Thread: Market Talk / October 8th - 14th

Sunday, October 08, 2006

Bonds Undone By Employment Report

The stock market took their cue from the bond market Friday. The September Employment Report, although the headline number was weaker than expected, showed underlying strength in the economy and that sent the bond market tumbling sharply.

Averaging August and September provided the first hint that the economy was not weak at all. August's new jobs were revised sharply higher and the average of both months was in line with expectations.

However, the real shocker was the admission by the Labor Department that they had somehow missed counting 810,000 new jobs between March 2005 and March 2006. That bombshell exploded in the bond pits and sent interest rates soaring and bond and stock prices tumbling.

Apparently, there was some kind of glitch in the government's computers which overlooked almost a million jobs in the establishment survey. The Employment Report relies on two sources for their count of new jobs: the establishment survey, which had been considered more reliable, and the household survey, which had been relegated to the sidelines due to the perception that it was likelier to be inaccurate. It looks like the household survey got it right and the bond market and the establishment survey got it wrong. The economy is far stronger than anyone thought.

That realization means that the basis for the bond market rally over the past few months was fundamentally flawed. That bond rally has restored low mortgage interest rates and pumped the economy and the housing market. And, of course, that also has pumped the stock market to all-time new highs with the assumption that the economy had been coming in for a "soft landing". Instead of a recession (a "hard landing") or a "soft landing", it appears there is no landing at all: this economy is far stronger than expected. This opens the door for more Fed short term rate hikes unless solid evidence of a slowing economy appears in the next few weeks.

Robo -

Can you please post the link for the source of this data? -

I am not an economist. However, assuming that the economy is as strong as your post suggests, more FED hikes would follow, a rising dollar would result; and, IMO, this doesn't bode well for expected performance of the I- Fund due to the currency differential issue. Any other opinions? --

Originally Posted by robo

Sunday, October 08, 2006

Bonds Undone By Employment Report

The stock market took their cue from the bond market Friday. The September Employment Report, although the headline number was weaker than expected, showed underlying strength in the economy and that sent the bond market tumbling sharply.

Averaging August and September provided the first hint that the economy was not weak at all. August's new jobs were revised sharply higher and the average of both months was in line with expectations.

However, the real shocker was the admission by the Labor Department that they had somehow missed counting 810,000 new jobs between March 2005 and March 2006. That bombshell exploded in the bond pits and sent interest rates soaring and bond and stock prices tumbling.

Apparently, there was some kind of glitch in the government's computers which overlooked almost a million jobs in the establishment survey. The Employment Report relies on two sources for their count of new jobs: the establishment survey, which had been considered more reliable, and the household survey, which had been relegated to the sidelines due to the perception that it was likelier to be inaccurate. It looks like the household survey got it right and the bond market and the establishment survey got it wrong. The economy is far stronger than anyone thought.

That realization means that the basis for the bond market rally over the past few months was fundamentally flawed. That bond rally has restored low mortgage interest rates and pumped the economy and the housing market. And, of course, that also has pumped the stock market to all-time new highs with the assumption that the economy had been coming in for a "soft landing". Instead of a recession (a "hard landing") or a "soft landing", it appears there is no landing at all: this economy is far stronger than expected. This opens the door for more Fed short term rate hikes unless solid evidence of a slowing economy appears in the next few weeks.

Originally Posted by sponsor

Robo -

Can you please post the link for the source of this data? -

I am not an economist. However, assuming that the economy is as strong as your post suggests, more FED hikes would follow, a rising dollar would result; and, IMO, this doesn't bode well for expected performance of the I- Fund due to the currency differential issue. Any other opinions? --

http://marketclues.blogspot.com/

Sponsor,

Keep in mind it's what the Bond market thinks is going to happen. Does the Bond market have it right now or was it right last week. Will the Fed cut rates? The Bond market was betting last week the Fed would cut rates and now maybe they will not. Hard or soft landing the debate continues. We also had some Hawkish comments from some Fed board members last week and revised job numbers. Stay tuned.

As you probably already know Safehaven posts some of the best articles from economist and other work on the dollar. I read all posted articles daily on that site. Most of the TA's I read are now short-term bullish on the dollar and bearish on bonds. Bonds have had a nice run, and with talk that maybe the fed will not cut rates changes things. We shall see. I'm staying in the G Fund for now. I only leave home on very good set-ups, but I love to make short-term moves in the I Fund. If you are a longer-term investor it's all noise for now. IN MY OPINION, NO WAY THE FED INCREASES ANYTIME SOON!


http://www.safehaven.com/index.cfm


http://www.safehaven.com/article-6038.htm

Important clarification. Thank you! --

Originally Posted by robo

http://marketclues.blogspot.com/

Sponsor,

Keep in mind it's what the Bond market thinks is going to happen. Does the Bond market have it right now or was it right last week. Will the Fed cut rates? The Bond market was betting last week the Fed would cut rates and now maybe they will not. Hard or soft landing the debate continues. We also had some Hawkish comments from some Fed board members last week and revised job numbers. Stay tuned.

As you probably already know Safehaven posts some of the best articles from economist and other work on the dollar. I read all posted articles daily on that site. Most of the TA's I read are now short-term bullish on the dollar and bearish on bonds. Bonds have had a nice run, and with talk that maybe the fed will not cut rates changes things. We shall see. I'm staying in the G Fund for now. I only leave home on very good set-ups, but I love to make short-term moves in the I Fund. If you are a longer-term investor it's all noise for now. IN MY OPINION, NO WAY THE FED INCREASES ANYTIME SOON!


http://www.safehaven.com/index.cfm


http://www.safehaven.com/article-6038.htm

I've been waiting so long, just lead me to paradise baby. A Dow of 12,600 would put me on the brink. Buy the market. Hold for the long term. Keep costs low. The current bull market is the fifth longest and will soon enter into competition for the fourth longest.

As in the 1994-95 experience the T-bill appears to have unlinked with the fed funds rate. Following the same pattern as it did in 1995 as the market was about to lift-off into a 50% gain in the next 15 months, and 165% over the next four years. Check the numbers to see the future, maybe I am prescient. 11860x.50=5930for a DJIA of 17,790. 11860x1.65=19569for a DJIA of 31,429. Oh brother where art thou?

Birchtree, --

You may be right after all! I am not married to any fixed idea, although I am waiting for the right conditions to arise in order to get back to the I fund. I am staying alert to changing conditions. However, I read not only your post in your account thread as well as the last post by Robo, who is currently in the G fund and likes to trade the I fund for short-term moves. Many of us are counting on a declining dollar but this could be a fluid situation; and, as you stated, perhaps the C fund will benefit primarily more than the I fund. --

Originally Posted by Birchtree

I've been waiting so long, just lead me to paradise baby. A Dow of 12,600 would put me on the brink. Buy the market. Hold for the long term. Keep costs low. The current bull market is the fifth longest and will soon enter into competition for the fourth longest.

As in the 1994-95 experience the T-bill appears to have unlinked with the fed funds rate. Following the same pattern as it did in 1995 as the market was about to lift-off into a 50% gain in the next 15 months, and 165% over the next four years. Check the numbers to see the future, maybe I am prescient. 11860x.50=5930for a DJIA of 17,790. 11860x1.65=19569for a DJIA of 31,429. Oh brother where art thou?

Originally Posted by Birchtree

I've been waiting so long, just lead me to paradise baby. A Dow of 12,600 would put me on the brink. Buy the market. Hold for the long term. Keep costs low. The current bull market is the fifth longest and will soon enter into competition for the fourth longest.

As in the 1994-95 experience the T-bill appears to have unlinked with the fed funds rate. Following the same pattern as it did in 1995 as the market was about to lift-off into a 50% gain in the next 15 months, and 165% over the next four years. Check the numbers to see the future, maybe I am prescient. 11860x.50=5930for a DJIA of 17,790. 11860x1.65=19569for a DJIA of 31,429. Oh brother where art thou?

Birchtree,

I agree with you 100% my friend. However, I'm a Walmart shopper. Soon everyone will buy and that Guy named Clearance will show up. You know if you go to Walmart. Big signs with his name on it and that big smiling yellow happy face staring at you. I think he's coming to Wall Street soon and if he doesn't money never burns a hole in my pocket. Until then enjoy the Bull Run, but take some time to enjoy the manure in the pasture you have earned it.

Robo,

You say take time to enjoy the bull run - you must be kidding, I'm as nervous as a cat on a hot tin roof. I've got more on the line than Johnny Cash. I'm now faced with the anxiety of how much will I make and how long will it take. All I can do is stay in front of that train. Sure as heck can't stop. With the S&P 500 the most under-valued of any time in the last 30 years I got my pockets full. Back in September short shares were riding the fourth consecutive month of new all-time highs - it will take months to unwind those programs and they are forced to buy all the way up as they give up. There is no limit to a loss for a short. Maybe when I clear the $5M mark I can ease off the pedal. I'm dreaming of the epicenter of primary wave 3 up. There are so many bears it's beautiful. One can hardly move without hooking one with the horns.

http://tinyurl.com/jfqzh

SEOUL, Oct 9 (Reuters) - North Korea carried out an underground nuclear test on Monday, North Korea's Central News Agency (KCNA) said.
"Our science research section has safely and successfully conducted an underground nuclear test on Oct. 9," it said.
It added that there was no leak or danger from the test.
South Korea's presidential Blue House said a tremor had been detected in North Korea on Monday.

It said South Korea's Institute of Geoscience and Mineral Resources had detected a tremor of a magnitude 3.58 to 3.7 at 0135 GMT.
Officials in neighbouring Japan and China had no immediate comment on the reports.
North Korea announced last week it would test a nuclear device saying its hand was forced by what it called U.S. threats of nuclear war and economic sanctions. But it said it would not be the first to use a nuclear weapon.

seoul market down 2.63%
straits times down 1.22%
hang seng down 1.47%
nikkei only down 0.08%

On the heals of N. Korea's claim that it successfully conducted a nuclear test.

I think the Nikkei is closed today but I have not found conformation yet.

Edit: Found it. http://www.kshitij.com/utilities/calendar.shtml Nikkei is closed for holiday.