Credit markets seem to be improving. Spreads on North American High yield corporates came down to 1151, down from about 1300 not too long ago. Also, spreads on Markit iTraxx Crossover Europe are now below 1000 (at 975). This may mean that there is no major credit event that could derail the financial markets in the immediate future.
- The Senate is working on a new bankruptcy provision for foreclosed homes which will force banks to accept a negotiated settlement on the mortgage rate and the principal. Yet another meddling by the lawmakers who did nothing to prevent this from happening in the first place.
- I heard on CNBC that for the first time since October, Feds balance sheet shrunk (don’t know by how much, but this is positive news for the economy and stocks).
- Today Financial Times reported that Germany’ bond auction on Jan 7 was a flop. This may be the biggest warning to all the governments who are counting on borrowing and spending their way out of this economic crisis. Watch Treasury actions closely, when no buyers show-up at a US bond sale, things could get ugly without any notice. Do not diss this possibility especially in light of this report: China is holding on to its cash: CNBC (Thanks to MJ Thomas)
China has bought more than $1 trillion of American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home, a move that could have painful effects for American borrowers.
The declining Chinese appetite for United States debt, apparent in a series of hints from Chinese policy makers over the last two weeks, with official statistics due for release in the next few days, comes at an inconvenient time.
On Tuesday, President-elect Barack Obama predicted the possibility of trillion-dollar deficits “for years to come,” even after an $800 billion stimulus package. Normally, China would be the most avid taker of the debt required to pay for those deficits, mainly short-term Treasurys, which are government i.o.u.’s.
- Market sold off on Wednesday Jan 7 – mainly due to the larger than expected job losses in ADP jobs report.
- Today, after poor Dec sales numbers, some retailers’ stocks got hit, especially Wal Mart.
- Market basically shrugged off the possibility of any possible negative surprise in the jobs report tomorrow.
- Financials were weak yesterday and today. JP Morgan, Wells Fargo and BB&T were weak, touched or breached the lower Bollinger Band. However, not all financial stocks lost ground.
- After the close, APOL reported “better than expected” results. Stock is trading at 84, up 7 for the day.
- Chevron warned and the market yawned.
- Bill Gross is recommending buying Minis before Obama’s stimulus plan kicks in.
If you are bored, post your prediction for the employment numbers tomorrow. Consensus is about 500k jobs will be lost and the unemployment rate will rise to 7%.
I think the market’s reaction to jobs number tomorrow will hold the key to reveal the sentiment that will govern the next phase of this bear market. I am currently 60% cash and 40% short via SRS and puts on VLO (for short-term trade only)
According to Ian Shepherson (chief U.S. economist at High Frequency Economics): based on Tue’s ADP numbers and the recent revisions, if history holds, we should expect a number of about -700,000.
Thanks for the post Mohan. The market will tank eventually, but the hourly charts suggest a small bit of life left. The unemployment report could go either way. I’ll SWAG 480K.
Seems like the last few jobs reports have been dreadful, and after a kneejerk reaction, the market rallys on this awful news. Probably happens again.
Supposedly the ADP used a new methodology this time that they believe will produce a more accurate number. If that is the case, then the number tomorrow shouldn’t be much of a surprise.
I think this will be a case of sell the rumor (the ADP number) and buy the news (the number tomorrow), but who knows in this crazy market.
Good luck to all and thanks so much for all of the insight. This is an AWESOME site!
I’ll take a stab and guess the number will be lower. It just seems like everyday in October, all you heard about everyday was huge layoffs. I did not hear that in December and was actually suprised by the ADP report.
***The real killer might be the charge in the median length of time unemployed.
One could say that from Sept 2005 through March of 2008, it held up pretty well. From April 2008 to October 2006 it climbed, then a little better in November (10 weeks of unemployment.
Now then, except for 2002, December has been close or lower than December. So, if the medium greatly increases, we are in deep deep trouble. That could be a very bad sign and will probably happen. The number would have be 12 weeks or more, IMO.
http://data.bls.gov/cgi-bin/surveymost
Here is another good read: http://www.bls.gov/opub/ils/pdf/opbils71.pdf
****Sorry…I butchered the post above – I should have proofed it.
RE-written:
’ll take a stab and guess the number will be lower. It just seems like everyday in November, all you heard about everyday was huge layoffs. I did not hear that in December and was actually suprised by the ADP report.
***The real killer might be the change in the ‘median length of time unemployed’.
One could say that from Sept 2005 through March of 2008, it held up pretty well. From April 2008 to October 2008 it climbed, then a little better in November (10 weeks of unemployment as the median).
Now then, except for 2002, December has been close to or lower than the month before. So, if the medium greatly increases for Dec 2008 from Nov2008, we are in deep deep trouble. That could be a very bad sign and will probably happen. The number would have be 12 weeks or more, IMO.
http://data.bls.gov/cgi-bin/surveymost
Here is another good read: http://www.bls.gov/opub/ils/pdf/opbils71.pdf
I’ll play. If it is terrible, we open low and close high. If the number is better then expected, we open high and close low. There has been ALOT of buying ahead of this report and I think people will take profits with a gap up and buy the dip on a gap lower. Shorts want out and are frustrated, so they’ll cover on a terrible number. Longs will lock in their gains on a better then anticipated number. Thats my call…and I think we’ll see a loss of 713K and a revision downward of 84K for November.
My impression is that the government will fix the numbers and make things look better than they are. ADP is not government run so their numbers are real. A likely surprise number of less that 500K will cause the market to rally initially, but then the selling will start. I totally agree with you on this one Shawn.
Obama already said that the Dec job numbers would be “sobering.” He also said that if we don’t do anything, at this rate soon we could hit double digit unemployment. I take that as “worse than” Nov. numbers – which I believe was well above 500k. Therefore, I would say that the number is close to 700k and the unemployment is 7.1
Also, since I closed my FAZ, the market will tank at least at the open and FAZ will probably jump some 20% at the open.
Lol, I also sold my FAZ so we’ll definitely tank. Good point about Obama. He has been warning all week that the numbers have been getting much worse.
Is it now all priced in because he warned?
Some new announcements this week:
Company name Date of announcement Number of jobs cut
Schlumberger 01/08/2009 1,000
Walgreen 01/08/2009 1,000
Lenovo Group 01/08/2009 2,500
EMC 01/07/2009 2,400
Logitech International 01/06/2009 500
Alcoa 01/06/2009 15,000
Cigna 01/05/2009 1,100
Smart not to hold FAZ overnight, IMO. I think you will find that to be a good move either way. FAZ was very bearish leaving the day – buyers declining quickly.
OK, so if China stops buying US debt, will that lead to a rise in US Treasury rates?
Yes
Yes, that will be the worst part of this whole mess – high interest rates, high unemployment, and inflation – all at the same time. A couple of bad Treasury auctions is all it will take to tank stocks 20-30% in a week.
Is there a source listing dates of these auctions?
It makes sense to me that if buyers dry up, yields must increase. However, it also seems logical that in a deflationary environment, rates will remain low, just as they did in the early 1930′s, although they did rise later. Caveat – I’m long RYJUX.
THe national debt going into the Great Depression was relatively insignificant and the American population had savings. We weren’t reliant on foreign investors funding our ways. These investors will demand higher yields, and they will get higher yields…….sooner than most people think. They have to. There is no other alternative.
If China does not buy Treasuries, the Middle East will have to pick up the slack. If China start selling Treasuries, it is Armageddon.
By the way, ADP included New Unemployment Applications in their number….which they never did before and is not part of the ‘real unemployment’ number. They kind of stacked the deck after missing it by so much last month.
Here is my lotto guess: $585,000.00.
True that Obama did seem scared on TV so that does concern me, but put yourself in a room with 20 economists and try to come out optimistic!!
What is the deal with Fast Money guys today they were laughing that job numbers will be bad & its been beaten to death, no big deal. I mean they have a jobs but have some consideration for the unemployed. It is a big deal!
Yes. I saw that – I didn’t like that tone either. However, we cannot take that too seriously.
There seems to be growing speculation that China will fund its stimulus program by selling US Treasuries, versus printing/borrowing money. The idea is that the latter option would create intolerable inflation. Additionally, the Chinese may conclude that selling their Treasury holdings (to invest in domestic infrastructure) will provide greater stimulus than lending to the US (to maintain demand for Chinese exports).
On a similar note – yesterday, the German bond market reportedly experienced a failed auction due to insufficient bids. This may be cause for concern later, as Germany is considered to be one of the more creditworthy governments.
Thus, interest rates may increase despite all the governments’ recent efforts to keep rates low.
Oops – I didn’t see your updated comments Mohan.
So what’s your thought on possible plays?
The Middle East is in a bit of a cash flow bind with oil at $40. They’re not going to save us from ourselves.