Thursday, December 04, 2008

What Will the Jobs' Report Do to the Stock Market?

Top Line: The jobs' report is due on Friday morning and it's supposed to be "bad" with about 300K to 350K job losses expected. The stock market sold off with the expectation about job losses. Guess what...the news is Old news. The stock market is getting ready for a rally...

On Thursday morning, the Europeans decided to lower rates. The rate cuts were widely expected but not the amount. The BOE, Bank of England, lowered rates by 1 full point to 2%, the lowest since 1951. Meanwhile the ECB, European Central Bank, lowered its rate by 75 bps to 2.5%. This follows other rate cuts around the world in the past week.

We have witnessed some incredible liquidity injections and central bank rate cuts. The world is sitting back and waiting for something to work, including the governments and central banks of the world. As they wait, the cash builds up in their basements. For banks, they do not want to lend because they are waiting for good credit risks to apply and very few are walking into their lobbies. So, instead of loaning out that money, they will be buying stocks. As soon as it gets going, a lot of others sitting on cash will act, too.

We continue to be amazed at the way some assets are being bought and others are being sold. We of course are talking about Treasury's and oil. The Treasury's were up to another high and have now gone up well over 20% in a month. These are bonds we are talking about!!! Oil, and gas, fell quite a bit on Thursday closing under $44.

This stretch between these two asset classes should give us an idea what to do. Let's see if the word contrarian actually means anything. It's time to get out of those T-bonds which means it's time to get into oil.

Friday brings us the jobs' report, which could be ugly, but it's OLD NEWS. We think the selling was done today but there could be more right after the report. Just remember the market will be higher by January 20th, what are you going to do?

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