Friday, December 4, 2009

Punched in the Nose

I have dinner plans tonight so there will not be the usual Friday Night festivities. If the comments are sufficiently morose about this, I may make it up with a Saturday Night Fever of Fun post tomorrow!

Punched in the Nose
I am pressed for time but I did not want anyone to think I was ducking a post on a day when there was data and market action that goes counter to some of my calls!

First off the unemployment number. I was shocked this morning to see a -11,000 print! Even the lowest estimate I saw came in at about -100,000 so this was a 10X better than expected showing. I could parse the numbers and show that these numbers have some issues (they do) but when you get punched in the nose you don't complain it is unfair, you take the shot and move on.

This number was startling and stocks took off at first. Then the idea that easy money may be ending sooner than expected made the indices close about flat. That is interesting in and of itself, is it not? If jobs are being created (good thing) then accomodative policies can be withdrawn (shows strength in economy?) but this is bad for the market. Tells you all you need to know about equities.

Gold and silver were bloodied as well, taking a good sized hit. As Mark of The Illusion of Prosperity has pointed out as of late, the eye popping volume in GLD and SLV meant there was some major maneuvering going on. Not exactly the buy and hold crowd at work. Of course these are proxies for the metals and they have lives of their own.

With the gold and silver trades so heavy right now one can expect increased volatility in Au/Ag prices. Of course metal miner investors understand wild volatility, but I fear this may creep into the metal prices themselves and this will have an even more pronounced effect on miners.

Bottom Line:
It seems a bit fishy to me that a 10X better jobs print would post on the SAME EXACT day as the "jobs forum" at the White House. Add to this a monster dollar rally right after Ben Bernanke was grilled in his confirmation hearing, and you have a suspicious situation.

That said, the macro picture has not changed. I think I would need to see 3 or more jobs adding reports in a row to sway me into thinking firms are really hiring (something outside of education/government/health care growth for example). Also a number of economic reports show a clear slowing once again in the real economy. This will make the current talk of rate hikes and ending of stimulus look dumb.

Still, one day wonders occur and there was plenty of technical damage done today. The next few weeks will be a great time to figure out how you want to be positioned into the new year.

In close, try to remember to duck when someone is swinging for your nose!

Have a good night.

7 comments:

TexasRadio said...

Worth reading twice.

getyourselfconnected said...

Texas,
thanks for the expansive piece. Worth a look.

I guess nobody wants a Saturday night post. No problem.

Stagflationary Mark said...

TexasRadio,

I did read it twice. I might even read it a third time.

"The Chinese are building capacity to meet a world where US nominal GDP is $25trn in ten years time. I fear they could be in for a nasty shock."

I'm a believer!

"Of course, it is not just steel. Consider the aluminium market. We recently had a very bearish meeting with the Norwegian company Norsk Hydro. Admittedly, their strong petro-currency does not help and you have to discount the solace I seek in finding people even more miserable than myself. Even so, the aluminium situation mimics that of steel, but with an even mightier inventory overhang. Four and a half million tons reside at the London Metal Exchange, perhaps 20% of world ex-China annual capacity. It is probable that 75% of this surplus stock is accounted for by financial players exploiting a contango."

Aluminum has been a theme on my blog for the past few weeks. Amazing story there and one everyone who is betting on either inflation or deflation should understand. I'm not suggesting it is the whole story, but better to know it than not to know it.

I would also point to cement. I think it really shows the overcapacity problems too. I would have never guessed in a million years that a global construction boom could have seen global cement prices so low.

Cement Prices Warn of Overcapacity and Deflation

http://illusionofprosperity.blogspot.com/2009/11/cement-prices-warn-of-overcapacity-and.html

That chart is just stunning to me. It was enough to turn me deflationist, at least in the short-term. It had me question everything I knew or thought I knew.

getyourselfconnected said...

Mark,
yes that texasradio tip seemed like a spam message but I thought the article was very good.

sedentary state said...

>Tells you all you need to know about equities.

This same thought occurred to me. I've been short stocks since late June (after riding up the first let of the rally), and it's indeed been a punch in the nose. The markets is in bubble mode again, and we know how long that can last.

Stagflationary Mark said...

GYSC,

Indeed. It was the Illusion of SPAM but it held Prime Rib contents. I wish I could say the same about the global economy!

getyourselfconnected said...

I love Spam!
Note; Long HRL