Wednesday, November 24, 2010

Mixed Bag of Economic Releases and News

Certainly initial jobless claims number looks good.  Last week's good number was only revised a little higher (will one ever be revised lower?).  We also continue to question the view that numbers below 450k are indicative of growth.  We remain convinced that the combination of a smaller work force, and a massive structural shift in employment to part-time and consultants means that companies will have fewer people to lay off.  Also, as this crisis has continued, we question whether people are getting let go but don't qualify to apply for unemployment benefits.  Anyway, for now, it is clearly a good sign, although not as good as people would have you believe, and somewhat understandable coming into the holiday shopping season.

Is it just us, or does opening at midnight for $5 barbies, and 3 a.m. openings across the board seem insane? Playing the fiddle while Rome burns down somehow comes to mind. The rest of the data seemed disappointing.  The situation in Europe remains fluid.  It looks like Ireland will get its money.  Even though the credit markets will quickly shift its attention to Portugal and Spain, the equities and corporate bond markets seem stable.  Maybe it is the end of contagion, but if Spain really does come into play, the slippery slope may not end there.  Concern could spread to Italy. Not just because of Italy's existing problems but also because that they will have bought or guaranteed so much other debt.  It feels like the market is pricing in Portugal, but not Spain. If Spain does step up to borrow money from ECB/IMF/you and me, the markets will react very negatively. It is just too big relative to the "bailout" facilities. 

Korea and China seem calm.  Maybe this is a chance for Obama to play peacemaker and win another Nobel Peace Prize.  On other continued themes, GM looks like it could break $33 today which would not be good, and LQD continues to see shares outstanding decrease. As does TLT and JNK. So seeing evidence of retail investors pulling out of longer dated treasuries, investment grade corporates (~20% financials), and the weaker end of the high yield market (JNK). The fact that HYG shares continue to be stable may mean that JNK is being affected by GM or something and not a sign of investors pulling out. Somewhat surprisingly to me, MUB shares have not been reduced.  Either investors aren't pulling out, or dealers are more scared to own the actual bonds than the shares so they haven't redeemed inventory.

Should be a quiet day. It wouldn't surprise us to see a modestly higher day in the U.S. as people want to be long for the bailout. I would trade that position in futures as it may not last until Friday. A very wise trader once mentioned a few years ago that weakness into long weekends or the thanksgiving holiday is a very bad sign. Good luck and Happy Thanksgiving.

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