Thursday, June 5, 2008

Psychology of Friday's Economic News

Friday, June 6th is the long and greatly anticipated Unemployment report for May at 8:30 ET. http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/employ.htm
The prior reading for April came in at 5.0% unemployment, now the consensus is calling for 5.1%. If this number comes in above 5.1% the bulls will be stampeding over themselves. The unexpected fall in weekly jobless claims announced today may suggest that bulls will indeed get to run. If this number comes in below 5.1% the doglike, carnivoran bears will look like baby cubs as they stagger into their holes with their five non retractile claws. http://en.wikipedia.org/wiki/Bears

If you are not properly diversified going into this number, meaning that you’re exposed too long or too short, you may be in trouble. The Unemployment report wields the biggest and bloodiest hammer for good reason, as jobs are the foundation of an economy. In a rising unemployment environment, the economy and consumers suffer from all angles, and the wheels could come off. Do we think this will happen? Absolutely not, but is there a chance if the FOMC doesn't raise rates and strengthen the greenback, knocking down oil? Of course.

POTC is more bearish than bullish. There are positives:
1) Election year;
2) GDP fails to signal recession;
3) Treasury Market sell off;
4) Extreme pessimism in the Michigan Consumer sentiment (contrarian indicator eventually).
However we feel the positives are outweighed by the negatives:
1) Rising Unemployment;
2) Crude oil fails to break down;
3) Rising food prices;
4) Weak greenback;
5) Uncertainty what the June 25th FOMC decision will be, and regardless of what it is, uncertainty that the ship can maneuver through what looks like a "Perfect Storm".

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A happy and healthy June to ALL! We leave you with a little relief music video:

2 comments:

StockWatcher said...

unemployment jumps to 5.5%!
Lets see how the market reacts to that.

mattryan99 said...

Jesus was that jobs report ever a bloody hammer today! Yeow!

My SPY and XLF puts served me well today although I kept wishing that I had more of them. Keep up the good work - I'm eager to see how next week plays out.