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Weak Job Report Hits Raw NerveRick Ackerman
Investors couldn't wait to dump stocks Friday on news that a paltry 32,000 jobs had been added to the U.S. economy in July. Let's try to figure out what was on their frenzied little minds, one sector at a time, starting with gold stocks. Most rose modestly on the day, implying that the threat of inflation is once again to be feared. Why? Because the Fed is prone to attack any such signs of economic weakness by lowering the cost of credit. But if the economy is starting to sputter out, what do we make of the fact that shares in Beazer Homes soared nearly $3 in the opening minutes of the session? Oh, almost forgot: Manipulate interest rates low enough and you can have a housing boom even in the throes of recession -- just as we've been doing for the last three years. But wait! Beazer plunged anew before we even began to figure out why it had risen in the first place. Could the stock's 15-minute joy-ride have been nothing more than a brazen heist perpetrated by short-squeeze artistes? So it would appear. Citi Shares Fell! But we still need to ask: If the apparent dearth of new jobs is going to abort or at least ameliorate the Fed's propensity to tighten, why should Citi shares have fallen as they did? Aren't lower interest rates a license for the banks to print money? Or are investors perhaps beginning to wonder, not without good reason, who will be able to borrow all that money if the economy sinks yet again into its by-now chronic dirge? At least no one appeared to believe that a flagging economy would somehow stimulate demand for oil. Chalk up a correct reponse, since crude quotes fell sharply on the day. Make that, two correct answers, since the bond market, too, had it just about right. Treasury bonds soared with Friday's on-again, off-again revelation that a slowing economy will curtail demand for credit, causing yields to ease. Never mind the fact that debt service on the $37 trillion Americans already owe will put countervailing pressure on rates. I've already explained how yields could remain about where they are, even as deflation suffocates the U.S. and global economies. Very simply, asset values would fall, effectively increasing the real rate of return on all instruments of debt, most significantly those denominated in dollars. Return of the Bear Meanwhile, we shouldn't hold investors liable for any errors in judgment they may have committed on Friday trying to adjust stock and bond prices to new economic realities. Remember, they were not reacting to the news so much as they were attempting to second-guess all the other idiots trading stocks and bonds at that moment. Putting aside all of the questions I've raised above, Friday's histrionics on Wall Street will permit one inference about which we can be almost certain: Stocks are headed lower. Each and every one of those hidden pivots we take note of is, as I like to remind you, not chopped liver. The fact that two dandy ones were effortlessly trounced on Friday is as clear a sign as we could have that the bear is about to dominate the action once again. *** Rick Ackerman _______________ |
