Finally a little pullback!
As I was saying to Members yesterday in Chat, it’s not that I’m bearish, I am just looking for a correction to properly test our levels. So far, all we’ve had for gains is pre-market pump jobs on very low volume followed selling while the market is in session (see David Fry’s chart, right). This is how the game works – "THEY" (the kind of people who can and do move the futures markets) dangle a carrot in front of the retail investors and give them a strong open to back up some huckster on TV who tells them to "BUYBUYBUY" the night before and the retail investors are in a frenzy by 9:30 – feeling like they are missing out on "the next big move" in [insert your favorite stock, commodity or index here] and they are blind to the fact that the things they are buying are dropping all day – never wondering who is selling all these equities to them.
I called Monday’s move manipulated and we took some nice short plays into the morning rush but we also took that money and ran on yesterday’s dip as no good dip goes unpunished in this Federally funded market. Yesterday and today are very weak POMO days with "just" $2Bn being handed out each session but they are back with a vengeance starting tomorrow with $8-9Bn per day scheduled to be given away through the 11th, when we will see what January’s new schedule looks like.
This morning our futures were falling but they turned right back up on the release of the incredibly strong ADP data, showing 297,000 jobs gained in December – about 3 times what was expected and over 3 times November’s 92,000 jobs gained. This is the highest number in the history of the report and, if this number is confirmed in Friday’s non-Farm payroll report, then the markets will have no excuse at all not to fly up through levels that will even get me to give up on looking for a correction.
But it’s the levels that are key, not the jobs data as certainly a recovery in the jobs market is already priced into an all-time high in MDY, and EEM within 10% of it’s all-time high so the Plantetary Markets have never been in better shape and I’m sure if there were markets on Mars, they would be at all-time highs too because things have NEVER been better, right? It makes me feel so good I think we should ignore the doomsday economic rhetoric that was heard on the floor of the US Senate:
The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies… Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better!
Unfortunately, that Senator was Barack Obama, on March 20th, 2006 – when he voted against increasing the debt ceiling by $781Bn from $8.2Tn to $8.96Tn. Here we are, almost $7Tn later and thinking perhaps Senator Obama had a good point. Congress is about to raise our debt ceiling close to $16Tn, just to cover our borrowing needs for the next 12 months and the interest on that additional $8Tn in debt at 3% is still $240Bn a year – IN INTEREST!
Of course we don’t count the Fed’s $3Tn spending spree as debt, that would bring our total deficit to just about $20Tn and might make us look "like a Government that can’t pay it’s bills." As far as the "great" jobs news: Hiring even 300,000 people in a month is only about the same as the answer to what do you call a dozen Congressional Indictments – a good start! We need 20 months like that just to get "official" unemployment back to where we were in 2007, the last time the markets were at these levels.
The dollar seemed to have anticipated the good jobs news as it has now strengthened to 80.40 at 9am, up from 80 during the early-morning hours. Ordinarily, a strong dollar move would hurt the market but the jobs news should give us a nice buying frenzy in the morning and now all the indexes have to do is hold their levels and we’ll be looking pretty good from a technical standpoint. Portugal has a note sale this morning and that will be a big deal for the Euro, which is once again heading below $1.32 as the dollar pops higher. European banks are already having trouble competing with Sovereign Note Auctions in Europe so they are racing to push their own sales out early rather than compete with what is expected to be $1.1Tn in EU auctions in 2011.
Flooding in Australia is pushing coal pricing over $300 per ton and food prices are also out of control, putting pressure on all of Asia, who rely on Australia for much of their food supplies. China is scrambling to alter bank reserve ratios in a desperate effort to curb rising inflation and one of China’s leading brokerages now forecasts a slump in 2011 on top of the 14% drop on the Shanghai Composite in 2010. “There will be no gains again,” Zhang, whose Shanghai- based firm Guotai Junan is the nation’s second-largest brokerage by revenue, said in an interview. “Inflation is the biggest risk. The government will keep tightening.”
Have I mentioned that the Emerging Markets index is just 10% off it’s all-time high? Oh good, just wanted to make sure we’re all on track with the madness. As I said in yesterday’s post – "It’s not like anything that happens in China matters, does it?"
So after going up for 9 months based on the "China Growth" story, we will now attempt to go up based on the "China Doesn’t Matter" story – the markets are sounding about as consistent as Obama, aren’t they? Another little market we can try to ignore is India, where food inflation hit 14.4% in December and tensions are boiling over as people simply can’t afford to eat at these prices but watch CNBC tell you how great this is for the Ag sector so we should BUYBUYBUY and keep those prices rolling higher. The UN is calling this a global crisis that is already exceeding the 2007-2008 levels – party on America!
Fatih Birol, the IEA’s chief economist, says "Oil prices are entering a dangerous zone for the global economy. The oil import bills are becoming a threat to the economic recovery. This is a wake-up call to the oil consuming countries and to the oil producers." LOL! Wake up call – ROF! These little foreign people are so cute, aren’t they?
Anything less than an up day off of those jobs numbers would be a huge disappointment.
