Does the Correction Begin this Week?

We are certainly getting an interesting start to
the week. Steve Jobs is taking a health-related leave of absence from
Apple (Nasdaq:
AAPL) and the shares are down around 5%. Apple stock traded down
8% yesterday in
Europe, so there may be some more downside. Apple sold off around15%
the last time Jobs took a leave of absence, so we may see Apple trade
down to $300 a share.

Of course, Jobs’ absence is unlikely to affect
Apple’s earnings, revenues and innovative products.

The Fairy Tale Scenario

A successful investor must be able to be in two
places at once. We must have a firm grasp on what is moving stocks today,
but also have an eye on what will be moving stocks tomorrow.

No doubt this is easier said than done. Because
things don’t always unfold as we expect. And the U.S. dollar’s reaction
to the Fed’s QE2 is a great example of that.

In early August, when the Fed suggested that QE2 was
likely, the result was fairly predictable. The U.S. dollar started
selling off, and stocks and commodities rallied. It was generally assumed
that the falling value of the dollar was being directly applied to the
rising value for stocks, gold, oil, etc.

Goldman-Sachs Makes a $500 Million Bet

Investors who hate Goldman-Sachs (NYSE: GS) have one more reason to despise
the former investment banking giant.

The firm recently laid a $500 million bet on Facebook – the pre-IPO social
networking website with over 500 million users worldwide. And they’ve
valued it at $50 billion, meaning they have a one percent stake.

So why hate Goldman because of this deal?

Is There a Correction Coming?

2011 is starting off with a bang. Stocks are up big
today. And the catalysts are coming from every angle. China’s
manufacturing index is expanding, despite measures to slow inflation,
Bank of America (NYSE:
BAC) settled some of its mortgage put-back exposure, oil is higher
as growth expectations improve, price targets for Apple are higher, and
China has said it will continue to buy Spanish debt.

Each of these news items I’ve listed addresses an
important point of uncertainty. If
China can grow its economy at the
same time it attacks inflation, then the global economy continues to
enjoy Chinese demand for raw materials. That’s a clear benefit for
resource economies like
Australia
and Canada, and even benefits American
and German exports.

Retail Sales are Booming…

We are in the final stretch before Christmas. Yes,
the blatant commercialization of a great holiday gets old. But it never
manages to dampen my Christmas spirit.

Online sales are up 12% over last
year. And brick and mortar sales are coming in strong too. SpendingPulse
reports that clothing sales are up 9.8%, jewelry’s up 2.6% and furniture
sales are up 3.4% over last year.

A Simple Explanation for Bond Yields

There are plenty of analysts and economists that
think QE2 is a bad idea. I’ve been one of them.

And even now, as economic data improves to the point
that GDP forecasts are moving higher, the Fed appears steadfast that the
economy needs more stimulus. The language in yesterday’s FOMC statement
was unchanged.

The inflationary risks of QE2 have been well
articulated by the anti-Fed crowd. And even though today’s CPI number
shows that inflation is not happening, it’s easy to interpret the rise in
bond yields as sign that inflation is right around the corner.

What Will the Fed Say?

Retail sales for November rose more than expected.
The 4th quarter is already shaping up to be the strongest for
consumer spending since before the recession. And the National Retail
Federation has upped its forecast for holiday sales.

Retailers are rallying on the news. But I will
confess some disappointment at the group for its recent performance.
Target (NYSE:
TGT)
has done well, but my top play, Kohl’s (NYSE:
KSS) has performed poorly since it
rallied during the last two weeks of November.

A Trader’s Outlook

Yesterday was an interesting day to say the least.
The major indices gapped higher at the open after Congress and the
president reached a compromise that would allow an extension of tax cuts
and jobless benefits. And while I contend this was the right move, it’s
hard to see it as a major catalyst for stock prices.

Sure enough, stocks sold off steadily most of the
day. And the S&P 500 closed slightly below important
support/resistance at 1,225.