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Louis Navellier
Maybe "sell in May and go away" sounds a lot more appealing today than it did last Monday, when the Dow opened May up 143 points. Investigators are still tracking the cause of today's sudden 15-minute 700-point Dow decline at around 2:47 pm. Perhaps some trader pushed a "B" for billion instead of an "M" for million. Maybe it was a computerized sell signal run amok. Whatever the cause, something sent stocks like Procter & Gamble (PG) down from $61 to $39 in an instant. (PG quickly shot back to $60.75 at the close). In this quick-trading world, some small hand-held keyboards are hard to control, so a "fat finger" can cause expensive errors. Did this fickle finger of fate really fuel a global market meltdown?
Although the U.S. market dropped briefly below Dow 10,000 (down 998 points), it closed down just 348 points (-3.2%). While that's worse than the pan-European Stoxx 600 drop of 1.3%, euro-zone banks fared worse, with Allianz and Barclays each losing 6.5% and RBS down 4.3%. The euro hit a 14-month low of $1.26, and insurance on Greek government debt rose from 8.15% to 8.75%. The more you look at the global options, the more the U.S. market looks like the worst investment now, except all those others.
Tonight, the important principle to remember is that "life goes on." One person's mistake can be another person's opportunity. All the job indicators point to positive job numbers coming out on Friday morning, so the market may open strongly - especially if further facts prove that Thursday's glitch was technical in nature, rather than a sudden worldwide panic in all markets. For the last few weeks, the U.S. market has been a haven of security, particularly in regard to the growing European crisis. With labor riots turning deadly in Greece, there is no question that the U.S. economy - as reflected in its relatively strong dollar, stocks and bonds - provide a haven of refuge from risks in European and Asian markets.
Gold is rising, especially in euro terms. In the U.S., gold is up $33 to $1,210 per ounce today, just 2% shy of its record high set last December. But gold soared to a new all-time high to the euro, reaching 960 euros per Troy ounce, up 20% from just 800 euros per ounce a month ago. Coin and bullion dealers report investors lined up at European gold dealers, trading their sinking euros for gold. Other commodities are not rising significantly (oil fell below $80 per barrel), so this could be a gold-only commodity surge.
Re-focus on the Positive U.S. Fundamentals
If you look at the official "hints" regarding Friday morning's jobs report, Vice President Joe Biden and White House chief economist Lawrence Summers have hinted at strong job growth this month and next. Yesterday's new jobless claims fell 7,000 from last week's revised 451,000 filings. Bigger firms are announcing new hires, but these new weekly jobless claims only record the layoffs. We will probably see 100,000 to 200,000 net new jobs in April, with larger numbers accumulating in May, reported on June 4.
Yesterday, we also heard that first-quarter productivity growth came in at 3.6%, a full point above the consensus 2.6%. This should boost second-quarter GDP. Compensation rose 1.9%, while unit labor costs fell 1.6%. This puts a damper on inflation threats in the labor market. With the GDP deflator almost zero, we can count on sustained low short-term interest rate policies from the Federal Reserve.
The Panic of 1893 began in the week of May 1-5, 1893. The Panic of 1837 began May 8-12, 1837. Maybe the history books will call this May's glitch the Panic of 2010, but it is likely to be remembered as one of the shortest Panics in market history. Perhaps some NYSE infrastructure reforms will follow, but corporate earnings and economic fundamentals still point to a higher U.S. stock market by year's end.
The Financial Times recently reported that the distressed debt market, defined as bonds trading at less than 50 cents on the dollar, is a small fraction of the size that it was just a year ago. The reason is that in a near zero interest rate world investors are seeking out other opportunities and thus are pouring money into fixed income securities offering higher yields...read more
Citigroup has announced that it’s going to repay $20 billion to exit the government’s TARP program. Once out from the under the program, Citigroup will no longer be bound by the government’s pay restrictions. They were the last major bank that was still a part of the program.
Bank of America left the TARP program last week. Ironically, Citi was worried that the pay restrictions left them vulnerable to having their employees poached by other firms. To pay off TARP, Citi plans to sell $20.5 billion of debt and equity.
This is good news for Citigroup but the company is a long way from being finally healthy.
Today’s jobs report finally had some good news to say about the state of the American jobs market. The unemployment rate ticked down to 10% from 10.2% in October.
The Labor Department also said that the economy shed just 11,000 jobs last month. That might not sound like good news but we need to keep in mind that the economy had been losing over 500,000 jobs a month for several months.
I was also pleased to see the government revise the previous months’ jobs losses. In September, the economy lost 139,000 jobs instead of the original estimate of 219,000. For October, 111,000 jobs were lost instead of 190,000 as originally reported.
In fact, if this trend continues, the loss 0f 11,000 jobs for November might be revised to show an employment gain. We’ll know more in next month’s report.
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