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A Long Slog


Sometimes Employment week can be a long slog before we get to the Main Event, and this week is proving no exception. It is unfortunate, because March also tends to slow down in the middle of the month when the NCAA tournament gets underway and traders keep (at least) one eye on the television or scoreboard. I have never done the hard-core research, but I suspect that March is a great month in which to sell volatility. Heck, you’re not going to be sleeping anyway…

Today’s shot at excitement was the ADP report, but it came in about as-expected at -20k (though there was a downward revision to last month’s figure of ~40k). After that, we entered a fairly slow snooze. Stocks shot higher at the open and then drifted until President Obama spoke about his preferences for the health care bill. Specifically, he expressed his willingness to pass a bill that only garners his party’s support, and to use the reconciliation process (the so-called “nuclear option,” although it is used quite a bit more than nukes are) in order to pass his bill. Although polls repeatedly show that a majority of Americans oppose the plan (see, for example, the regular polling on the question at Rasmussen Reports here) and that a large majority of Americans are happy with their insurance as it is, the Administration’s determination to get the bill they want, damn the torpedoes, has greatly improved the odds of passage. According to the real-money markets at Intrade.com, the odds of “Obamacare” passing by mid-year are now better than even (see Chart below, which illustrates the recent spike).

People with money on the outcome think Obamacare passes soon.

Good for Obama, but stocks dipped when he started talking. There are good reasons to be concerned, if not terrified, of parts of the bill. The part that I can hardly believe is in there is the provision for another new agency, the “Health Insurance Rate Authority,” which will not only set “guidelines” for insurance rate increases that the government thinks are “reasonable” but also would allow the Health and Human Services Secretary to block those increases.

Everyone who thinks price controls work, please raise your hand. Hmmm, I see that none of you who raised your hand is old enough to remember Nixon’s wage and price control calamity, but you ought to realize what will happen to insurance companies that cannot cover their costs because they’re not allowed to recapture cost increases through premiums. As a hint: it’s almost impossible to get car insurance in New Jersey.

It being a lethargic Employment week, though, even the setback on the President’s speech was dull. The S&P ended up less than 0.1%; June Note futures rose 1/64 again, and 10y yields ticked up to 3.62%.

The stock market hasn’t done anything technically wrong yet, but it’s a little less than inspiring how it hasn’t managed to break away from the neckline of that head & shoulders pattern. For the second day in a row, the market sprang higher only to fade back. Perhaps it’s too much to ask for investors to commit chips to a technical breakout when important fundamental data is only a day or two away, but it may be now or never.

On Thursday, Q4 Production and Unit Labor Cost revisions are due (little change is expected from +6.2%/-4.4% last announced). More important is Initial Claims (Consensus: 470k from 496k last week; expect a comment from BLS on the weather effects). Also out are Pending Home Sales, chain store sales, and Factory Orders among the second-tier releases. Prior to the Employment report on Friday, they’re probably all second-tier releases, and I would expect that we have another quiet day ahead of us.

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