A Solid Three in the Bag
- ECB helps stocks rally for third session.
- No rate cuts on the Continent, but emergency loans, covered bonds, and perhaps some more liquidity measures to come. Whatever.
- Jobless claims back over 400K, barely.
- Same Store Sales clock in much stronger than expected. Better get those trucks warmed up to move the holiday, er, Christmas merchandise.
- President pushes his spending bill again, but is doing so under the same erroneous conclusion (and the same language) as his first much larger spending bill.
- Solyndra: Why government should not pick and choose who gets stimulus. If it has to stimulate, let the best rise to the top.
- Three days up into the jobs report. The bounce has momentum and we will see if it can sustain itself after the news, and before earnings.
A solid three in the bag.
Stocks continued the rebound for the third session, and it was a very solid session. It was not backing off in its strength. It reversed on Tuesday using those extreme sentiment indicators and extreme market internals. As expected, we have had a nice, big bounce to the upside. Will it continue? I will talk about that in a moment.
SP500, +1.8%; NASDAQ, +1.9%; Dow, +1.7%; SP600, +2.4%; SOX, +1.25%.
Stocks started basically flat. They shuffled around but then built into gains all session, finishing near session highs yet again. Very solid action. You love to see closes at the session high and showing no backing off after three days of rallying and the afternoon before the jobs report on Friday morning. Pretty gutsy move. Investors did not seem to be scared of what lies ahead in the morning.
The technology sector may have been a bit put off by the death of Steve Jobs. He is one of the great inventors and entrepreneurs of my generation. As I said last night, it is quite a blow. I cut my teeth coming out of school as Jobs and Wozniak created the AAPL computer. Back then I bought myself of those newfangled personal computers, and people were wondering who would ever need one. There was a confluence of great things happening then. That is something we need right now. We had some great entrepreneurs coming out. We had Jobs and Wozniak in their garage in California. We had Gates, Allen and Ballmer in a hotel room in New Mexico. We had Chambers at CSCO. We had entrepreneurs with better ideas about what we needed. We did not even know what we needed.
They were the visionaries that created these devices, and they had access to venture capital at that point. It was not locked up where no one could gain access because of bad regulations and tax policies. Why was that? The Economic Recovery Act of 1981 was passed. Ronald Reagan reversed that 1970′s malaise. It was not just under democrats and Jimmy Carter; it was under other republicans like Nixon and Ford. They had bad economic policies. We had so much capital tied up and wasting away. These policies unleashed all of that capital, and the entrepreneurs were there to take advantage of it. They had the money to put those ideas to work. Right now there is a dearth of IPOs. It is hard to get any capital. It is all sitting overseas or it is here doing nothing. Why? The risk is too much for the reward. There are too many regulations and taxations. We do not know what will happen. They are talking taxing millionaires and they are talking about taxing everybody. They are talking about healthcare. What will happen with that? Will we have to pay outrageous healthcare prices, or will they repeal it and declare it unconstitutional?
No money is being spent, and it is the same as it 70′s right now. Those in DC do not seem to understand that — “they” being half or three-quarters of the people there. The President and his minions are operating under the false premise that his jobs plan will work. He was speaking to the press today using the same language he used in 2009 with his first $800-900B stimulus that he said would jolt the economy. He said today that it will “jolt the economy.” If we are so jolted, why do we have such anemic, pathetic growth today? He is trying to repackage the same plan at half the price. I guess he supposes it will not be half the impact. He is still saying there will be 2-3M jobs formed out of this. Again, he is operating under the premise that it will work. History shows that these do not work — most recently, his bigger spending bill from 2009. We have never been able to spend our way to prosperity. No economy has. You cannot tax from one or borrow and spend and make yourself prosperous. It has never worked.
With the amount of money that we’ve spent through the government, we should have enough jobs to employ the entire population of the earth. I heard one liberal strategist saying that for every dollar the government spends, we got $1.50 of economic activity. If that was the case, we would be booming right now. We would have jobs aplenty. Obviously that is not the way it works. As I have said, it is the entrepreneurs like Jobs, Wozniak, and Gates who create new technologies and have access to capital. They see the future and create things we do not even know we need. Now we desperately need these things to function. To say that the government can pick the winners and losers and give money to someone like Solyndra is crazy.
In 1981 we cut taxes and gave investment credits. We did not tell people what to do with it or what business to go into. That was for the market to decide. People were going to go out and give it a shot, and the market would determine who the winners were. Man, did we ever have winners. Hundreds of millions of jobs were created in the technical boom. That is how you create jobs, raise your standard of living, and generate the kind of wealth that has made us the greatest economic power the earth has ever seen. We need to get back to that. Looks like we are trying to do that, but we have people wanting to put us into more debt under these Keynesian theories that history shows simply do not work.
It was kind of funny. The President said today that he would be happy to hear any plan that anyone has that has a similar impact to his bill. I can tell you what bill that would be: No bill would have the same amount of impact as the President’s bill. Why? Because it simply will not work. They want to take money from productive areas of society and pay someone to do something that will not create a new technology or a new, lasting job. That means that as soon as the job is over, then it is over. We are no better off. We found that out with Quantitative Easing. It did not do it either. We have this massive misconception in Washington, DC on both sides of the aisle that think we can do this kind of nonsense and spend our way to prosperity. Again, if that were the case, we would be the wealthiest nation on earth with the amount of money we have borrowed and spent. We would have more jobs than the planet has people to employ.
I digress, but this is very important to me. I am very passionate about it. The death of Mr. Jobs has brought it out because he was the quintessential entrepreneur. AAPL never looked to the government for help. When he came back to AAPL after being ousted, he did not look to the government. He even went to his arch rival, Bill Gates, and received something like $150M from MSFT. AAPL also received an undisclosed amount in the settlement of a patent suit. They parlayed that money into the largest capitalized company in the market today. It can be done, and you do not need the government to do it. Look what happens when you do not get government involved. Look how much wealth is created.
THE NEWS/ECONOMY
What was some of the news driving the action? A lot of it had to do with Europe. There was no bad news out of Europe, but there was not great news. The ECB and the Bank of England did not raise rates. They did not lower rates either. Everyone hoped they would lower them, but they held them steady. That was offset by the fact that the ECB created some emergency loans for banks and was also doing some covered bond action to create liquidity. No Quantitative Easing like we have been pushing for, but Europe is edgy about that — particularly Germany. They still have bad dreams about 1929 when they cheapened their currency and tried to spend and devalue their way to prosperity. It did not work. What do you know, another case in history where that did not work. It was enough to help propel the market. But that was not all. There was the technical action.
There was some decent news economically. Jobless claims did not stink. They moved back above 400K to 401K. That was a bit better than expected. The week before was revised higher to 395K. It was not revised over 400K, so pop the champagne corks. When you couple that with the ADP report coming in better than expected, that is not bad. Helps give investors a bit of confidence going into Friday’s jobs report.
Same Store Sales were much better than expected. TGT, LTD, BKE, COST, ZUMZ, KSS, and SKS all beat expectations quite handily. Perhaps we will see this turn into a Christmas boon. The stores have been putting off ordering, and thus freight levels are down. Maybe they will start ordering, freight will jump back up, and then everyone benefits. We will have to see. I have been spot-checking stores and seeing a lot of them offering sales, trying to get rid of that fall merchandise. They are really cutting the prices already to 50% and more. Maybe they are trying to make way for their new orders. Hopefully they can do it. We will see. It was better news on the Same Store Sales front, and that always makes everyone feel a bit better.
We had some decent economic data despite the President pushing a jobs bill that he says will be paid for by millionaires and that it will work. It is just so ironic. How is it going to work when it did not work last time? How will it provide the jolt that it did not provide last time? How will it create jobs when last time it did not create any jobs? They made up something about saving jobs, but when you spend millions to save a couple of jobs, that is not the best use for the money. Why not just give the people the money and tell them to start a new business? They would have seed money then. We cannot get it from the banks; they are not lending. That might be the way to do it, but Momma and Poppa Government probably feel we are not smart enough to do that on our own. They will just tell us where the money should be invested in great companies like Solyndra
I had to laugh today when I heard one of the people in the administration saying that, “We pick some winners and we pick some losers. This one just happened to be a loser.” They just do not get it. His very words just point out the fallacy. Why is the government picking the winners and losers? It just shows they do not know. The market should be the one that makes that determination. They do not know what the best technology is. Solyndra was getting the crud beat out of it by China. No amount of subsidy would make the difference. Japan learned that. It subsidized every business that it could in hopes of competing with the rest of the world. It has been in depression ever since. I do not want to go that route, and I do not want my kids living that kind of life. I want their standard of living to be better than mine. But, again, I digress.
FRIDAY
We have a very key report tomorrow because we have had a bit of bump up in that economic data. People are expecting a little economic bump up in the nonfarm payrolls. 60K is expected versus 0 last month. September is anticipated to be somewhat better. Of course that is less than was expected earlier and less than expected for August originally. We will be watching the unemployment rate, obviously. It probably will not change. A lot of headlines probably will not change much. We may get a better-than-expected number. ADP was better. People are expecting that it will be better; they may be disappointed or they may not be.
We need to watch this average workweek. This is the one that bounced higher last month, and that is not a good indication. You need the workweek to rise before people will hire. That is so important for our politicians to understand. I was talking to some last night and some hopefuls for Congress and the Senate. They are talking about jobs plans and job credits, and I was trying to tell them that you cannot get small businesses to hire permanent employees by giving them a tax credit. You still have to pay those people $15-20K a year or whatever you are paying them. One $5K of credit will not make the difference if your business is not doing that well and you do not really need that person.
Our businesses need to be able to function. It is an ecosystem. There has to be capital, there has to be the idea of growth to get that capital moving. Just saying, “Here’s $5K, now go hire someone you do not need” does not do that. If we are able to free up capital and help fund great ideas and let those great ideas come to market, that creates the need for more employees. Then you hire people whether there is a credit or not because you need them. At that point, you do not need the credits because you need the people and you will hire them. I do not know if they get it. In any event, that is an important area to look at. How many hours are being worked by those that have jobs?
That is what we are looking at. The question is what will the market do? Will it rally to the upside? Will it be a good number and continue the move? CAN a good number continue the move after three days to the upside? I can tell you one thing. If we get a burst to the upside on the jobs number, we will be taking some upside gain off the table. The reason being, regardless of what I feel and what we all feel here in the office about the economic prospects, we are still in a trading range. If we get up toward the top of that trading range after four days to the upside, we will take some gain off the table. Then we will see what kind of test we get.
Do we get a test that comes back and makes a higher low over an interim support level and then breaks higher? If it does that, we are buying upside even more. It may not be able to. Maybe it shows a tombstone doji. We have seen a couple of those when the indices have reached the top of the range, and then they have sold off to the bottom of the range. If you see that, we may get a selloff. You would still want to bank some gain, but you look for some downside action. Play down to the bottom of the range.
Remember, we have a SPY play, and we have been moving the buy point up as the SPY has rallied. If it comes up to resistance at 118 — or maybe all the way to 120 — and it shows that tombstone doji or the evening star doji, we can be ready to move into the downside. We will have other plays to the downside as well. Right now is not a great time to be buying a lot of upside. We bought some yesterday. We bought a bit today, and we bought the QQQ on Tuesday because we were anticipating that reversal.
We will just see how much of a move we get and how we play it off of that. We are still in a trading range. Yes, the indices broke down and, yes, they should keep selling because the door is now open. The ice has cracked, and they can fall through the bottom. They can still do that, but they did the false breakdown and reversed. That is something I talked about. We want to make some money on that as it continues higher. Then we will reevaluate when we get up to the next resistance level or after the jobs report. Then we can decide whether we want to play it to the downside or if it will bounce again.
We may not do a lot tomorrow because it is a Friday. There will be the jobs number, and it still has to work its way through the system. We have had three days to the upside. If there is a little pullback, we will know next week if it is just a pullback or a reversal. The one thing we will be looking at is something like on the SPY. If we get a gap on the SPY and it shows a tombstone, a finish well off the high, or it starts pulling back from that high, I will be inclined to put some money to work on the SPY and maybe some other downside plays. Not loading up but just getting a bit more exposure on those. If we get that kind of signal, what has that indicated in the past? A pullback in the range. Since we are in a range, we want to take advantage of that and play the range if it shows us the signals.
Sometimes it seems like we will be range-bound forever. That is okay. We are making money in it, and we will continue to do so. I just wish we could get the right attitude in Washington to get the right kind of stimulus passed. But that will not happen. I can tell you right now, the kind of stimulus that history shows will work is the kind that the people in charge do not believe works. Or at least they will not be able to promulgate that because their base does not believe it works.
