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Jobs Hard To Fathom


It’s growing clear that the mo-mo traders who have pressed stocks so high are beginning to be concerned about the ebbing of the momentum. Although that has nothing to do with fundamentals, it is something to watch when the technicals and fundamentals begin to align. We likely have a correction coming, although I expect it will be a brief one.

I don’t know if it will be enough to push rates much lower than they are, however. There are too many valid concerns about the possibility of inflation, dollar weakness, sovereign downgrade (concern about default would be invalid, but the ratings agencies never let logic get in the way of a ratings decision so the concern about a downgrade isn’t crazy), the Fed starting to hint about raising short rates “some day,” etcetera. Unless stocks take a really bad belly-flop, I suspect 10y Govvies stay in their broad range around 3.50%, plus or minus 20bps.

I will follow yesterday’s very long post with a brief one today, but I do want to note one oddity today: CNBC, which yesterday reported that 6% of companies so far have beaten EPS estimates and 65% have beaten revenue estimates, reported today that among S&P 500 companies that have reported so far, 80% have beaten EPS estimates. Are large caps doing so much better than small caps? I would think there is some difference, since the large caps have access to credit at good (sometimes absurd) levels while mid- and small-caps often have no access to credit at all…but that big a spread makes me think that CNBC just messed up the numbers. It isn’t like they spend a lot of time fact-checking (neither do I, apparently…but then, I’m not a journalist. I think it’s fair to assume that a media outlet checked their own facts, but maybe that’s not true any more).

Today’s economic data were mixed, with Consumer Confidence up a little bit. The key employment indicator, the proportion of respondents saying “Jobs Are Hard To Get,” remains very high (see Chart). While the indicator is no longer climbing, that does not necessarily mean that the Unemployment Rate will cease rising – there is, after all, some cap on “Jobs Hard To Get.”

No real improvement in "Jobs Hard To Get"

Tomorrow, New Home Sales are expected to rise to 368K from 355K last month. New Home Sales have been curiously languishing despite hefty government incentives to buy. It would be a good sign if they began to move higher.

The Fed also meets tomorrow. I am not one of those people who expects a dramatic change in the statement any time soon, or a specific signal that they are considering hiking rates. The economy is a long way from being able to handle higher rates. It would be a classic error for the Fed to suggest otherwise at this point, and whatever Bernanke is, he’s a good enough student of history not to make this error. The Desk can try and begin removing accommodation whenever it likes, without the FOMC making a public statement about it. That is the way I think the Committee will eventually dip their toes into the tighter-policy waters – but the time is quite distant, I think.

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