Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers declined 1.3% versus the prior week but rose 2.6% versus the comparable period last year; Redbook Research reported month to date retail chain store sales increased 1.2% on a year over year basis.

   Other

    A decline in goods shipped to the US--not good news (chart):
    http://www.businessinsider.com/chart-of-the-day-global-manufacturing-shipping-us-2009-12?utm_source=Triggermail&utm_medium=email&utm_campaign=Clusterstock%20Chart%20of%20the%20Day%2C%20Tuesday%2C%2012%2F08%2F09

    A thought from Paul Volcker (short):
    http://www.ritholtz.com/blog/2009/12/volcker-only-financial-innovation-has-been-atm-machines/

    Tax withholdings are collapsing:
    http://www.zerohedge.com/article/collapse-tax-withholdings-refutes-improvements-either-unemployment-or-corporate-profitabilit
   
Politics

  Domestic

This is very long but you might want to skim it.  It is a list of projects complied by senators Coburn and McCain being funded by the stimulus plan.  Check out #33:
http://coburn.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=a28a4590-10ac-4dc1-bd97-df57b39ed872

  International War Against Radical Islam

The Market
    
    Technical

    Both Averages (DJIA 10285, S&P 1091) closed  below the lower boundary of their up trends off the March low (10302-12293, 1099-1386).  Clearly the S&P also finished below the 1102 resistance level.  Normally, I want to see some time and/or distance before declaring an end to a trend; however, in this case, there was an open question as to whether or not the S&P was already in a trading range.  So if intraday if it looks like stocks are heading lower, I am going to assume we are transitioning into a trading range.

    In addition, the dollar was strong again yesterday (Tuesday scoreboard: dollar up, stocks down, gold down, oil up; given the size of the moves in the first three, clearly the inverse dollar/stock-gold trade was working), having now traded above that down trend line off the March high for three days and by a noticeable margin.  That suffices for assuming that the dollar has broken the down trend.

The important issues are (1) will the dollar trade hold and (2) perhaps more important is why has the dollar broken its down trend.  If this is a run for safety because of the credit rating cuts of Greece and Dubai, the dollar run up (a) might be a temporary phenomenon if  other shoes don’t drop and (b) hence, doesn’t negate the longer term case for avoiding the dollar based on the Fed’s continuing debasement of the currency.  On the other hand, the Market is a discounting mechanism  What if it is starting to discount what it knows that the Fed is going to be forced to do, i.e. stop the massive infusion of liquidity into the financial system?  Many might think (2) completely unlikely.  Perhaps; but I raise it as a possibility that has to considered as we track the dollar.  Bottom line: It is too early for me to judge which of these alternatives provides the best explanation.

    A not too sanguine look at the dollar (medium):
    http://www.ft.com/cms/s/0/d7c5b756-dd14-11de-ad60-00144feabdc0.html

    The VIX was also up closing right on the down trend line off the November 2008 high.  As you know, I have put the VIX in the same category as the S&P; that is, there is a question as to whether is in a decline (a positive for stocks) or a trading range (at best, less of a positive).  A break to the upside would put dollar, stocks and the VIX all line pointing to a trading range.

    If indeed that occurs, then what are the potential support levels?  Right now S&P has visible support at 1081 and below that 1027.

    The latest from TraderFeed:
    http://traderfeed.blogspot.com/2009/12/more-stock-market-sectors-lagging.html

    And Trader Mike:
    http://tradermike.net/2009/12/december_8_2009_stock_market_recap

   Fundamental
   
     Headlines

(1)    McDonalds reported disappointing November sales and 3M forecast a worse than expected earnings number.  Pundits attributed the early day decline to these news items.  Maybe.  Stocks have been going up for nine months in the face of bad news.  So even if these announcements were completely unexpected, it shouldn’t have a lasting impact on stock prices------unless all the good news in prices and bad news is going to start affecting stocks,

(2)    the credit ratings of Dubai and Greece were lowered and that really got the ‘flight to safety’ trade going.  When Dubai’s problems first came to the fore, I noted that my primary concern was that it might be an indication of things to come.  Now Greece is a problem.  What’s next?  As I noted above, maybe nothing; but it is sure makes it easy to understand why investors short the dollar could be scrambling to cover.

(3)    Obama proposed a jobs program.  The good news is He is actually considering giving small businesses a tax break.  The bad news is He wants to use the unspent TARP funds to pay for it.  These guys just can’t keep their hands off of Your Money--while it is not a large sum in the scheme of things [$200 billion], it is indicative of the mind set and, hence, clearly, is not a positive, given the enormous debt that has already been incurred plus that which will be courtesy of healthcare and cap and trade.

In sum, there are a number of cross currents embodied in these news items and the technicals: (1) is the dollar strength a function of a flight to safety or a realization that the Fed has no choice but to start tightening soon, (2) will the dollar trade hold in either case, (3)  if the Fed does tighten, will investors consider that a positive [which as you know, I do], (4) is there another shoe to drop in the unwinding of the international credit markets and if there is, will investors flock to both the dollar and gold or just the dollar (5) is the Market in a position, as I have suggested previously, where none of this matters because good news is bad news and bad news is bad news and (6) a corollary to the previous item, stocks seemed to have stopped going up on good news, e.g. last Friday’s surprisingly positive jobs number with little reaction from stocks, but they are reacting to bad news, e.g. yesterday’s news on MCD, MMM, Dubai and Greece.. 

Whatever the outcome, it seems to me that the level of risk is rising and that prompts me to increase our Portfolios’ cash position. All may end well and our Portfolios may have to buy stocks back at higher prices; but for the moment, I think that discretion is rapidly becoming the better part of valor.  As I noted above, any additional weakness in stocks that would confirm the transition from up trend to trading range and our Portfolios will be doing some selling.

    Here is a much more optimistic take (short):
    http://scottgrannis.blogspot.com/2009/12/markets-are-still-pessimistic.html
   
    This is one is more in line with my thinking (short):
    http://www.ritholtz.com/blog/2009/12/the-sweet-spot-is-over/