Friday, August 07, 2009

Why A Long, Slow Recovery Might Not Be A Bad Thing

The market is ripping higher this morning on the combination of heightened skepticism among investors that the market was overbought and in need of a pullback and the better than expected jobs report.

Nonfarm payrolls declined -247,000, but this was much better than the -325k that economists were forecasting. Also, the unemployment rate ticked down to 9.4% vs. 9.6% consensus, and I heard many whisper numbers that it would actually rise to 9.7%.

Today's jobs report showed the fewest job losses since August 2008, and although job losses are never a positive for the overall economy, this report is another solid sign that the worst of the recession is behind us and that the economy is at least on a slow path to recovery.

Many people continue to complain that the recovery is likely to be slower than usual, due to the large number of job losses, the weak consumer, and lackluster economic growth. As an investor, I don't mind a long, slow recovery.

To me that just means that it will take even longer before the Fed has to raise rates to the point that it taps the breaks on the economy and tries to slow it down again. The longer the Fed remains in accomodative mode, the longer stocks will continue to have a tailwind rather than face a headwind.

Another suprise was AIG reporting solid profits and better than expected earnings. This has helped financial stocks rally yet again, as they are leading the action this morning in the market. Energy and materials stocks are the laggards, as the dollar is stronger this morning which is weighing on commodities.

Asian markets were lower overnight, led by China (-2.9%) amid concerns that the mainland would tighten monetary policy; the 10-year yield is higher at 3.87%; and the VIX is back down below 25, falling -6% to 24.07. If the bears' are right that we are about to see a big pullback, wouldn't the VIX be creeping higher? Just askin'

Trading comment: You can count me among those investors who raised cash recently as the market became overbought, and who have been waiting for more of a pullback. But this market continues to stairstep higher, as I have been writing about for months, and forces investors to pay up to participate.

Short sellers do not look like they are going to have fun day heading into the weekend. I have not made any new trades in the last couple of days, but I am still involved in the ASCA and AKS longs that I added earlier. URBN looks really extended to me, and I may look to take a shot at a short trade in that one.

long ASCA, AKS


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