Thursday, January 31, 2008

Down Opening Brings Day Long Rally

Top Line: Well, the stock market certainly did Not go down on Thursday but the 12,750 resistance area is still intact. We still think this level has a good chance of halting any further rally. Friday's employment report may have some influence on the prices as GOOG had right after the close on Thursday.

GOOG announced their earnings which did not thrill the market and the stock dropped nearly 10% right after the news but ended the afterhours down only 6.5%. Initiallly, GOOG had a very negative effect on the general tone of the afterhours trading but soon enough traders thought it was nothing to be concerned with...

The Dow rallied from an opening deficit of 150 points to a final point gain of just over 200 points. The "bad" news from S&P on Wednesday evening along with the high jobless claims that normally come out every Thursday morning caused the market to open very badly. The "good" news was that the bond insurer MBIA said things were going to be fine and they would be able to maintain their ratings by being able to raise capital. This was right after they announced a $2.3 billion loss for the fourth quarter.

Back to the Employment story, ADP, the payroll company, announced its numbers and said that there were 130K jobs created in January. ADP has never really inspired anyone to act on the news they bring but people can get an Idea what is going on from their report. But, the real jobs report is due out in the morning and expectations are for 70K jobs to have been created after a dismal 18K last month.

There has been so much news this week, we haven't been able to provide it all to you but one thing that slipped through yesterday was the advance GDP number which showed a slow rate of growth of 0.6%. That means the economy "grew" at a 0.15% rate in the fourth quarter. The thing we always mention is the PCE (personal consumption expenditures) deflator which is an inflation guage used to level set the GDP number.

As we usually say, if prices go up and people pay more for goods, is there really growth? Well, it's the job of the PCE Deflator to take out the effect of inflation on the GDP number. The PCE deflator used was 2.7%,which seems fairly low but it still produced a very low GDP. We'll see how this number is adjusted when the final GDP comes out. The number, since it was so low, gave a lift to those who thought the Fed could lower rates again...

And, the speculation is that the Fed will lower rates another 50bps at their next FOMC meeting in March. This is a subject for Bill Gross of PIMCO. We don't have to agree with him but his thinking process is much the same as most of Wall Street. He's begging Congress to be aggressive with a program to get people buying houses again by somehow lowering mortgage rates on long term 30 year mortgages. How is Congress going to do this? Well, he really doesn't know that.

One last item before we leave you in peace for the weekend. Bristol Myers announced that it was going to be losing money on some investments in subprime mortgages, maybe as much as $400 million. That may not sound like much when compared to the large bank losses but $400 million is a lot of dough for a non-financial company.

FSI: 84.60 (with GOOG down tonight this number may be a little high)

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