Monday, December 28, 2009

If Morgan Stanley Can Walk Away....

....Then there goes the moral argument against home owners doing the same.

This is a fascinating and poetic twist on the underwater homeowner walking away from their bad home purchases.

This really is not a default or foreclosure. Morgan Stanley is just handing over the keys to the banks.

Friday, December 4, 2009

Merry Christman Barack Obama

The Bureau Of Labor Statistics just wished The Obama Administration an early Merry Christmas. What a gift for Barack's Boys.

There is nothing much that can be faulted in the report that came out this morning.

Payrolls only shed 11K jobs this month. The unemployment rate nudged to an even 10%. The broader household survey came in at 227,000.

Hourly earnings rose only 0.1. So wage growth still remains weak suggesting that unit labor costs are not inflationary. When you combine the weak hourly earnings and the bigger jump in hours worked, you get an increase in average weekly earnings. Which is always good just in time for the holidays.

I had a strange feeling that farm payrolls were going to be a lot better then expectations. Non farm payrolls are a lagging indicator while weekly initial claims are a leading indicator. The weekly claims data had been getting a lot better after peaking in the high 600,000's. That figure is in the mid 400,000's at the moment. It was just a matter of time before non farm payrolls started acting better.

But what does this mean for the markets? By looking at the pre-market reaction to stock index futures which have gaped up some 17-18 points, it took the market by surprise. I certainly think that many people were getting short ahead of this report. Many have scrambled to cover those bets. Money is coming out of treasuries, but the dollar is exceptionally strong. Federal Fund Futures have dropped, signalling a possible rate rise (unlikely) as early as June 2010.

But what makes me suspicious of any further rallies in this market is this. So far we have seem the market rally each and every time after a poor payroll report. Now we see a great payroll report, even though the market is rallying some 130 points higher, I see big gains in the dollar. This is not good good for equities. If people are buying back dollars, that is a move toward safety. I understand treasuries are also weak today, but the single biggest reason why equities have rallied is because of the USD carry trade. If the USD rallies further from here, there is going to pressure on risk assets across the board. So far Gold is getting hit hard, dropping below 1200 to 1180 currently. Gold has been the biggest momo trade so far. If they can somehow find a way to break Crude as well, we have a problem in the risk trade.

We may have seen the highs for the year and for the foreseeable future.