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Seeking Alpha

Wednesday, December 05, 2007

Morning Report: Jobs Data & Iran Attacks!



(Stocks in this article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: LM, NYSE: GS, NYSE: DB, NYSE: BSC, NYSE: MER, Nasdaq: ORCL, NYSE: GE, NYSE: FNM, NYSE: C, NYSE: WMT, Nasdaq: ALTR, Nasdaq: XLNX, NYSE: TXN, NYSE: DSW, Nasdaq: PNRA, Nasdaq: JDSA, NYSE: MAT, NYSE: MHP, NYSE: MCO)

Jobs data overload starts today, and the remainder of the week will also prove critical to near-term market trend and likely impact the Fed decision of next week.



  1. Jobs Reports - Two days ahead of the "Mother of All Economic Reports," that being the Labor Department's Employment Situation Report set for release this Friday, we were made privy to fresh employment insight this morning. Challenger, Gray & Christmas reported planned job-cuts for November increased 15.9%, to 73,140. Still, the figure represents a 4.7% decrease from the prior year number. The year is also on trend to post the fifth straight year of declining layoffs. Ever heard the saying, "the calm before the storm?" Layoffs were led by the financial, auto and energy industries, and things should get worse in the financial sector before we're finished. Recall, I'm looking for the next leg to impact retail/restaurant and then commercial construction. In a second bit of toasty news, ADP Employment Services reported job additions in the private sector rose 189,000, again driven by small to medium sized service business expansion. But folks, we can only have so many UPS Stores (NYSE: UPS), and as employment softens, overall spending should hit the margin constrained small businessman before larger operations. With lending getting tighter, capital constraints are another factor about to squeeze the small businessman. I would be very careful about reading this rosy November report into our very near future. That kind of rear-view mirror logic will get you in trouble.

  2. OPEC Stays Put, Petrol Status Report on Tap - As expected and noted here on the Greek, OPEC ministers did not like the pace and direction of oil prices heading into their decision today. They seemed to have forgotten that speculation about there decision played a key role in the price decline. It's almost as if the delegates gamed the market on this one. They made you all believe they were going to again hike production to talk the price down. Now they can continue raking in the dough, while gas hungry America and Europe starve in order to drive around town.

  3. Rest of Today's Heavy Economic Slate - At 10:00, look for the ISM Non-Manufacturing Survey for November to measure 54.8, versus 55.8 in October. Pending Home Sales are also set for release; September showed a 0.2% month-to-month increase. October Factory Orders are seen unchanged, compared to a 0.2% increase in September. Indeed, durable goods orders were reported weak (-0.4%) just last week.

  4. Many Contemplate Fed's Next Move - CNBC's Liesman is on record with expectations for a 50 basis point fed funds target cut next week, and we are going to hold him to that here. He qualified his prediction with a smart concern about the impact of Friday's Jobs Report. I'm more in league with the line of thinking that the Fed will move on the discount rate to try to entice bank usage of the tool. Don't get me wrong, I like the new and improved, and noticeably more fit Liesman, but I think he's getting cocky here. This looks more like what he thinks the Fed should do than what the Fed seems to have told us it will do, despite comments from Kohn and Yellen. Mishkin and Bernanke are ready to do as much as a 100 point cut in case of emergency, but I think we'll see nothing to 25 points next week. Maybe when the market panics in the days that follow inaction, maybe then we'll see Mishkin's theory play out. Recall, the guy has written a paper on the usefulness of sharp and short-lasting Fed action in troublesome times. Keep that in the back of your head should Moody's (NYSE: MCO) downgrade $100 billion of debt securities, as rumored, and other SIVs follow the route of Cheyne.

  5. Credit Crisis Red Flags - Speaking of troublesome times... Seems Orange County could use an upgrade in its HR department, specifically the hiring division. Seems the county's hired risk managers have proven less than stellar once again, as some 20% of one of its funds is invested in SIV debt, and it looks to me like some 14% of total capital is in SIVs. News is getting around quick about who holds SIVs, and we are seeing runs on capital at many state run money centers. This is a serious problem that portends to tragically back slap (I would like to use another word here) the American retirement saver and his trusty wealth effect. I'm talking about the confidence investors gain when they receive their monthly pension fund or 401K report, and previously their home equity status. Who do you think bears the risk related to SIVs? It's you. Your retirement savings could be at risk if you invested your money in previously reported to you as safe vehicles, which happen to hold SIVs. I think you can understand why a government bailout is necessary, and why somebody needs to get their arms around the necks of Moody's (NYSE: MCO) and Standard & Poor's (NYSE: MHP) and stop them from downgrading debt now that they should have never rated so highly in the first place. In my opinion, this incompetence cannot go without penalty, whether it be from the government or the private sector.

  6. Greek's Reflections on New Iran Revelation - So what! In 2003, Iran was frightened because we were destroying the renegades in their neighborhood, and so they temporarily stopped their bomb program. Who would bet against an underground program's existence now? I would certainly not. I think a good analogy to Iran, and a comical one at that is found in Hollywood. Rent Mars Attacks! That's who you are dealing with America, the Martians who offer a hand in order to get a hold of your arm and disintegrate you. Gone are the days when a phone call to the CIA Chief could have altered this kind of report before it was published. Good luck finding support in Congress now for a strike on Iran. In fact, a strike could lead to the impeachment of the President in light of this report; well, at least the Democrats will try, I'm sure of that. But, with all but a few months left in the term (when we find a way to bomb in spring), the likelihood of impeachment seems low. My view is that this kind of report is damaging to the national interest and national security. I wish it was generated but not published, as it could now aid an effort to place our President before the world's court should he strike Iran. We'll find a way though. We'll provoke Iran into shooting at a ship or boarding a small vessel, and bombs away! And I'm for it. I say blitz on first down, not fourth. Buddy Ryan politics when you know your enemy is your enemy.

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posted by The Greek | 9:30 AM

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