Monday Nov 06, 2006

Anticipation

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-- Anticipation
-- Job Jubilation?

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Anticipation

by J. Christoph Amberger

This morning it seemed like the markets were anticipating the end of the 2006 election campaign. Not any particular outcome, mind you; just the fact that two days from now, we’ll be reading about concession speeches and have half of the mendacious blabbermouths and sanctimonious endorsers of candidates that have polluted the air waves disappear for another two years.

As to the potential outcome and its effect on the market, Alexander Paris, a strategist at Barrington Research, probably put it best during an interview with MarketWatch:

“It’s difficult to believe that a decisive Democratic victory with negative implications for investment has been fully discounted. On the other hand, any initial rally from a positive Republican surprise might be outweighed by continued concerns about the economy for a while yet.”

But this morning’s move looked far less waffling: At the NYSE, gainers outpaced decliners by 3-to-1. At the Nasdaq, the ratio was 2-to-1 as crude oil prices fell back below $59.

- - On Sunday morning, Saddam Hussein was condemned to death for gassing a village of Kurdish Iraqis. Europeans are unhappy; they not only lose a great customer for French and German weapons, they also dislike the death penalty for humanitarian reasons.

I’m surprised that nobody has pointed out that Saddam was not just the ruthless tyrant he’s made out to be, he is also the author of several bodice-ripping romance novels.

Thus, I’m still hoping to see the following headline somewhere in Der Spiegel or a French magazine:

“Bush has romance novelist condemned to death.”

Job Jubilation?

by Steven Lord, Trend Investor

With one fell swoop, today’s jobs data has seemingly dispelled concern about the economy. CNBC has purple-faced economists bluntly saying, “the economy is clearly stronger than I thought” and traders in the bond pits reaching for their heart medication. Indeed, 10-year Treasury yields had risen by over 100 basis points by mid afternoon, reaching 4.717% at 2:30. And I grant the numbers are impressive. The jobless rate, now the lowest in five years, has declined for three straight months and payrolls are expanding at a solid clip.

But the jobs numbers are a lone bright spot in an economic snapshot that otherwise overwhelmingly says “slower growth.” And they are a lagging indicator (i.e., they tell you where the economy has been, not necessarily where it is going). Moreover, take a solid look at the actual data. The payroll “boom” is concentrated in only three sectors:  government, bars and restaurants, and healthcare. In fact, the government accounts for the largest proportion of new jobs in the latest release, and anyone with more than a few years in this business knows that what the Feds give, the Feds can take away.

It is also important to note that sectors that typically show broad economic momentum didn’t fare well (factories dropped 39,000 jobs and construction 26,000) -- both areas that are expected to get worse before they get better.

A report from Caterpillar this morning, in which they warn of “pockets of severe weakness in some U.S. areas,” further supports the slowdown currently underway in these areas. These are the sectors that develop significant downstream growth, not government hiring and more waitresses at Applebees.

In the meantime, wages continued to rise and are now increasing at a roughly 4% annual pace. This raises the specter of what economists fear most: rising inflation pressures at exactly the same time the broader economy is slipping.

Nonetheless, the jobs report has Wall Street once again tossing the prospect of Fed rate cuts early next year out the window -- probably the third or fourth time they have done so this year. Each time, a solid economic report contradicts mounds of slowing-economy evidence and raises hopes that we will skate through the winter unscathed. But the facts suggest otherwise. Everything from housing to retail sales and manufacturing indicate the economy will meaningfully slow in the first half of next year.

Note that I didn’t say it would fall off a cliff. It won’t. But it will slow, probably to a 1.5%-2.5% annual rate of GDP growth. Superficially strong jobs data, impressive as it may be, does not by itself illustrate a glowing economic situation. Rather, it suggests data on the economy is lumpy and doesn’t go in a straight line -- no news flash for any of us. View the jobs numbers within the context of an economy shifting from rapid to modest growth. If we see the ISM survey expand, the yield curve return to a more normal shape and housing stabilize, we’ll get on the bandwagon.

In the meantime, I’m sticking to my guns on the Fed: We’ll see a rate cut before next summer.

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Earnings Announcements for Tuesday, November 7, 2006

1-800 CONTACTS Inc, Advanced Life Sciences Inc, Air Methods, Atmos Energy Corporation, Beazer Homes USA Inc, Blackboard Inc, Career Education, Cell Therapeutics, Church & Dwight Company Inc, Churchill Downs Inc, Cornell Companies Inc, Cumulus Media Inc, Dean Foods, Emerson Electric, Frontier Oil, Headwaters Inc, Leap Wireless International, Mittal Steel Company, New Frontier Media Inc, Nortel Networks, OSI Systems, Peet’s Coffee & Tea, Rediff.com Limited, Revlon Inc, Sara Lee, Sun Hydraulics, Sunrise Senior Living, Teva Pharmaceutical, Toyota Motor Corporation, Universal Corporation, Wild Oats Markets, Youbet.com, and Zix Corporation are releasing earnings.

Brought to you by http://www.AmericanCapitalist.net

Unlock Dates for November 2006

11/8/06 – Basin Water is unlocking 6 million shares.
11/13/06 – Restore Medical is unlocking 4 million shares.
11/14/06 – Burger King is unlocking 25 million shares.
11/21/06 – Mastercard is unlocking 61.5 million shares.
11/29/06 – Luna Innovations Inc is unlocking 3.5 million shares.

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Upgrades and Downgrades

Argonaut Group downgraded by BB&T Capital Markets from Buy to Hold.

Audible downgraded by JP Morgan from Neutral to Underweight.

Barrick Gold downgraded by BMO Capital Markets from Outperform to Market Perform.

Home Depot downgraded by UBS from Neutral to Reduce.

Lowe’s downgraded by UBS from Neutral to Reduce.

Sonus Networks downgraded by Brean Murray from Buy to Hold.

Cryptologic upgraded by Sun Trust Robinson Humphrey from Neutral to Buy.

Macrovision upgraded by Cowen & Company from Neutral to Outperform.

STMicroelectronics upgraded by Piper Jaffray from Market Perform to Outperform.

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Quote of the Day:

“Who would have ever thought that the Democrats would miss the wit and charisma of Al Gore?”

- Jay Leno, Nov. 3, 2006

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