Sunday, December 07, 2008

Another Half Million Out of Work But the Markets LOVE IT!

There is an old cliche on Wall Street - "Buy the rumor and sell the news". In essence, this implies that if you hear a rumor of a new iphone, you buy that rumor and sell the stock when the news actually hits the wire.

Friday played out in a similar fashion except that the rumor was bad and the news (500k+ jobs lost) was worse, so they bought the market into the close --- totally logical.

Sell the rumor, buy the news (when the news is really, really bad) was the mantra on Friday. Interestingly, hidden in the employment survey was the birth/death adjustment that added 30,000 jobs in November - excluding this fictional addition of jobs the report would have looked even worse.

The markets have now recovered from the sharp sell-off last Monday and are now positioned for a little rally if they can climb another 5%. From there, the technicians and chart followers will pile in an effort to make up some losses before the end of the year.

These moves don't change my fundamental view that the US economy continues to deteriorate (at an alarming rate) and we will trade meaningfully lower at some point in the near future.

I haven't talked about oil in some time but it is worth noting that oil is trading at about $41 (up a little now on talk that OPEC is going to cut output). That's $105 BELOW the price in July. Prices at the pump have recently hit a 4 year low. Truly a stunning swing.

The reality was that $145 per barrel of oil was way too high (loads of pensions, hedge funds and endowments -- ie, Harvard -- piled into commodities earlier this year) - but $40 is too low. It doesn't mean that oil can't go lower, but the natural price for oil should be somewhere between $60 and $80, but we are not in a natural place right now. The artificial strength of the US dollar has created much of this recent decline, but I expect this to reverse in the next 12 months.

When we're paying $3.50/gallon again for gas next year look fondly on the good old days of 2008 when you could buy a gallon of gas for $1.92.

In an effort to highlight the lunacy of the US consumer as we countdown to Xmas, I'll try to link to the strangest DEAL OF THE DAY that I see on the web.

How about a $120 North Face Hoodie? I haven't spent $120 on all the clothes in my closet - however, that might explain my wife's unease with me in public places (I can still rock my black parachute pants and bolo tie).


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