Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

Same Story, Different Day (Week): It’s not even worth mentioning economic data at times, simply due to the fact that it is collected, organized, and distributed by the very same people (the government) put in charge of the money and making the laws. If the same “self grading” system were used in college, the dean’s list would be fairly crowded, and equally useless as a measure. Such was the jobs (non-farm payrolls for January) report released Friday, sporting 243,000 (vs. 145,000 expected) jobs created. This was after the BLS removed 367,000 birth/death model jobs and the 42,000 “courier” jobs added for the holidays last year.

Put a summation sign next to all that, and the assumption is that 652,000 jobs were created in a month – mostly, if not all, in the private sector (government jobs shrunk by 14,000). For those paying attention to tax receipts, however, 45,000 jobs was the more likely number – judging by the “withholding tax” collected in the same month. In fact, according to this grass roots data, an average of 49,000 new jobs per month have been created over the last three months – not enough to keep unemployment down. Thank you Trim Tab for this information.  As they say, the devil is in the details.

Overseas, the LTROs seem to be producing the desired effect, as well. Ten-year rates in Italy (5.66% vs. 7.24%) and Spain (4.95% vs. 6.66%) have reversed since their November highs, in turn fueling most European equity indexes to interim highs. Meanwhile, the money printing doesn’t agree that well with the neighbors in the Middle East and in Greece, where both riots and debt issues have reemerged. It’s our opinion that the wealth effect is essentially ruined in these countries, along with stocks and bonds. As a result, when a euro is printed, some feel only the cold sting of inflation. We suspect the clock is ticking in regard to these issues resurfacing in Italy and Spain.

Back here in the States, bad news and good is treated the same – as bullish, although root rot is setting in both technically and fundamentally. The Dow has formed a lower right shoulder (to a head and shoulders pattern), and has been rising in a wedge style formation. This is bearish – usually.

Total US Vehicle Sales for January beat December totals and expectations, rising to 14,130,000. However, inventories at GM dealerships rose to record levels at the same time, to 619,455. This is the second highest level since its bailout. And finally, 4th quarter earnings are 37% complete. So far, revenue misses are common, although earnings are on track to increase by 8% (if that makes any sense).  Earnings growth is falling slightly short of expectations of 10%.

It’s also becoming clear that Bernanke sees no reason to initiate QE until there is a crisis to justify the need. In his recent comments, he has merely hinted at his commitment to inflate when needed – alluding perhaps to buying mortgage backed securities in April or upping his inflation targets. With markets relatively high across the board, the dichotomy creates a perfect scenario for a possible dislocation. Metals may also trade off in sympathy. Contrast this with waning foreign support for the dollar and Bernanke’s readiness to pull the trigger on QE, and we would expect the finale to the recent consolidation to be both shallow and short in duration.

Have a great Super Bowl Weekend!

Best regards,

David Burgess
VP Investment Management