Over the past week, the market has started to act a bit more normal and healthier. We haven’t seen violent moves catching many off-guard and we are still attempting to grind higher. The concern is we are still very correlated to whatever Europe does. Stocks are moving in line with the general market making individual stock picking much tougher and less rewarding than a healthy market would be. We are still better off than just a few weeks ago though. If this Europe situation starts to calm down, we should see a market rewarding good fundamentals making way for a healthier overall market.
JOBS REPORT
The jobs report on Friday looked decent at first glance and to be fair, it was a more positive than negative report, but far from one we can be excited about. The public U-3 (and less important than the U-6) unemployment number dropped from 9.1% to 9%. The U-6 (more so, the “real” unemployment number) dropped from 16.5% to 16.2%. According to the report, we lost 20,000 construction jobs which concerns me after we gained 27,000 last month. Manufacturing, which is typically considered middle-class jobs only added 5,000 jobs, yet an area that is rarely discussed by nearly all political leaders as an area of concern. The fact that we still do not add a significant amount of manufacturing jobs is very concerning to our middle-class and will attribute directly to the income disparity that is discussed very often these past few months. With large trade deficits, we continue to focus on being a service economy who imports goods (as if we are a strong economy with such a luxury) rather than a manufacturing-driven one with more companies (therefore jobs) popping up able to sell non-high tech American goods. This large trade deficit directly helps other countries, not our own. One reason for it is in hopes that other countries use that money to buy our bonds. If other countries don’t continue to buy our bonds (our debt) with the capital that we “export” to them, then most Americans will see more pain in the years to come. Our dependence on other countries to buy our debt is a growing concern.
Also in the jobs report, retail added 16,000 jobs, but will that be sustainable after the holiday season Doug Kass noted that October retail comps were unimpressive as only five companies beat expectations and 13 could did not even meet expectations. If we didn’t have global fears that could greatly impact us, the jobs report would be a bit more optimistic, but time is not on our side as other countries are growing weaker, not stronger. We are running such a large yearly Federal Govt deficit of about $1.4 trillion and this is all the jobs we can manage to create With the amount of risk associated with running such a high deficit, it seems we must cut spending immediately and prepare to be a stronger country down the road for doing so rather than trying be strong now with a high risk plan that is clearly not working. I keep repeating this, if we keep adding debt and our economy does not grow stronger very fast to offset these high levels of spending, then we run the risk of other countries not buying our bonds (debt) while only Bernanke does (QE3, 4, 5, etc…). When this happens, the bond market will force spending cuts (and tax increases on everything). Does anyone really think these “forced cuts” will be easier or less harsh than if we were responsible and made the cuts ourselves Ron Paul, just a Congressman, has already laid out a detailed plan to cut roughly $1 trillion in one year. His sense of urgency to cut the spending is what current leaders seem to lack. I applaud the fact he puts himself out there for attacks because lets face it, if we dramatically cut spending like we need to, many will be vocally unhappy because of the short-term pain they will see. Unfortunately, this seems to be the best path to prosperity. Take our medicine now before it’s too late. I’ve been less than enthused watching the Republican debates. I keep hearing (and hoping to be true) that CNBC will conduct a more serious debate about how to fix our economy, so I’ll be watching this Wednesday night to see if any real substance is stated among candidates or more political maneuvering by the front-runners that are determined by media itself. Now back to our regularly scheduled program, the stock market.
STOCK MARKET / EUROPE
On Saturday, Greek Prime Minister George Papandreou won a parliamentary confidence vote. Today, it is reported that he is going to resign which many believe will help parties agree on a resolution in a more efficient manner. “The prime minister said that this government is going to pass on power to another government, which he will not lead,” a senior cabinet official said. This could boost the sentiment for market players early Monday if we can hold off a for a while from seeing the next negative headline in this never-ending soap opera. As long as we are correlated so closely the the EU situation, we will still have higher levels of risk in the market, so trade carefully. Another positive note to keep in mind is that seasonality is on our side as the final few months of the year tend to be some of the most bullish ones. This is the most bullish I’ve been in a while, but I’m concerned on how long it will last. As I’ve stated over the past few weeks, Italy and Spain are going down a troubling path similar to Greece. If they don’t right the ship soon, we run the risk of being handcuffed to their headlines. Italy’s bond yields continue to rise to record highs, a bad sign as it means borrowing costs are very high. It seems it is just a matter of time until we focus our concerned attention on them.
We have a light week of economic data (see below), so hopefully we can find some time this week to ignore the EU situation and focus on those companies with good earnings. This is when it pays a premium to be a good stock picker. A good stock picker will find favorable setups to make profits on as hot momentum money rushes in to buy stock from companies reporting those bullish earnings. Hopefully, that is what we see this week rather than almost all stocks moving in sync with the overall market. Those days can be quite boring and unproductive as trading them usually creates losses which can add up over time.
| Date | ET | Release | For | Actual | Briefing.com Forecast | Briefing.com Consensus | Prior | Revised From |
|---|---|---|---|---|---|---|---|---|
| Nov 07 | 15:00 | Consumer Credit | Sep | $5.0B | $5.0B | -$9.5B | ||
| Nov 09 | 07:00 | MBA Mortgage Index | 11/05 | NA | NA | +0.2% | ||
| Nov 09 | 10:00 | Wholesale Inventories | Sep | 0.9% | 0.6% | 0.4% | ||
| Nov 09 | 10:30 | Crude Inventories | 11/05 | NA | NA | 1.826M | ||
| Nov 10 | 08:30 | Initial Claims | 11/05 | 400K | 400K | 397K | ||
| Nov 10 | 08:30 | Continuing Claims | 10/29 | 3700K | 3690K | 3683K | ||
| Nov 10 | 08:30 | Export Prices ex-ag. | Oct | NA | NA | 0.3% | ||
| Nov 10 | 08:30 | Import Prices ex-oil | Oct | NA | NA | 0.2% | ||
| Nov 10 | 08:30 | Trade Balance | Sep | -$46.0B | -$45.8B | -$45.6B | ||
| Nov 10 | 14:00 | Treasury Budget | Oct | NA | -$105B | -$140.4B | ||
| Nov 11 | 09:55 | Mich Sentiment | Nov | 60.0 | 61.5 | 60.9 |
Insight Enterprises (NSIT)
Delek US Holdings (DK)
Newpark Resources (NR)
Abiomed (ABMD)
LivePerson (LPSN)
Georgia Gulf (GGC)
Petroleum Development (PETD)
Targacept (TRGT)
Meridian Bioscience (VIVO) (Trade Carefully As Earnings Reported On 10th)
Stamps.com (STMP)
Alon USA Energy (ALJ)
Applied Micro Circuits (AMCC)
Vical (VICL)
YM BioSciences (YMI)
American Oriental Bioengineering (AOB) (Trade Carefully As Earnings Reported On 8th)
Nanosphere (NSPH)
BioFuel Energy (BIOF) (Trade Carefully As Earnings Reported On 9th)
Canadian Solar (CSIQ)
Pacific Ethanol (PEIX)
As always, do your own homework to see if you agree. Good luck out there.
Mike
At the time of publication, Kudrna was long VIVO, CSIQ and TRGT, but positions may change at any time
