Posts Tagged ‘GDP’

600,000 or more Job Losses for February?

I have to tell you, the market this week has been downright pathetic.

There’s only so many flat days that I can stand before going insane.

Today marks the third day of range bound trading. And when I say rangebound, I’m not only talking the three major indexes. The dollar moved slightly higher against the Euro and yields on 10-year treasuries slightly moved higher. While gold and the commodity complex lost a little steam.

Maybe it’s just me, but it seems like everyone is just positioning themselves for the jobs report on Friday. Estimates are everywhere. I think the number will come in higher than expected.

And I wouldn’t be shocked to see the market hit new highs. But there’s a few reasons why the party shouldn’t even start.

We have to understand that the Fed is nervous about all the liquidity that’s out there. If the 4^th quarter GDP comes in in frothy and jobs are positive, the Fed will start pulling liquidity out of this market. The FDIC is already warning banks about interest rate risk. The FDIC wants banks to actually test huge jumps in interest rates – I mean 3-4% swings at a time – to make sure that the bank is sufficiently protected.

Why would the FDIC ask banks to protect themselves against such huge swings? I think the FDIC sees something it isn’t saying out loud…

In the end, the big risk is that the Fed pulls out money too quickly.

Another reason why celebrating too early might be foolish has to do with the jobs numbers.

You see, the jobs numbers are nothing more than a sampling that the Bureau of Labor Statistics (BLS) does every month in order to gauge the overall health of the job market.

The Bureau then takes this sampling and applies a few filters to it. It tries to adjust for seasonality, and even adds or subtracts jobs based on “assumptions” of what’s happening to small businesses in the business cycle.

The result is that The BLS has been routinely added about 107,000 jobs a month since February. It’s the birth/death model.

But what happens in February is that the BLS ultimately makes an adjustment to the birth/death number for the previous year. At that time, we’ll probably see jobs decline as the BLS measures just how far off the mark they were. I’m not kidding when I say that the BLS could subtract 600,000 or more jobs.

If the stock market is expecting a positive job number, it will probably be disappointed. And it offers a catalyst for a correction in February.

Stuff to Read

http://www.reuters.com/article/idUSTRE6065MK20100107

http://www.reuters.com/article/idUSTRE5B92XZ20100107

http://www.reuters.com/article/idUSTRE60432520100107

Richard Russell’s Now a BULL

After staying most of the day in the red yesteday, all three indexes advanced to close the day in slightly positive territory. The Dow Transports even rose past its October high.

Overnight, oil pushed higher on news that crude inventories dropped 4.37 million barrels last week. Gold fell a little off its highs of $1,144 an ounce and the dollar strengthened a little bit.

Even Richard Russell, the editor of the Dow Theory Letters, has become bullish on this market. To him and other followers of the theory, the fact that the Dow Transports broke above its October high while the Dow Jones is making new 52-week highs signals a bull market.

Other Dow Theorists of course believe that the market isn’t in a bull run. You see, one of the prerequisites for having a genuine bull run is that a rally must overcome a “significant” correction. And so, the drop from September 2008 until March of 2009 was simply too short to be considered “significant”.

What I can pull from this is that there is still a lot of debate as to whether this rally is real or not, even among the traders of one investing theory.

At this point, economic data will matter more than ever in persuading traders to buy or sell. A big report comes next week when we see a revision of 3rd quarter GDP. Most analysts expect it to drop, as the preliminary GDP figures didn’t account so well for the pain small businesses are in.

If we see a big drop, we’re likely to see the catalyst for a nicely sized correction.

But my money is still on the rally continuing into next year. In the end, the dollar carry trade is fueling this reliquidation. And it will take deliberate monetary policy to stop that.