Dec 3 Post

Dow up 172. I guess if you tell someone they will have a surprise party it’s hard to surprise them. That is exactly what happened with the data. Everyone knew the data was going to be bad. The data needed to be twice as bad as it was to surprise the market. It was a tug of war all day between the people that were scared by the data and the people that felt like it was old news. The latter won at the end of the day. Now the bulls will come out on TV and say… “it is great news we went up on bad news. The bad news is priced in.” I don’t believe this for one second. The Fed Beige Book says it best….

…..economic activity has softened further across all 12 of the nation's Federal Reserve districts, which include major cities such as New York, Cleveland, Richmond, Atlanta and Chicago.

…"Districts generally reported decreases in retail sales, and vehicle sales were down significantly in most Districts,"

…tourism spending "was subdued"

…Nearly all districts reported weak housing markets, adding that selling prices have taken a beating and sales activity is slow, but at least, stable.

…commercial real estate markets generally declined in most districts and lending standards have tightened.

…Beige Book, released on Oct. 15, highlighted the energy and mining sectors as "positive," it appears that that bright spot has now dimmed.

…Districts also reported weak conditions in the labor markets

…several businesses in the Atlanta District reported that layoffs accelerated and hours declined. Dallas officials said the labor market weakness was most pronounced in the manufacturing sector.

….report shows that the slump has intensified.

Let’s also not forget that the ADP job loss was 50,000 more than expected and twice as much as last year. If you don’t think 50,000 is a lot start counting and see how long it takes you.

The only bright point for the economy today was another government program to bring down mortgage rates to 4.5% and mortgage applications were up 112% from last week. I guess that means people are buying the 10 months of excess inventory….right? No, this was largely driven up by refis, up 203% versus the purchase index up just 38%. Let’s also not forget that it is much harder to get a mortgage now. This will help people stay in their house which is good but I don’t think mortgage rates are keeping new buyers away. I’m thinking that twice as many job losses this Nov over Nov 2007 is kind of hurting new home sells.


Today was an opportunity to add to your shorts side but I wouldn’t go crazy. Based on the action today the market may shrug off all the bad data this week. If we do go up, I’m buying more SDS.

Update:

I neglected to mention one area of growth in the Fed’s Beige Book and I am really sorry I did that. The Minneapolis and Dallas district did show a growing demand for bankruptcy services. Unbelievable!!