up and ran out of the room. Goldilocks ran down the stairs, opened the door, and ran away into the forest. And she never returned to the home of the three bears."

But Bob makes a good point, which should give us pause. How does one argue with Mr. Market? Shouldn't the collective wisdom of hundreds of millions of investors give us reason for concern when they clearly disagree with our own modest insights? Fighting the trend is never a good way to stay alive in today's markets.