Market Talk

The market got a little pop this morning from the weekly jobless claims, which fell by 17,000 to 421,000 from an upwardly revised 438,000.

On an adjusted basis, mind you.

Take a look at the unadjusted numbers, the raw numbers. On an unadjusted basis, claims rose by 169,000 to 582,007 last week.

But which number do you think presents a clearer picture of where the economy is right now? You wonder why President Obama and the GOP managed to hammer out that “deal” so quickly after Friday’s bombshell jobs report, after months of posturing?

Now, I don’t want to discredit the seasonally adjusted numbers entirely; the weekly jobless claims are wildly noisy, especially at a time like now, the end of the year, when some companies are dropping the ax and others are actually doing a lot of seasonal hiring. But, as Capital Spectator points, this week’s jump was the largest “by far” since January.

The unadjusted trend in jobless claims is a wild statistical pony and therefore it’s subject to volatility levels that can make even battle-scarred statisticians dizzy. In that case, the usual caveat about ignoring any one number goes double here. By definition, the unadjusted numbers are subject to a wide range of seasonal quirks that can and do mislead us in deciphering the true trend. Nonetheless, no one needs an excuse to wonder about what could go wrong these days, and so the reversal of fortunes in unadjusted initial claims speaks for itself.

It’ll take another week or two to figure out if the unadjusted claims are just statistical noise on steroids…For the moment, we’re assuming just that…We’ll sleep better after seeing the unadjusted trend fall back to earth. But while we’re waiting, the guessing game just got a little more challenging.

The Pragmatic Capitalist picks up on a paper from the Cleveland Fed that notes the recession was “especially bad” for the jobs market. The economy has been creating only 86,000 nonfarm jobs on average so far this year, the private payrolls number is a bit higher, but both are below even what’s needed just to keep up with population growth, which is roughly 125,000 or so a month. According to the Cleveland Fed:

The recovery in payroll employment so far is relatively weak by historical standards. In previous recessionary episodes, it took almost 23 months for payroll employment to return to its pre-recession peak. The current recovery presents a stark contrast; even after 35 months, we are still 5.4 percent below the previous peak.

That, of course, isn’t to say that eventually, the jobs market will recover. But it’s taking a very long time, and in the meantime more damage is being done to not just the employed, although they are bearing the full brunt of it, but to almost every other working-class American. With such a large pool of unemployed out there, there’s no pressure on employers to raise wages, or make more part-timers into full-timers, or just restore people’s hours.

It’s not just the jobs being created (or not created for that matter,) you see, it’s the kinds of jobs.

Investors are looking past the Greek bailout and focusing on more concerning issues. “The sharks are coming for the euro,” the Pragmatic Capitalist says. “They see a wounded animal and the market is beginning to realize that there is no good long-term fix besides a substantially weaker and/or potentially dead euro.”

The uncertainty that could ensue in the near-term is “too great for me to fathom,” blog says. “The EU has gone ‘all-in’ with a very poor hand. The market will eventually call their bluff and when it does it will not be pretty.”

It does seem as if all the stars are aligning for the euro in the wrong way. Capital Economics altered its view of the level of the euro at the end of the year, cutting it to $1.10, from the previous forecast of $1.20. Says while some of the forces bearing down on the euro over recent months may now be easing, there are plenty of other reasons to expect the currency to fall further.

Also expects the euro to fall to parity by the end of 2011, as euro zone GDP growth will lag well behind that in the US, while worries about the fiscal crisis and future of the euro should persist.

The euro hit $1.2358 earlier, its lowest level since October 2008. Meanwhile the US Dollar index, which tracks the dollar against a basket of six other currencies, surged 1.2% to 86.25 and earlier hit another fresh-year high.
(Peter Nurse contributed to this post.)

Last week feels like a year ago.

It was almost one week ago where it seemed like the global economy was on the verge of collapse. That sentence may be a bit of exaggeration. But not by much.

Greece was set to default and take the rest of Europe down with it. The fear of contagion kept spreading and even went across the pond, hitting US markets hard, with the Dow dropping 1,000 points in a spectacular – and mysterious – 20-minute span on Thursday. Major indexes suffered big percentage losses — the Nasdaq officially entered into technical-correction realm when it fell more than 10% off its late-April highs.

Plain and simple, we were screwed.

But as quickly as the fears came, they are now being pushed by the wayside as the risk trade’s back in full swing. That’s right, everything’s back to normal.

The Dow rose 405 on Monday, its best day since March 2009 and is eyeing another triple-digit gain today. Just like that, Thursday’s loss was wiped away.

The quick run-up, which seemed unfathomable just a few days ago, is still nearly impossible to explain. But the Pragmatic Capitalist does a great job of depicting the market’s current dynamic. From Prag Cap:

So that’s all it takes these days to sweep a good crisis under the rug – cut a nice big check to all the people who made the bad decisions that caused the crisis. In no time we erase a few weeks worth of stock market losses. Government has everyone’s back. No one fails. There are no losers in this market. No risk. You truly can’t lose. You could buy the very worst debt on the planet and governments will make sure you remain whole. What a deal. It’s capitalism turned on its head.

Equity investors are clearly catching onto this trend and snatching up stocks with total disregard for any risk. And why shouldn’t they? After all, government will bail them out when everything goes haywire. It’s almost a guarantee these days.

In fact, the sad thing here is that you’re almost better off causing the next big meltdown. It goes like this – ramp up risk, make huge profits on the way up, record bonuses for everyone and then when it all goes bust you take none of the losses. Instead, the government takes the loss, you get bailed out and you start the whole game over again! Sounds fantastic doesn’t it? That’s what our stock market can be boiled down to these days. I’ve never seen anything like it. It’s great for all the gamblers. And horrible for all the regular Joe’s.

The can’t lose market is back. Buy something. Anything! Who cares. It’s all on sale even if it’s not. And when it goes bust you’ll get a brand new model courtesy of Government Inc!

Some things never change.

SEC Chair Mary Schapiro remains baffled as to why the market dropped roughly 700 points in about 16 minutes last Thursday. But maybe the answer isn’t that complicated. From WSJ:

Regulators haven’t found evidence of a single cause for the May 6 stock-market plunge, but the lack of unified rules among stock exchanges played a role, Securities and Exchange Commission Chairman Mary Schapiro said Tuesday.

Ms. Schapiro spoke at a congressional hearing where officials described early steps being taken to prevent a recurrence, including stronger market-wide circuit breakers and new brakes on single securities.

The lack of clarity surrounding last week’s “flash crash” not only highlights the market’s problems, but the SEC’s inability to monitor markets in real-time, Stephen Gandel writes at Time’s Curious Capitalist blog.

The SEC’s historically been a slow-moving agency, but this has the potential to be another black eye for the battered agency, especially since market watchers have been warning about dark pools for years.

“The fact that the SEC can’t determine who bought or sold what during a mere 16 minutes of trading proves that there is a lot more that needs to be done to shed light on the shady corners of the market,” Gandel says.

So as the witch hunt continues for what caused last week’s plunge, maybe the true culprit was just “good old fashioned fear,” the Pragmatic Capitalist speculates.

“Fear is a boring excuse for a market crash, but it’s always the cause and it always will be,” the blogger says. “After all, psychology will always drive markets regardless of how many computers we have up and running. At some point, raw human emotion always plays into the equation and that is the primary reason why markets are inefficient and will always be so.”

Hey, son, you wanna try the big top?

Have you had your fill yet? With the stock market gyrating as much as it has the past two days, it’s hard to discern what investors really think. But you can take your own temperature.

“Take a moment to think about what you did when the news hit and the market dropped — were you gleefully checking your liquidity for a buying opportunity or packing up the circus tents because the fun has been had and now it’s time for reality to set in,” Joshua Brown writes at his Reformed Broker blog. “It really is that cut-and-dry.”

The movements in the stock market over the next few weeks will say a lot about what people really think about the recovery, especially with the added uncertainty of the Goldman suit and who else could be implicated next. The DJIA was down this morning, but rose sharply this afternoon (for reasons that are still unclear.) Goldman was down this morning, too, on top of Friday’s 13% drop, but lately have climbed into the green, up 1.4%.

Friday’s double-digit drop was a rarity; Goldman shares have dropped 10% or more on only 13 occasions since the firm went public in 1999. But, as Bespoke Investment Group points out, those declines have proven to be short-lived.

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Gosh the times are just swell!

For a second we’re going to buy into all the media hype glorifying the economic recovery. As bearish as we are over here at Market Talk, we can admit that the situation looks markedly better now than it did a year ago.

With that said, some things that just don’t add up. And the Pragmatic Capitalist does a great job noting “there are also signs of irrationality on the fray.” The blogger picks up on one specific theme that has us scratching our heads: the radical improvement in the consumer sector.

The Retail HOLDRS ETF (RTH) is experiencing a “full-blown v-shaped recovery,” blog notes, which is surprising considering the the high unemployment rate, declining consumer credit, increasing consumer bankruptcies and surging foreclosures.

We delved deeper into the numbers and found RTH was recently trading around $105, a level last seen in July 2007. Wait. July 2007? Back when the housing market was booming and the Dow Jones Industrial Average was just a few months away from soaring through 14000?

Yes, that July 2007. And now this retail ETF has erased any worries associated with the Great Recession and is pricing in some extremely lofty expectations.

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We say this is still a recession

Yesterday’s statement from the NBER Business Cycle Dating Committee seemed a bit odd.

The committee usually releases a statement when it has something substantial to say about the economy. But saying it was maintaining the status quo on its recession call and holding off on declaring the downturn over seemed strange.

But Jeff Frankel, Harvard economist and a committee member, sheds some light on the reasoning behind the statement.

“The press was bound to find out that there had been an in-person meeting (as it did), and so the confusion created by issuing the statement was probably less than the confusion that would have been created by remaining mysteriously silent,” Frankel writes on his blog.

So there you have it. The committee thought ahead about the repercussions of its meeting getting leaked and appeared to act in a transparent manner.

That hasn’t stopped Frankel, himself, as well as Robert Gordon of Northwestern University from stepping forward and claiming the recession is already over.

But what seems to be getting lost in translation is this debate doesn’t really impact investors. Sure, officially calling the recession’s end sounds good from a psychological standpoint, but it’s not likely to impact policy decisions.

“The NBER is attempting to identify peaks and troughs in the economic cycle for research purposes,” Jeffrey Miller, CEO of NewArc Investments, writes at A Dash of Insight. “The NBER has a research mission, not a policy mission.”

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Abbondanza!

Worries about Greece and additional evidence of a troubled labor market hampered stocks this morning. The Dow fell as much as 53, on the heels of yesterday’s 72-point decline, suggesting profit-taking was setting in after this recent run-up.

And just as quickly as we started to digest the declines, stocks reversed course and now sit comfortably in positive territory. Strong same-store sales as well as optimism about the beginning of earnings season are being cited for the turnaround.

Hmm, weren’t those catalysts present early this morning? And unless I’m missing something, Greece’s problems haven’t been solved in a few hours and the weak labor market is, well, still weak.

Perhaps investors are merely ignoring external factors, while following a specific playbook. Buying the morning dips as well as going all-in on Friday afternoons in anticipation of Monday rallies has been the recipe for success in recent months, the Pragmatic Capitalist points out. And that’s exactly what’s taking place today.

“Apparently, the stock market has turned into an easy game,” Pragmatic Capitalist says. “Whether that is comforting or the absolute most frightening thing in the world is beyond my realm of knowledge, but history has proven that when one strategy or mindset starts to dominate it always breaks down in horrific fashion.”

Dow reversed earlier losses and was recently up 50.

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Dow industrials keep creeping higher, on pace for their fourth consecutive gain, as all eyes are focused on Friday’s jobs report. But the stock market skeptics point to a complacent VIX as cause for concern surrounding the market’s recent run-up.

A plethora of reports showing a smaller-than-expected drop in private-sector jobs are contributing to the positive tone in today’s action. The Dow has also crossed into the black for 2010, reversing losses from the pullback earlier this year.

But the stock market’s volatility index has fallen in 14 of the last 15 sessions, marking its longest downward streak since the market bounced off its early-March 2009 trough. The Chicago Board Options Exchange’s Market Volatility Index (VIX) has fallen further today, recently down 2.7% at 18.55.

Pragmatic Capitalist picks up on the trend, noting the few comparable streaks over the last year have been followed by sideways to down markets in the following four to eight weeks.

“This trend is beginning to look like a mighty bad bet to me,” PC says. “I’m not one to call tops, but as a manager of risk this indicator has me feeling a bit uneasy.”

Dow industrials were recently up 33; S&P 500 up 5.

Investors had a lot to digest this morning after a slew of economic data crossed the tape, and another snow storm blanketed New York City.

4Q GDP was revised slightly higher, Chicago ISM (formerly PMI), which measures business activity, rose to highest level since April 2005 and consumer sentiment essentially held steady. But the big kicker was a plunge in existing home sales.

More than a foot of snow (and counting) covering NYC is likely contributing to the apathetic mood toward the market; DJIA has stayed within a roughly 80-point range from high to low so far.

While stocks are quiet, market observers are sifting through the data, and not terribly impressed by what they see. The GDP report suggests several reasons for caution, even as the economy grew at the strongest pace in more than six years, Barbara Kiviat writes at Time’s Curious Capitalist blog. About two-thirds of growth came from changes in inventories, not final sales.

“Demand for final products paints a much less rosy picture,” she says.

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