Yesterday saw some downside pressure, but a decent recovery in the late session. Other than the INDU most indices field pretty well. We did see the inversion of the dollar and pound vs. the Euro and it would seem that strength in the “green back” is predicated on optimism in coming new administration. However, both the Gaza strip as well as Russia’s squeeze on natural gas is putting some upward pressure in the energy sector.
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U.S. Postal Service – a leading economic indicator?
On the way in this morning, NPR had an interesting report on the postal service (a leading indicator of the economy?) – well it was reported the US postal service began to see a sharp drop off in mail in Dec 2007. What was interesting was the reported drop off in credit card offers – which started in Dec 2007 and has continued to ramp. The drop in all mail was 9.5 BILLION (yeah Billion) letters and packages last year. The greatest decline since the depression. Even though they made aggressive cuts (note they didn’t fire anyone) – they still lost $2.8 billion and next year is NOT looking any better.
Mail volume always suffers in a slowing economy – what is interesting to note – is that junk mail (which costs companies money to send) is one of the first cost cutting measures. Additionally – as banks shore up capital and lend less, credit card offers will also decline. I found it interesting that the U.S. Postal service tracks this data. It would be interesting data to monitor (credit card offers and direct mail “junk”) – to monitor contraction and expansion. Obviously when the banking systems and companies start seeing better times – mail volume in these segments will expand. Maybe someone will come up with a mail indicator.
Side note: The U.S. Postal Service is the 3rd largest employee in the United States. Unfortunately, being run by the government – revenue and margins are not part of the business plan – which means job cuts are not an option. Even though they have seen the largest decrease in mail deliveries (9.5 billion fewer letters and packages) – not one job has been cut. No doubt they worked on other cost cutting measures – but the losses still mounted to over $2.8 billion and according to the report it is expected to be as bad (or worse) in 2009. I am not trying to be a cold heart – but to show that government is not the best manager of business – if the mandate is that jobs are an entitlement, rather than a means. Please don’t send me email that if they decide to cut jobs – mail will not get delivered. Don’t worry – taxes will also pick up the short fall of the $2.8 billion or the country will go just a little further in debt – but they’ve got jobs! – sorry for the rant.
NPR: http://www.npr.org/templates/story/story.php?storyId=99027132
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APPLE and JOBS
No – not jobs, Jobs (the CEO). Jobs and Apple are two peas in a pod. I first owned an Apple ][ back in the 80s – and in the 80’s computer geek arena, both Jobs and Wozniak (who had literally built the computer in a garage) became household words. Jobs went on to manage Apple – but the company fell into ruin and Jobs got the boot. Under new management the company was floundering, relying on the public school system to buy computers to make ends meet and even a large investment by Bill Gates (feeling sorry for his competitor?). Apple lost its magic – innovation. To me – Apple defines innovation – they don’t design anything new – they just do it better and know how to bring existing technology together to almost an art form. Jobs came back and with that came the magic. Ipods, Iphones, Imac, Air Macs, etc.
But now there is a problem – Apple is as much Steve Jobs as Steve Jobs is as much Apple. Unlike the San Francisco 49ers with Joe Montana, who had groomed a successor in Steve Young to keep their Super Bowl dreams alive and well. Apple doesn’t have a backup quarterback. Jobs is it – and he IS mortal (regardless of what some Apple fan boys tell you.)
Well – as you probably know, Jobs is ill and will be missing Mac World. He will be missed – and it will probably be the talk of the entire convention. Jobs is not an easy man to work for (or so I have been told) – but he is the driver, the heart, that brings that magic sauce together. He knows what works and what doesn’t. So who is going to replace him? Jobs is not just some run of the mill MBA with good business sense – he is APPLE.
So the two questions are:
1. Short-term, How much of Apple stock price is Steve Jobs and how much is Apple’s balance sheet?
2. Long-term, What does Apple’s future hold and who’ll lead the way?
Apple saw some good gains the other day – and will probably continue to do so – however at some point Jobs will leave, when, in what fashion, and who replaces will bring lots of volatility to Apple stock in the short-term and long-term viability of innovation comes into serious question. All we had to do was to look back at Apple when Jobs left to see the results – the stock floundered around in the mid teens and even needed Bill Gates to buy some shares. Is that the future of Apple? How much more can they milk the Ipod or Iphone after he leaves? And what will be the next new exciting innovation from Apple?
Hedge your bets – is the best bet.
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Dollar up and gold down?
Gold has sold off and then rallied recently – back up to the high 800s again. But something interesting is happening – in the face of reason or logic. The dollar is seeing some strength - maybe this is just a Obama “hope” rally in the dollar. The Euro did come off to the 135 level (staying above 130) and the Swiss Franc also came back down below 90. The Yen is still in the 100+ area. So why all the volatility in currencies? In my humble opinion – the calm traditional borrowing/lending carry trade and leverage has turned into mess that on any given day – forced liquidation, chasing yield, or flight to safety is driving the currency markets. Some of the biggest institutions have unwound massive leverage – sending currencies into jolting volatility and hyper moves (that make them look like dot.com stocks of old). Silver and Gold had come off (while gold did make a return – silver much less of one – to higher ground).
We are now in very foggy times – even the smartest people in the room cannot agree on what the next day will hold. The system has cracked – seriously. The problem is how to we measure inflation and currency risk – since most currencies are fiat (based on nothing but faith). The US dollar has become very interesting - a debate between faith and math. The treasuries are even more interesting – people have bought up treasuries (prior to the Fed setting interest rates to zero) in the biggest exodus to a supposed safe harbor all based on faith. The government is in massive debt, so much so that it could not pay out it’s treasuries rate of return without going further into debt – as Bernanke lowers rates to zero (and has suggested quantitative easing – buying treasuries himself to keep the rate at zero). Where do you go from there? How do you get out from underneath that? Japan is in that lonely place – and has yet (in over a decade) not made it out.
Is the rally in the dollar based on anything but faith or hope? If you listen to Jimmy Rogers – he would be telling you – are you crazy? Don’t you know how to add and subtract? It’s hard to take a stance like Rogers, why – because it goes against everything we believe in – faith in the government and trust that they know what is best.
No doubt we will be testing our dollar – and pushing it very hard – the question is will it break. If we measure it by money markets – it broke already last year. If we measure it by fed policy and debt – it has broken with the need of quantitative easing. If we measure it by the budget deficit and debt vs. revenue – it has broken. If we measure it by inflation adjusted interest rates vs. growth it has broken. So why is it strong? Faith – faith alone. It is the world’s reserve currency – too many nations need it to justify the value of its own currency, the world relies on trading, exports/imports/ consumption. The dollar is also a proxy for many commodities (including oil). But what happens when a large nation (like China) says – we don’t want your dollars – we want to be paid in Gold, Silver, Yen, Euro, or anything else?
Some say that is silly – but that already happened in the 1960s. When we were on the gold standard and France (and others) called our bluff. If the dollar is as good as gold, pay us in gold – not dollars! We had printed more dollars than we had gold – we had no choice – we broke the gold standard and we folded.
I personally believe it is not IF it will happen, but more of a matter of when. If ever we needed to pay attention to inflation, (the buying power and strength of our currency) – it is now.
Look for inflationary hedges .
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Futures Pre-market
The futures are seeing some positive gains and no doubt the Arb traders will be shorting futures into the opening to buy the basket to close the spread on fair value. Expect a good jolt to the upside at the opening if the spread remains.
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Support / Resistance
Nothing exciting to report – just testing those levels.
INDU 8500 / 9000 (Yesterday I said 9000 was resistance if we closed under it and support if we closed over it. We headed lower yesterday, however it looks (based on the futures) like we will be testing it as a resistance again today.)
NDX 1200 (1250) 1300 (Yesterday we flirted around the 1250 pivot area – but closed above it. The futures are showing a stronger opening – for now. Do we stay at or close to the 1250 area?)
SPX 900 / 950 (Right in the middle – a little higher at the opening – but still just waiting)
RUT 450 / 500 (Again it was just above the 500 level – which I am still calling resistance for now – since it didn’t move yesterday – watch the close.)
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Conclusion
I have a feeling – from the action I am seeing – that the market wants to ignore any and all news and place a big long bet on Obama’s inauguration. Sort of like ushering out the old and bringing in the new – is a time for celebration. People are looking for an excuse to get out of this hole we have been in and put 2008 in our past. The market moves on perception – so it is possible to see the economy suffer even more and the market to have a very delayed reaction if the market decides to go higher on optimistic euphoria based on Hope and possible Change. It’s like we are paused for an all systems go launch.
However, I have a deep feeling – even if we do get a nice rally – that even with Obama’s best intentions, he can’t turn around the economy overnight. It takes more than a pretty face, smile, and some rhetoric. He’ll do what he believes is right and we may see some initial positive results – or so they’ll seem. The one thing we can rely on is mounting debt, zero interest rates, and a ballooning dollar. Policies that look bright today may great a deeper bigger problem.
So – I believe we could see a nice knee jerk rally – even some follow through – but we can only ignore math for so long, we can’t avoid it.
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