The market saw a solid rally following Europe, even in the face of the ADP report which came in worst than expected. The market however didn’t have legs going into the close and saw some selling pressure. We may see some intra-day volatility – but it is also a long weekend and the summer (lower volume). Certainly the jobless rate is going to go up, the question coming into this morning was by how much. Obama was on the marketing parade with his town hall meeting selling his Health Care plan, but it was frustrating listening to the rhetoric – it is only time before the people can LISTEN to positive optimism “Change” - before they start getting frustrated because they are NOT SEEING positive “Change”. The problem is spending and debt.
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ECB leaves rates unchanged
We didn’t expect any change in the rates, but we are keen to find out about their bond auctions and lending. The ECB last week lent a record $600 billion to banks for 12 months, hoping that will trickle through to companies and consumers, if the U.S. is any gauge – the banks are clogged and the money is not flowing through. The big concerned by the ECB, is similar to ours, that the loan growth is slowing (even after they pour money into the banks). Both Europe and the U.S. government’s well intentions to help the consumer is really not seeing any traction. That is the serious problem, how much Drano do you pour into the sink to unclog the drain – there is a point at which the Drano becomes part of the problem as it begins to overflow in the sink (as it is still clogged). That is pretty much what we are seeing, we can continue to pour money into the system – but it is not coming out the other end to companies or consumers.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a.5DiJzpa1p0
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Job Losses – Good, Bad, Ugly?
The Good, unemployment rose to 9.5% from 9.4% (less than expected, at 9.6%)!
The Bad, we lost 467,000 jobs in June (worst than expected at 100,000 more than forecast)!
The Ugly, there is no signs in growth rate and revisions of job losses are pushed out even further (especially in the wake of GM and Chrysler).
http://www.bloomberg.com/apps/news?pid=20601087&sid=az1UHIDg.Ta4
There was some good news as to a slowing down, we were seeing losses in the 600,000 per month and it is now in the mid 400,000s per month. So it is slowing, but that is a given since there is a finite amount of jobs. However, what we NEED to focus on for forecasting growth is are there any NEW jobs being created – those signs are still uncertain.
Additionally, there is a huge drop off in the unemployment (suspected to be 1 to 2 million) from those that fall off unemployment benefits (now called “discouraged worker”).
The futures were down coming into the numbers, saw a shocked drop of 10-20 points, ripped back up and rallied 10-20 points, then came back off, and now at the pre-announcement numbers. That all happened in 5 minutes – which clearly shows how low volume, speculation, and knee jerks can inject serious intra-day volatility swings.
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J&J expands
One thing you see in a recession are the strong gobbling up the weak. We have seen some major takeovers in the Drug sector over the last 6 months, now we are seeing companies pick over the bones for possible assets. J&J is paying $1 billion to take a stake in Elan and help fund the development of medicines against Alzheimer’s disease. Elan shot up like a rock in the foreign markets (J&J is seeing a little weakness for having to coin up the money). However, long-term these are the times to keep your eyes on those companies with deep pockets that can reach out and expand when others need help. J&J remains a solid company – I think they are the only company still paying a dividend (that was sarcasm), but I think you get my point.
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Futures Pre-market
The futures were low coming into the Job announcement expecting more job losses. The numbers in the ADP came out worse than expected and thus traders were getting in front of the Labor numbers expecting the same. They were right – futures are now down across the board – expect a lower opening.
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Support / Resistance
We saw a good move up yesterday and we look to give it all up today.
INDU 8250 (8500) 8750 (Can you say 8500 pivot point? That is the number we hit yesterday and it looks like we are heading right back down.)
NDX 1400 (1450) 1500 (We are above that 1450 line and I do give the NDX a wider than normal berth just because of its volatility.)
SPX 900 (925) 950 (Again right in the middle.)
RUT 500! (We are at 517, but futures are looking at a 505 opening. 500 is in the cards – it needs to hold going into the weekend. Watch the close.)
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Conclusion
Job numbers did have some positive signs that we are getting closer to the bottom, but don’t mistake or spin positive signs of getting to a bottom as POSITIVE SIGNS of a recovery. We may just be getting to a bottom and could remain there for some time. That means we need to be diligent in managing our positions and expect future volatility as well as sporadic growth. Once we hit bottom for a while – I expect we move to more sector driven markets as well as a NEW type of portfolio creation – which will be those companies with international growth vs. overweighed domestic reliance. Companies will have to make sure they are well positioned to take advantage of growth abroad as the local economy might be stagnant. Companies like CAT and GE – while they have problems domestically have seen huge growth and potential aboard. More companies will look to position themselves internationally to off-set slow domestic growth. As investors we need to start separating those companies, even within sectors to take advantage of those that have diversified prospects.
It’s fourth of July weekend. Let’s take the time to REMEMBER what this nation stands for and what it doesn’t. We are at a huge fork in the road – which will really define this nation going forward and it seems to get farther and farther away of what our founding fathers intended.
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