Thursday, April 03, 2008

Friday Brings the Jobs' Report

Top Line: Friday brings us our normal "beginning of the month" event, the jobs' report and pretty much whatever has happened the last few days will get gobbled up in the wake of that report. Our position remains that the Dow is in the midst of an upward correction that should take it, first over the hurdle of major resistance at 12,750, and then up to 13,000.

The jobs' report has never given the Update such a difficult time to handicap the event. The WSJ has a best estimate of a 50,000 loss in jobs and calls for a possible 70,000 loss of jobs. Earlier this week, ADP gave us a much brighter picture by saying that they saw an increase of 8,000 private sector jobs over the past month. Ok, 8K is not really "much brighter" but it is better than negative 70K.

As we know, these numbers will have some estimates for the birth/death model built into them but as we always say, it's not the number but the market's reaction to the number. That's where we seem to be having some difficulty this month. What can the market's reaction be?

Well, let's see, if the there is a higher number of jobs than expected, what would the market's choice be? Well, it might think that all the financial games that the Fed has played over the past several weeks/months will now pay off and we can go back into growth mode. You know what we really think about in, it won't happen; but, what will happen is not so much what the market thinks about. The market sometimes just wants to believe it may happen so we can get an up Day.

If the jobs picture is worse than expected, there could be some reason for concern on the market's part; but, again, it might still choose to believe that the world is now a better place and it is time to buy. This is the path that most do not understand, even though in the longer term it will settle out, in the short run it doesn't make much sense.

As you can see, we are at a loss and we are pretty sure the market doesn't know what to do either. Of course, when the number comes out and the market reacts, someone will say in the media that this was the expected outcome. Right, like anyone knows.

In the news, we see that the PTB (powers that be) were again gathered together to discuss the Bear Stearns bailout, or should we say the market bailout as did our beloved Chairman of the Fed in these words and as reported by the WSJ on Friday's front page:

Quoting from the WSJ: ...Mr. Bernanke agreed with a lawmaker who suggested the Fed rescued Wall Street more broadly.

"If you want to say we bailed out the market in general, I guess that's true," he said. "But we felt that was necessary in the interest of the American economy." He reiterated comments from a day earlier that the Fed doesn't expect to lose money on its $30 billion loan. J.P. Morgan has agreed to cover the first $1 billion in losses, if there are any.

Mr. Dimon said his bank "could not and would not have assumed the substantial risk" of buying Bear without the Fed's involvement.

End WSJ Quote.

These statements seem to lead to a lot of controversy about the actual value of Bear Stearns. Our questions are, "If the Fed didn't expect to lose money on the $30 billion, then why wasn't Bear Stearns able to dispose of these assets and why didn't JP Morgan not want to assume the Substantial risk?" And, "What is this necessity due to it being in the best interest of America?"

These are mostly rhetorical questions that have implied answers but truly what do they really think would have happened? We say, unfortunately we may find out in the next event.

FSI: 78.10 (even the speculators were waiting for the jobs' number)

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