Sunday, January 10, 2010

Market Jibber Jabber

Markets are going full steam ahead. Big economic numbers out of China seems like it will cause the market to continue its trek tomorrow. Some thought the market would sell off hard at the beginning of the New Year. I argued in private this was probably not going to be the case coming out of the gate. However, I also argued that the second week of January may start a reversal. Well, we have five days of up movement closed off by last Friday which saw a truly bad jobs number and record drop in credit. Both are argued are lagging indicators but two points should be made. On the jobs front, the internals were really weak. The headlines is what it is but the length of the workweek, average wages, and the diffusion index all were very poor numbers. That doesn't show an improving jobs picture. On the credit contraction it was a record drop which means the credit picture is getting worse not better. So maybe it is lagging but should have really been ignored?

The real reason it may have been ignored and seen as favorably is because the market needs the not to hot not to cold economy. A surge in employment would mean a surge in rates and would be to good a news. The market really doesn't want terrific news. They want a sweat spot where papa government has to keep its liberal policies.

I thought the second week of January may mark a reversal. It may be the third week when the housing numbers come out. At long last (I was about four months early) I think you will see the housing numbers show some very negative prints. If I am right the market may not react favorably because that is a leading indicator not a lagging indicator. If the market would brush off a negative print (which is possible) the thought logic will probably be that it is the first month after the intial tax stimulus which pulled forward demand but the same thing happened with car sales in August. This caused a month or two of weak prints but car sales have stabilized and housing will also.

We will see. For the moment the market sees only one direction. It likes heading up.

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