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MACRO MINUTE…

Sorry for the lack of updates this morning.  The website sits at the bottom of my work/life hierarchy (which, trust me, is not very high, exciting or complex).  Also, I won’t have time to do Q&A this week, so sorry about that.  I’ll be back on track next week though so keep those dating and romance questions in the front of your minds.  Anyhow, lots going on this morning….

  • In Europe, nothing is really new.  There is still massive uncertainty in every aspect and the worry is that it will take something big to happen before policymakers come to their senses and actually sit down at a negotiating table forcing concessions and real resolution.  The risk of an outlier event here is uncomfortably high and the markets will remain volatile and uncertain until there is certainty through policy.  That’s just the way it is.  This problem is not going to solve itself….
  • The US economy is still muddling through.  This morning’s labor report was not good.  Although we’re still gaining jobs the growth is meager at best.  The big worry for me is that all this uncertainty about Europe and China and the fiscal cliff is actually resulting in businesses pulling in in anticipation.   The better news here was the ISM report which came in at 53.5.  Yes, it was below expectations just slightly, but that’s a solid expansion figure.  So, we’re growing, but sluggishly.  Econoday highlighted one very positive point in the ISM report:”In surprising good news, the ISM’s new order index is up nearly 2 points to 60.1 for the strongest rate of monthly growth since April last year. New orders are life’s blood and will trigger wider activity in the months ahead. For May, production growth slowed but remains healthy while employment growth in the factory sector, as it was in today’s employment report, is steady and healthy. Inventories are coming down even as new orders pick up, a combination that points to the need for inventory building which is a solid positive.”
  • China’s PMI came in at 50 which was down to a 2012 low.  It’s becoming clear that the depression in Europe is spilling over into China to some degree.  This crisis is a like the plague.  It doesn’t go away, there is no cure and we can’t stop it from spreading.  Of course, we know the cure, but we just won’t use it.
  • Equities are getting smashed and are now up just 2.2% YTD.  That’s a tremendous change from just a few months ago when some of us were saying the rally was way ahead of itself.   It reminded me of a comment someone made on the site about there being no negative catalysts (this was the beginning of April with the S&P near 1400).  I responded saying the market was “risky”:
“I guess my point is, by the time you know what the catalyst for a sell-off is, you’ll be selling after everyone else has also.”
  • Lastly, the 10 year Treasuries are at an astounding 1.47%.  I am still sticking to my recent position change – buying the equity market 10% lower is always more attractive than buying it 10% higher.   I wouldn’t be piling (remember, always BUILD positions) because the risk of European politicians letting Lehman 2.0 occur is high, but we should get resolution to some things as we move into June and Europe stops being the daily headline and catalyst for uncertainty.  But be prepared to potentially buy lower.  This is an ugly market.
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