Wednesday, May 13, 2009

Interesting day

First, I saw a 46" spawing Muskie swim under my dock and then the markets go haywire. For the past week, the markets had been looking tired. It seemed as if every time someone said "Yeah, it's bad, but better than expected :)" the chorus of groans grew louder. Finally, with the stress tests behind us it appears as though the data is once again turning and that made everyone nervous.

Retail sales were sufficiently bad to scare everyone. What I found particularly interesting was the fact that gasoline sales were down another 2.3% after falling 3.2% in March in the face of rising prices. This implies that gas volumes are off even more substantially. When retail sales "jumped" in January, I noted that it was mostly due to higher gas prices. Today higher gas prices aren't able to offset lower demand. At some point Walmart will probably come out and trumpet the strength of their business. Don't misread that info - strength at Walmart does not equal strength in the US economy. In fact, I think you could argue that the opposite is true - when the going gets tough, the tough go to Walmart :).

I think I mentioned on Friday that we were setting up for a pretty significant pullback. I'm not sure if this is the start of that pullback but technically if the S&P 500 falls another 18 points or so there is a giant gap in the chart to much lower levels.

As someone engaged in the financial industry I was stunned by the trial balloon floated by the Obama Administration today.

"Obama administration officials are contemplating a major overhaul of the compensation practices in the financial services industry, moving beyond banks to include more loosely regulated hedge funds and private equity firms."

There is sufficient public animosity toward the financial industry that some form of compensation oversight could get passed. This would be another nail in the coffin of the US Financial Services sector. I can trade S&P futures just as easily on a beach in Goa as I can in NYC. A number of large investors have already started the migration east toward emerging markets and a move to limit compensation or make that compensation public, might send the money men in Greenwich and NYC scurrying like snakes from Ireland. Unfortunately, they'll be taking their large tax payments and substantial economic impact with them.


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