Economics

   This Week’s Data

    Fourth quarter productivity rose 3.2%, more than  twice estimates of +1.5%; unit labor costs increased 1.8% versus expectations of up 2.5%.  The bad news is that these positive numbers resulted from rising job cuts; the good news is that this is positive for corporate profits.

    December factory orders fell 3.9% versus forecasts of a drop of 3.2% and November’s reading of -6.5%.

    January nonfarm payrolls fell 598,000 versus expectations of a drop of 525,000. This put the unemployment rate at 7.6% versus estimates of 7.5% and 7.2% recorded in December.
    http://www.calculatedriskblog.com/2009/02/january-employment-report-598000.html
    http://mjperry.blogspot.com/2009/02/jobless-claims-as-percent-of-payrolls.html

   Other

    Japan’s experience with its stimulus plan:
    http://www.nytimes.com/2009/02/06/world/asia/06japan.html?_r=1&partner=permalink&exprod=permalink

    The argument for not using TARP to bail out ‘bad’ banks:
    http://online.wsj.com/article/SB123388681675555343.html

Politics

  Domestic

The President, in His own words:
http://www.washingtonpost.com/wp-dyn/content/article/2009/02/04/AR2009020403174.html

    More congressional mischief:
    http://mjperry.blogspot.com/2009/02/cap-and-trade-will-hammer-consumers.html

  International War Against Radical Islam

    Lest you have forgotten about Afghanistan:
    http://www.slate.com/id/2210624/

The Market
    
    Technical

    Selling on strength:
    http://traderfeed.blogspot.com/2009/02/selling-on-strength-versus-weakness.html

    The worse post election day return since 1900:
    http://bespokeinvest.typepad.com/bespoke/2009/02/worst-postelection-day-returns-since-at-least-1900.html

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    The Averages (DJIA-8063, S&P 845) rebounded yesterday on hopes of more clarity on the bank bailout and the stimulus plan.  They remain within the shorter term more narrow trading range of DJIA 7853/9004, S&P 804/942.

   Fundamental

    That clarity came in the form of:

(1)    a report that Geithner will present the financial rescue plan on Monday.  Assuming that it comes even remotely close to properly dealing with the disposition of the toxic assets on bank balance sheets, it should be a positive.    However, rumors outlining its specifics suggest the plan is still in a state of flux; so the  risk here is that Geithner presents some half baked scheme and the Markets puke.
http://www.calculatedriskblog.com/2009/02/bailout-more-equity-stakes.html

(2)    Senate majority leader Harry ‘ready, fire, aim’ Reid says that he has the votes to pass a stimulus bill soon; and apparently that has made a lot Market participants feel all warm and fuzzy.  I can’t argue with the notion that short term anything is better than nothing.  However, based on the last iteration that I have seen, if that occurs, it would be [as I have made clear in these notes] a [budgetary/inflationary] disaster longer term.  The good news for fiscal conservatives is, [again if I understand the make up of the bill and if republicans don’t weasel out and support it], the democrats will have sole possession of this bill and its consequences.

As an aside, I would be perfectly happy to have no stimulus plan until after we know how well the financial rescue plan is going to work.

(3)    Chris ‘friend of Angelo’ Dodd has made it known that he favors a suspension  of the ‘mark to market’ rule as part of the financial rescue plan; and again many banking industry participants and investors agree. Unfortunately, Geithner doesn’t.

The bottom line: short term, the added clarity brought by the announcements regarding the rescue plan and passage of the stimulus plan will likely work its magic with stock prices.  That said, it will be their terms and conditions that impact equities in the longer run; and at the moment, I am not terribly optimistic on that score.  If stocks continue to move up in advance of events, adding to our cash position might make sense.  Stay tuned.