Sunday, March 7, 2010

Stock Market Review - 03/05/2010

36,000 Reasons to Rally

On Friday (03/05/10), the Labor Dept. reported that the US economy only lost 36,000 jobs in the most recent survey instead of the anticipated 75,000. The unemployment rate remained unchanged at 9.7%. That was the 'official' news. The chart below shows the market reaction as Friday proved to be a very strong day with very strong buying volume. To the latest group of poor folks relegated to the unemployment lines, we say 'thank you for your sacrifice'. Had the economy not shed some jobs, the wondrous productivity number might not have been so high. And, there were only 36k in the latest number. Again, it wasn't as bad as was expected. Thus, the markets rallied.

The markets always rally when the economic news isn't as bad as expected. To the market, that means that the economy is improving. Contrarians might argue that the economy is just not getting worse at the same dismal rate. The former makes the market rally so that's what we go with. Never mind that home sales just cratered to the lowest marks on record. Never mind that the county's debt hole continued to grow as the Treasury issued over $100 billion in new debt the previous week. They are scheduled to issue another $80 billion or so in the coming week. Aaahh, the debt.

The markets no doubt rallied in part in response to the news that Greece announced an economic austerity plan backed by a fresh issuance of more debt. Yes, that's double talk but that is our modern market. I'm guessing that enough credit default swaps were created to allow for the absorption of the new debt but that is also the way things work these days. No one really trusts sovereign debt so swaps have to be created to cover the debt. Presto. Problem solved. Our Federal Reserve has re-written the economics books to that in the chapter describing how to cure excessive debt, the solution is the issuance of even more debt. Just keep the printing press humming and all is well.

At the end of the day, debt is all about trust. While all this was going on in Greece and Europe, and the US markets were in in full tilt rally mode, China announced they were withdrawing loan guarantees made by their banks. What? They pumped up the economy with cheap money and excessive lending, and now they withdraw the state backing? Oh my, the world is really getting nasty. You can't trust anybody these days. Does China not know about the credit default swaps? Do they not know that all debt defaults can be covered by printing more money? Maybe they just look across the ocean and see a bunch of idiots running a country like a crowd following Elmer Fudd on a wabbit hunting twip. Maybe the real story is China is applying the brakes. Maybe they understand that economic expansion lifted by the hot air of debt is unsustainable.

Sorry for the negativity of the real world. The US lost fewer jobs than forecast. Let's rally, rally, rally!! Will the rally continue? I still believe the Fed needs to get the Dow back above 11,400. That was where it stood before Lehman fell. Sure, Hanky Panky Hank saved his retirement package from Goldman and all his pals there. But the rest of the world still has losses they blame on the Lehman failure. They don't understand why Paulson and the Fed only saved the companies that benefited them the most. The picking and choosing nature of their decisions was confusing and untrustworthy. Hey, boys, that's our country. Anybody else want to play? Of course you do. There is another ally going on. In case anybody cares, an uptrend is higher highs and higher lows. We are still in an uptrend so the Dow has to push higher than the last high of 10,720. My guess is we will at least knock on the door of 11,000 shortly. All we need is another 25,000 or so people to lose their jobs. Rally Ho!

DIA - 5 days, 1 hour bars - 3/1/10 - 3/5/10
Chart courtesy

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