THURSDAY:
Q1 productivity is out Thursday and Greenspan is speaking as well. Greenspan looks hard at productivity in gleaning his 'speed limit' for the economy, and productivity declines of late are part of his concern about inflation sparking higher. There is a rather old and rather correct saying about inflation: it is a monetary event, i.e. are there more dollars chasing the same or fewer goods. Productivity, wages, the 'wealth effect' and all of the other indicators Greenspan thought up during his reign are basically BS. If you have more money chasing static levels of goods you get inflation.
You can attack it by draining away the money (Greenspan's approach), i.e. using a stick to correct the problem (and thus risking recession as history repeatedly shows), or you can use a carrot in the form of increasing supply to match or exceed demand, i.e. with incentives to invest in the economy. For inexplicable reasons our leaders typically use the stick and we all suffer versus using the carrot and we all benefit (through a better economy, higher tax revenues, more money to spend on the poor, education, etc.). Is it stupidity, politics, power? All three. If people are prosperous on their own they don't need the government, and that is very threatening to many in the federal government who are lifers.
Thursday Greenspan may give us more insight into his views about using the stick. I doubt he is going to do anything to alter the recent statement from the Fed. I also doubt this will have much impact on the market unless he really goes out on a limb.
Wednesday was a nice follow through and a good start to a leg higher. Almost immediately, however, the jobs report appears on the horizon, and that may start working on the market Thursday afternoon as positions are buttoned up ahead of that number and any potential surprise. Prior to that retail sales will starting hitting the wire and there is the IBM restructuring with its 10K to 13K planned layoffs; that was a positive after the market Wednesday as investors viewed it as a necessary step in big blue's recovery. As we discussed Tuesday re the Challenger layoff report, however, it only underscores the lack of creation in traditional 9 to 5 jobs by the household names. We are still trying to transition into an even newer economy, and the process is painful.
Thus we are anticipating more upside Thursday and then some softening Thursday afternoon as positions are squared ahead of the jobs report. That would be normal: good move, a bit further, then some rest is needed before the next rally. The moves come in spurts and we have been position into leaders as the market showed this change underway and as the leaders made solid moves. WE will continue to do that but not chase stocks that have already made strong moves, instead waiting for them to make the typical test of the break higher to provide a nice entry point. |
