This stunning statement came across the close of CNBC from Tyler Methison who apparently quickly polled strategists after the close today for confirmation. How this is not the beginning of a correction is beyond me as this week’s trading has been nothing but negative, unless you are short the market of course, however this is the stance CNBC is taking. I am afraid much like 2007 and early 2008 it will take much more for the bulls to believe that the market is overheated and ready to come back to reality.
What is causing the pullback? Pick your poison. The technical’s, today the S&P smashed through its 50 day moving average, compliments of Mark, and the transports have been signaling trouble for about a week now. There is the weak consumer confidence which suddenly sank yesterday and, frankly, should have sent the market far into the red. Then there is the weak top line earnings which I have been warning about since the second quarter as the consumer is dead broke and credit is contracting at a 15% annual rate, you cannot have an economic expansion without credit creation. Finally, there is the dollar, my personal favorite indicator lately, which has gained some strength lately which is drawing money out of equities.
Goldman Sachs was also no help today as they announced they are trimming their 3Q09 GDP estimates from 3% to 2.7%, which is really not surprising given a weak consumer. This may have been the ultimate trigger considering stocks have priced in a V shaped recovery with a strong GDP number built in. As a matter of fact, not only did the market price in a +3% GDP for the third quarter, but I have a feeling it priced in a much stronger 4Q09 and 1Q10 GDP figure as well, which is kind of crazy since may retailers are starting to warn about weaker holiday sales. Wal-Mart now has some 100 toys priced at $10 or less compared to last year at only 10 or so toys prices at $10 or less, that is Wal-Mart entering a price war, but with who exactly, The Dollar Store?
Under Armour also, in a roundabout way, warned its 4Q numbers were going to be weaker than expected. This is the shopping season and these are popular products warning that sales are going to be weak during the holidays. If this doesn’t tip you off that the recession is not over I don’t know what will. I realize that employed economists who do not leave their ivory towers much and place way too much emphasis on government transfers think the recession is over, but if they talk to real people perhaps they would realize that data points are more than just data points, they are people and they are hurting.
Some 500K a week initial jobless claims is not good news, it is horrible news and bad for the economy. Cost cutting means nothing if you are firing the very people who you depend on to buy the products you sell. That is exactly what is going on and why unemployment is a leading indicator of our problems. As long as economists are unwilling to listen to that basic fact and try to get you to believe in a jobless recovery, which is a myth I might add, then nothing will get solved.
The markets could get much, much worse in the near future, especially if unemployment or GDP numbers are slightly worse than expected. If the numbers are better than expected we will have a bounce, but I would not expect it to last very long. Traders are getting tougher to please as they are expecting more because they were told everything is better and as they see things progress in the opposite direction they will take the market lower. Yes, I am a bear and I am short, but you already knew that or should have known that as I made no secret about it and I tried to give everyone fair warning.
Disclaimer: I currently hold SPY Jan 2010 100 puts, SPY March 2010 90 puts, SPY June 2010 89 puts, SDS, SKF
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