PIGS Won’t Fly
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It was pretty ugly across the board yesterday.
There was little buying interest — the market gapped down, drifted lower all day, and closed on the lows. (Hardly encouraging short term).
Europe appears to be heading to a more prolonged downturn than previously believed, with the PIGS Greece, Spain, Ireland and Portugal (first mentioned here in 2008) all in various degrees of trouble. China’s centrally planned economy is cutting back on lending, after artificially pumping up a credit bubble and housing boom (why does that sound so familiar?). Commodities continue to soften.
We also get NFP today at 8:30am, with the annual revision that likely will reveal what I have been whining about for years: The 2001 change in the Birth Death model skewed NFP results entirely. B/D was responsible for more than 75% of the job creation data in 2007; the revision is likely to “disappear” any where from 500,000 to 1.5 million jobs from the 2009 payroll data.
The range of guesses was -40,000 to 75,000 (Barrons). Unemployment is likely to rise in today’s data as well.
Note that this is old news: The changes are for the trailing 12 months. Whether the lowering of jobs data extends the Fed’s ZIRP accommodation further or not is the most significant aspect of this old data.
Futures today look even worse than they did at this time yesterday.
As I have noted repeatedly over the past 9 months, I am giving the rally/uptrend the benefit of the doubt. The playbook in an bullish cycle — whether cyclical or secular, is you buy dips at support with tight stops. (In bearish cycles, you sell every rally). Hence, why the 1030-38 level is key, with a secondary support level at lets call it 1025.
We are flirting with mortally wounding the uptrend line. As noted in our secular bear market composite, that sets up the next 25%, 18 month correction . . .
February 5th, 2010 at 7:18 am
Trimtabs had about a half dozen reasons why BLS produces misleading numbers – it ain’t just birth/death distortion.
February 5th, 2010 at 7:32 am
Wait — didn’t TrimTabs claimed the 70% rally (that they seemed to have missed) was fake, and it was secret government buying?
I am wholly unimpressed with the research and commentary I have seen from them…
February 5th, 2010 at 7:32 am
COMING TO A THEATHRE NEAR YOU………..FALL 2010
corporate pay cuts are a coming, remember those 3% avg. pay raises, announcements will begin in the fall
and let’s not forget how workers respond to such pay cuts, lower heads, keep mouth shut, don’t ask don’t tell, and do the minimum amount of work possible, no xtra miles, no more taking one for the gipper
people at the top always take the first cut, since $’s of profits will be squeezed, for the top too maintain they will disperse it thru-out the system
market direction, it’s all about crude, copper and cash, has been for 7 years, right now cash is driving the bus it’s over the 200dma and yesterday was a breakaway gap, so we got lot’s of volatility most likely ahead on how that gap will act
February 5th, 2010 at 7:54 am
Barry you aren’t selling or shorting? Buying at the dips? Wow, I’m really surprised and somewhat disappointed. Look at the earnings projections for 2011 and tell me how the market can get there. There’s little or no growth. This puts the market around 30% lower from here provided things don’t get worse.
February 5th, 2010 at 8:00 am
TT is useless. Whaaaaaa Whaaaaaa Whaaaaa, the rally is unfair, Whaaaaaaa. Just say you missed it and have no clue !!
RE: Buying on support with tight stop, agree. It is a good set up. Anytime you get a buy, many % down after a slam, and a stop close, that is a GOOD SET UP. If it works, well, who knows, but that is where you try. Most can’t stomach it, , but that is another story.
RE: Employment report. Looking back at when the market bottomed in the 30’s, the Unemployment rate dropped 9-12 months after the market bottomed. We are running out of time IMO. So support has to be watched extra careful.
I also sense a change from where governments around the world were in unison to keep money loose and backstop problems. With the fiscal hawks in fashion now, anything can happen. Deflation could get traction again.
As you mentioned we had one dissent vote our last meeting. No more unity, and it is worldwide.
February 5th, 2010 at 8:08 am
@johnborchers
It’s classic BR. At present we’re still in a bull market that has yet to cross the threshold into a secular bear market. Despite the high recent volatility there is no telling whether this is a short term correction or a turn into the expected 18 month secular bear.
Looking at fundamentals we likely shouldn’t have had as high of a rally as we’ve had and yet here we are. BR’s game plan if you read back through old posts and much of his Apprentice Investor series (http://www.thestreet.com/files/tsc/landingpages/apprentice/) is that (note, this is my interpretation as a novice myself) while in a bull, buy the dips with tight stops until we transition to a bear (at which point many of your recent stops will be triggered for some loss).
Once in the secular bear we’ve been expecting (we had the large drop last year followed by approx 70-75% rally which we anticipate a 25-30% correction), the strategy switches to buying on the rallies and setting stops the other way while riding the bear for the 18 or so months it’s expected to occur.
February 5th, 2010 at 8:11 am
Barry, Biderman looks at the available cash flows and concludes there is an unknown source of buying, low volume, late in the day and after hours. He says he suspects it is government buying but says he has no proof. The proof might lie in suit the Bloomberg has filed to force the Fed to comply with the Freedom of Information Law. The Fed has been figting a rear guard action against compliance with the law and BB has been making inflammatory comments about how compliance with the law would lead to the destruction of the modern world.
Biderman is not the only experienced market watcher who suspects government manipulation of the markets.
Biderman/Trimtabs has been a lot more accurate than the government in measuring employment, I think he has some cred.
The Fed wouldn’t be the first one to step in and “buy the market” to try and deal with a crisis would they?
February 5th, 2010 at 8:12 am
We have to understand what is possible… We might see SP 500 at 400 by the time this thing is over… I dont think a 25% or 30% decline is any sort of worse case scenario… That would simply be a fair retracement of a huge rally… That being said, I agree with Barry in that on an intermediate term basis, we are not in a down trend… I need to see the SP 500 holding under 950 to think that the full upmove is done… On a short term basis though, we are toast… And on a very short term basis we can rally…Remember G7 meeting this weekend…
February 5th, 2010 at 8:16 am
Who here believed the opposite of this?
“Europe appears to be heading to a more prolonged downturn than previously believed…”
February 5th, 2010 at 8:17 am
400 takes us back too 94, which is my target fwiw, agree with singer
what happens next depends on where you own and what you own, if you bought apple below 100 are you worried yet, if your in commodities you know the dollar rules all, if you bought x at 35 imho, you’re quite concenred, yet, if you own tck at 7, what me worry, when?
lot’s of cross currents, lot’s
February 5th, 2010 at 8:22 am
i dont know if 400 is going to happen… Its just in the realm of possibility…
On another note… Does this huge new budget which I hear crashes through the debt ceiling by an additional $2T mean the Gov. is committed to hyperinflating the debt away once economic activity eventually picks back up? You cant actually pay that amount off in the standard fashion can you?
February 5th, 2010 at 8:25 am
Time to muddy the water dept…
Beginning with the release of data for January 2010 on February 5, 2010, the U.S. Bureau of Labor Statistics (BLS) plans to implement several changes to the content and format of the Employment Situation news release. Changes will be reflected in both the text and tables.
February 5th, 2010 at 8:27 am
If you give PIGS enough feathers, they can fly. Debt gives pigs the wingspan they need to stay airborne forever. And when it appears they’re gonna crash, they get a government-supplied parachute. TARP is what they get if the parachute doesn’t open.
Conclusion: that pig’ll never see the inside of a slaughterhouse.
Why?
Because Capitalism without failure is like religion without sin <— quote of the decade by you-know-who.
February 5th, 2010 at 8:30 am
I am calling shenanigans with your take on the birth/death adjustment. Before the b/d adjustment, the BLS made another adjustment to the numbers that actually went unpublished (ie they always had a factor for the creation of new business). Also, as you can see in this link http://www.bls.gov/ces/cesregrevtec.htm the benchmark revision has been around since 1979 and some of the bigger percentage adjustments were made well before the birth/death model was used.
February 5th, 2010 at 8:37 am
1.4M unjobs?
The total nonfarm employment level for March 2009 was revised down-
ward by 902,000 (930,000 on a seasonally adjusted basis), or 0.7 percent. The
previously published level for December 2009 was revised downward 1,390,000
(1,363,000 on a seasonally adjusted basis).
February 5th, 2010 at 8:56 am
The problem I have with this market is I totally understand the bear case. I mean who doesn’t?
Here’s hoping we at least trade down to the 200 ma or better yet a .382 correction point.
February 5th, 2010 at 2:04 pm
[...] closing on the lows was a “hardly encouraging short term,” FusionIQ CEO Barry Ritholtz says. And the bears haven’t lost any steam in today’s session. But he remains confident in [...]
February 5th, 2010 at 3:33 pm
Great headline at Marketbeat
PIIGS Not Kosher at Barclays Capital
February 6th, 2010 at 7:21 am
I don’t like the term “PIGS” (and it should be PIIGS anyway)!
You admit they are in “various degrees of trouble” but thats exactly the point, they can’t be rounded up so easily, frankly its a lazy generalisation. Most western sovereigns are in some degree of trouble, but each of the PIIGS is extremely different. Ireland’s path out of their mess is difficult but clear, Greece’s task is near impossible and very unclear. Yes they are interconnected (in that the biggest threat to Ireland’s cost of borrowing is Greece going down the crapper) but to that end half the EMU could be bandied into some acronym.
Sorry, i’m clearly an Irishman having a bad day…