Wednesday, December 24, 2008

Morning Update 12/24

Good Morning,

Futures were down all night long but sprang back to life this morning and are now basically flat. We have entered a time where we have two turn dates clustered inside a week of time – one today and another on the 28th. I am uncertain how that will play out, sometimes when turns are grouped together they act as a single turn, or it could be that we go higher for a few days and then start another leg down… that adds to the uncertainty in this case.

The number of people filing unemployment claims rose to the highest amount since 1982, the figure jumping to 586,000 for the week. How do you fire up an economy that’s losing jobs at that pace? Answer is you don’t. The economy must work through the misallocations; it will take time, lots of it.

Here’s more not-so-good news:
NEW YORK (CNNMoney.com) -- In a troubling sign that consumers are retrenching this holiday season, consumer spending and orders for durable goods fell further in November, according to government reports released Wednesday.
A Commerce Department report showed spending by individuals fell 0.6% last month, after falling 1% in October. It was the fifth consecutive monthly decrease. Economists surveyed by Briefing.com had forecast a 0.8% drop.
Personal income fell 0.2% in November, following a 0.2% rise in the previous month. Economists had forecast no change.
The report also included the so-called core PCE deflator - a key reading closely watched by the Federal Reserve that measures prices paid by consumers for goods and services other than food and energy. It showed a 1.9% rise from year-earlier levels, below the 2% posted in October.
A separate report released by the Census Bureau showed orders for durable manufactured goods declined a seasonally adjusted 1% to $1.9 billion in November. Last month's decline was narrower than the revised 6.9% drop in October and the 3.1% drop forecast by economists.

Spending down? That makes perfect sense with macro debt saturation and ramping unemployment. Falling wages? Remember, you don’t get inflation from falling wages…

Technically, we had 5 down days in a row, albeit small ones. The stochastic on the short time frames indicate a rally or sideways action is needed and today is a turn day. Also, the number of stocks above their 5 day moving average is almost zero (3%) which is usually a place where bounces occur from (although it’s also where large oversold sell offs come from). I am currently market neutral until after the holidays.

I think the Bloomberg article carrying talk of Japanese debt forgiveness is a sign of things to come. That’s simply a polite way to say default. Why would Bloomberg even carry such a piece? Perhaps it’s a stab back at Paulson who will not release information on the way TARP money (your money) is being spent. Our government does indeed need to lock Paulson and crowd behind bars – this crisis will NOT subside until debts are cleared and an honest/transparent form of government is substituted in its place.

On that light note, this is my last update until after Christmas. It’s snowing again in the great Northwest. I hope you have a happy, safe, and pleasant holiday and we’ll be back at the markets’ edge again soon.

Ho, ho, ho – Merry Christmas!

Nate