Sunday, December 03, 2006

ISM Manufacturing Shows Contraction

For the first day of the month, Friday seemed to be having a bit of trouble.  The stock market opened down a bit but when the ISM manufacturing report was released a half hour into the trading session, the market reacted pretty violently.  As we mentioned in our Thursday post, the Chicago purchasing managers’ index showed contraction by closing ever so slightly below 50 at 49.9.  

The bulletproof bulls tried to shrug that number off as it was just for Chicago; but, when the National ISM manufacturing number came out below 50, the market decided it needed to go down.  Buyers decided to step back and the market, in terms of the Dow, dropped about 110 points in about 45 minutes.  Then the market did its normal thing and rallied somewhat from there.  The Dow traded stronger than the NASDAQ indexes but still finished the day down.  After having dropped more than the Dow, the NASDAQ Comp finished down about ¾ of a percent after being down about twice that during the day.

But, this is a new week with new challenges for us to face.  We have an eye toward Friday’s release of the jobs’ report and we know there are other items in between.  The bigger ones are the pending home sales on Monday and Tuesday’s factory orders and ISM Non-Manufacturing index.  

As we greet Monday, we think the market is on borrowed time and we mean that in the credit sense and in the figurative sense.  As long as credit is easy to be had, the thought has been that housing should be ok—that hasn’t really worked out, as many analysts and home builders are scratching their collective heads and wondering how this slowdown occurred with such a strong economy.  We would submit that the economy is Not strong.  

We are going to try to talk some more about the carry trade being squeezed this week.  Our first thought is that Japan has been the center of the carry trade with its remarkably low interest rates over the past several years.  This is slowly changing and the Japanese currency, the yen, is starting to gain some steam along with the Euro.  As the dollar drops, and the yen/Euro rise, there are some dollar holders that are questioning their position:  “Interest rates in the US are slowly going down and so is the currency.  Why should I be in those dollar assets???”…more on that the rest of the week.  If you have any areas of interest that we could discuss here by all means put your thoughts out on the comment section.  We could get a good conversation going.  Plus, if you are interested in any special topics (any that we know anything about, or other readers), please post them out on the comments, too.

As the top of this market rolls over, there will be much more difficulties to deal with.  Right now we can get the discussions started and maybe be more prepared for anything that may happen.  The next year should be a wild ride and we are looking forward to it.

Dow Industrials:  12,194.13  -27.80
VIX: 11.66
QQQQ:  43.66
RYVNX:   17.38
RYAIX:  21.74
RYCWX:  36.84
TLT:  91.42
BEGBX:  14.44

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