What I’m Watching This Week – 1 October 2012

Everything is debatable

Its 4th quarter and it’s been an incredibly interesting year hasn’t it?  The world should be transfixed with fear, doom and gloom as some commentators continue to be shout out at full volume.  The U.S. and Asian economies are like the dinosaurs of ancient.  Stuck in the tar pits, no quick escape, the more you fight the deeper into the muck you sink and a complete rescue from the situation is becoming more difficult to rationalize.  The U.S., in particular, behaving like Thelma and Louise, moving at top speed towards a financial cliff, fully cognitive of the effect of what a failure to compromise will bring but indignant to the reality of having to do so.   In Europe, they are chest deep in yak droppings.  (That’s about the prettiest way I can verse it, actually).   Social unrest is slowly beginning to bubble to the surface, a possible financial catastrophe remains on the horizon for Greece, Italy and Spain.  Yikes.

Remarkable as it is significant, with all the risk present, the U.S. stock market is up double digits for the year and hovering near post crisis highs.  Housing prices are moving higher.  Growth, albeit weak, has resumed with assistance from the expansionary Fed policy of Quantitative Easing.  Consumer confidence has spiked higher and the jobs picture is actually a little better than we are giving it credit.  The Bureau of Labor Statistics (BLS) announced a preliminary benchmark revision for payroll employment.  Net job creation was actually about 350K better than previously reported and private job creation was 400K better for the twelve months ending in March, 2012.    All isn’t beautiful however, as business confidence is still lacking.  Some businesses are ultra conservative right now, waiting until after the election to commit to expansion or new hiring.  Corporate earnings forecasts have moved lower.  This is the basis of the weakness in the manufacturing sectors.

I remain optimistic.  This week if we get good data, the market will rally.  If Spain gets closer to a bailout, the market will rally.  Tuesday we get the Auto Sales reports, Wednesday is ADP employment changes data and non-manufacturing PMI numbers.  Thursday we get initial unemployment claims and continuing claims.   Friday the Non-Farm Payrolls numbers arrive, President Obama will know what that number is on Wednesday – candidate Romney will not.  (I’ll be paying close attention to the President’s body language on Wednesday evening- it will be an indication on his confidence or lack thereof).   Oh by the way, we have the beginnings of 3rd Quarter earnings season.  That’s just this week.  There is a good deal of upside for the U.S. economy, regardless who wins the election.  How that upside will be acknowledged and utilized is the phantom issue.  Some policies of the past and some of the present have proven to be failures, other have been successes.  It is reasonable to expect that we could see further gains in stock prices regardless of underlying economic conditions.  It is also prudent to protect against the very real risk to the downside.  I remain optimistic, defensive and alert.