Market Commentary

Currents and cross currents is perhaps an overriding theme
March 04, 2010

Currents and cross currents is perhaps an overriding theme.  Last week the data was consistently weaker than expected.  This week it is the inverse.

February’s Non Manufacturing Survey was stronger than expected rising to a 28 month high (October 2007) of 53.0.  Consensus was expecting a 51.0 reading.  Perhaps the most significant aspect of this survey is the rise in the nonmanufacturing employment index, jumping four full points to 48.6, the highest level since April 2008.  This level is historically associated with small increases in private non manufacturing hiring.

Speaking of jobs, the private ADP Employment survey reported a decline of just 20K.  Factories added 3,000 jobs, the first gain since January 2008.  I think this data is encouraging as historically such statistics stronger suggest hiring in the next month or two.

As widely known, tomorrow February’s BLS employment report is released.  Many are expecting a downside surprise given the unending winter weather.  However what is the odds nonfarm payrolls might have actually increased in February by around 25,000, a level that the above data supports?

Consensus is expecting a decrease of 60,000 nonfarm payrolls, primarily the result of the weather.  I must write the range is huge…anywhere from a decline of 200,000 to an increase of 10,000.

I think the odds are slim of February job gains but the probability of an upside surprise is indeed plausible.

Many have warned me not to “go political,” however the events in Washington has the potential to influence the economy and the markets by the greatest amount in at least 30 years.  They cannot be ignored.  Greece, Portugal, etc. is facing great political and social headwinds regarding the austere fiscal programs required to correct their fiscal deficiencies. 

Can I suggest that our political leaders are suffering from the same lack of will as our European partners?  Retiring Senator Jim Bunning was excoriated by both the left and right for his one man filibuster of the jobless bill. 

Bunning’s point was simple.  He was attempting to govern by the recently passed Congressional rules of pay-go or finding a way to pay for something before enacting it. 

In my view, however, Senator Bunning is not a lone voice.  The electorate is screaming for fiscal restraint.  This was non to evident in the recent Texas republican primary gubernatorial election where incumbent Rick Perry trounced well known political and Washington heavy weight Senator Kay Bailey Hutchinson.  Perry’s message was simple…Federal government stop spending our money and stop taking over our lives and businesses.

I believe this is/was also an overriding theme in the recent Republican victories in Virginia, New Jersey and Massachusetts.

The President has warned he might cram the health care bill through Congress via “reconciliation” or a tactic that only requires a simple majority not a super majority.

Democratic leaders have stated the Republicans have used this approach far more than they have during the last 20 years.  This is correct; however the right side of the aisle never used this aggressive method when 17% or 18% of the economy is involved, an area that touches everyone in society.

Polls strongly suggest the electorate disapproves of such Soviet style strong armed tactics, much less than the costs associated with such a program.

Here lies the difference between the US and Europe.  I believe the electorate, as indicated above by recent democrat defeats in NJ, VA and MA and by most respected polls, is demanding fiscal restraint and to cut/curb spending.

I think if our elected leaders do not cut or curb spending, the electorate will cut its leaders electing those who are more fiscally responsible. 

Enough of the political diatribe, all markets were relatively quiet.  The President’s health care speech was of little substance.  The Fed Beige Book—a statistical survey of economic activity released two weeks before a FOMC meeting—was a non event stating the economy is improving “modesty.”  There was also little reaction to the data that was stronger than most had expected.

Perhaps all are waiting for tomorrow’s employment data.

Last night the foreign markets were down. London was down 0.15%, Paris down 0.16% and Frankfurt down 0.31%.  Japan was down 1.05% and Hang Sang down 1.44%.

The Dow should open flat perhaps awaiting tomorrow’s unemployment data.  The 10-year is unchanged at a 3.62% yield.