The equity turn around Friday from disastrous employment numbers sends a signal to traders and investors that the markets had priced in that world coming to an end. For most Republicans, this happened in November. For rest of the population, this didn't occur, but it felt like it as we watched the stock markets test the lows.
Yet, the lows were tested on November 21st and we had a higher close that day than the previous day: a classic indicator for a reversal. The close on the 21st has remained as a key support point even on Friday with the worst employment numbers since 1974. Try to maintain your creativity on the markets as an equity rally of 15% is not out of the question.
The positive mojo continued over the weekend. On Saturday, we had President-elect Barack Obama hold radio address in which he compared what he wanted to do to an old Presbyterian, US military leader. Invoking Eisenhower, he detailed a massive jobs program to generate 2-2.5 million jobs. The focus is on infrastructure from building bridges and roads to providing Wi-Fi to making government buildings environmentally friendly. The time frame?: “When Congress reconvenes in January, I look forward to working with them to pass a plan immediately,” he said.
Continuing on this euphonium cheer, Congress appears to be moving closer and closer to providing a loan lifeline to the automakers. Senate and House members appear close to arranging a bill to provide General Motors Corp , Chrysler LLC and Ford Motor Cowith at least $15 billion in short-term loans. These companies had asked for $34 billion in loans and they could need more to survive.....lots ($125 billion?) more.
The Detroit Free Press quotes Michigan Democratic Sen. Sen. Carl Levin as seeing the key to that goal as public endorsements from both President Bush and President-elect Barack Obama. "A lot will depend on how strongly they weigh in," Sen. Levin tells the paper. "It's really important for the president-elect to take a position when it is finally drafted in the next 24 hours." (Trying to stay positive, I won't get into the long term negatives of having the government nationalize or manage the auto industry.)
Perhaps the best news coming is that there will be no earnings news for some time. Yes, this week we'll only get two interesting earnings reports from H&R Block and National Semiconductor . The only downside is that the news we will get from companies over the next six weeks will be job layoffs with Dow Chemical today reporting 5,000 are going to be let go. There was a lot of weekend press about how cheap stocks currently are with valuations at extreme levels. (Low multiples, book value, low P/Es etc...) I'm not arguing whether this is the correct metric to buy, but that it's another positive that's being discussed in an information void.
Lastly, this week we will have no major appearances by Paulson & Bernanke nor will we have the auto CEOs car pooling to DC. Given that these circuses remind everyone how bad things are and are blared from all the media outlets (those in bankruptcy or not), this is always a positive! The economic releases for the US will be on the less important side with only retail sales on the 12th attracting attention. Think of the current market psychology as this: we've had a near death experience, but survived. There should be some reflection on what we've done with our lives and the positive things we're going to do going forward from here.
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Andrew Busch
