Market Observations Week 04/07/06
The last time Non Farms Payroll was over 200K BACK TO BACK was April & May 2004. In fact March 2004 Non Farms was over 300K, making it a three peat.
This stoked major inflation fears and precipitated a 6 week bond market and 5 week stock market slide.
Today, the bond & stock markets reacted negatively as in 2004. The differences this time are (and yes, it is different this time):
1) bonds have already been getting punked since 02/10;
2) the market may be feeling the effects of an extended yield curve inversion;
3) the economy has had an extended bout of over $60 oil;
4) the Fed has taken away the carry trade by raising from 1.00 to 4.75 and will raise again;
5) and finally add a good three year dose of parabolically rising commodities prices due not to supply and demand, but due to an orchestrated production squeeze.
What does this sound like a recipe for? We called for an inflection around March 8th, this was D-day for the 2 over the 10 inversion, it happened as the market boomed happily to the upside.
The aftermath, three weeks ago, DJIA flat; last week DJIA -171, this week projected DJIA flat or barely in the pink.
As early as March 7th, we called for a secondary inflection around April 14th, this would be D-day for the full tilt boogey 2 over 30 inversion.
To be sure, today gold went over $600 and pulled back. Keep an eye peeled on the commodities markets, especially crude and metals, as a large number of short term funds have been piling into them Q1.
Should the hedgsters take profits in the underlying commodities, in which direction do you think the commodity based stocks will go?
Furthermore, the money needs to flow somewhere and with bonds, commodities and commodity based stocks liquidating, where will the money flow?
As noted yesterday, the Energy and Materials sectors have been #2 & #3 this quarter behind Telecom. i.e. these commodities based sectors have led the market by the nose for over 2 years now.
Final note to self, rising rates i.e. lending costs are not good for the financials, small caps or business in general.
Combine this fact with a potential energy cost induced recession; a pullback in the housing bubble and worldwide indices being at 5 year and all time highs. Plenty of food for thought, eh?
We still think that it won't take much to nudge this train off the tracks. Moving West... next Wend. options unwind...
When it Rains it Pours? As in Morton Salt... Monday starts earnings season which will run in earnest from 04/17 through 05/26, should numbers or forward guidance not please...
Lastly, should next months Non Farms Report be 200K+, look out... be vigilant and be aware to mitigate your exposure and risk.
This stoked major inflation fears and precipitated a 6 week bond market and 5 week stock market slide.
Today, the bond & stock markets reacted negatively as in 2004. The differences this time are (and yes, it is different this time):
1) bonds have already been getting punked since 02/10;
2) the market may be feeling the effects of an extended yield curve inversion;
3) the economy has had an extended bout of over $60 oil;
4) the Fed has taken away the carry trade by raising from 1.00 to 4.75 and will raise again;
5) and finally add a good three year dose of parabolically rising commodities prices due not to supply and demand, but due to an orchestrated production squeeze.
What does this sound like a recipe for? We called for an inflection around March 8th, this was D-day for the 2 over the 10 inversion, it happened as the market boomed happily to the upside.
The aftermath, three weeks ago, DJIA flat; last week DJIA -171, this week projected DJIA flat or barely in the pink.
As early as March 7th, we called for a secondary inflection around April 14th, this would be D-day for the full tilt boogey 2 over 30 inversion.
To be sure, today gold went over $600 and pulled back. Keep an eye peeled on the commodities markets, especially crude and metals, as a large number of short term funds have been piling into them Q1.
Should the hedgsters take profits in the underlying commodities, in which direction do you think the commodity based stocks will go?
Furthermore, the money needs to flow somewhere and with bonds, commodities and commodity based stocks liquidating, where will the money flow?
As noted yesterday, the Energy and Materials sectors have been #2 & #3 this quarter behind Telecom. i.e. these commodities based sectors have led the market by the nose for over 2 years now.
Final note to self, rising rates i.e. lending costs are not good for the financials, small caps or business in general.
Combine this fact with a potential energy cost induced recession; a pullback in the housing bubble and worldwide indices being at 5 year and all time highs. Plenty of food for thought, eh?
We still think that it won't take much to nudge this train off the tracks. Moving West... next Wend. options unwind...
When it Rains it Pours? As in Morton Salt... Monday starts earnings season which will run in earnest from 04/17 through 05/26, should numbers or forward guidance not please...
Lastly, should next months Non Farms Report be 200K+, look out... be vigilant and be aware to mitigate your exposure and risk.
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