Matt Trivisonno’s Blog

On April 1st, I wrote that I would sell the big rally that occurred on that day. And that is what I did.

Right into the teeth of the “Bear Stearns Bailout/The Bottom is in” euphoric monster rally, I shorted SPY at $136.28 (at 3:32pm on April 1st.) Two weeks later, “gloom” has become the word of the day this Monday morning, so I just got done buying-to-cover. I like to buy gloom and sell euphoria.

At noon, I bought in my SPY short position at $132.92. So, I made $3.36 a share for a 2.46% return. Not bad, huh?

I’m going to be pretty busy, so I don’t know if I will have enough time to study the market closely enough to make good trades. I will post when I make the next one though, whenever that is. In general, I don’t think the bottom is in yet, but of course, the market usually doesn’t go up or down in a straight line.

Bookmark It

Hide Sites

Jim Cramer, Larry Kudlow, Vince Farrell and many other analyists believe that the stock market bottomed in mid March with the Bear Stearns bailout. I don’t agree because this is not only a Wall Street crisis. It is also now a Main Street crisis.

In 2007, the stock market was able to stay strong because the unemployment rate was low. A person being foreclosed upon could still rent an apartment because he still had a job. Here in 2008, a person might be faced with being fired and foreclosed upon at the same time. That’s a nasty combination.

The Wall Street crisis may be fixed, but the Main Street layoffs have only just begun in January, and are getting steadily worse. The economy is accelerating downward. I don’t think the stock market can bottom until we see the speed of layoffs let up.

Bookmark It

Hide Sites

The surprisingly bad jobs report on Friday is very bad news for the Republicans. It won’t be easy for John McCain to win while the economy is falling apart. Maybe a strike on Iran would improve the picture though.

On Tuesday, General David Petraeus is expected to tell Congress that the Iranians have been causing trouble in Iraq, and it looks like this might be the beginning of a “Strike Iran” campaign. While the Iranians have almost certainly been fighting us covertly in Iraq for years now, perhaps President Bush has been “saving up” a strike on Iran for a rainy day.

While October-Surprise predictions are nothing new, I am intrigued by the curious fighting that recently took place in Basra. Why did Iraqi Prime Minister Nouri al Maliki attempt to capture Basra from Muqtada al-Sadr’s Mahdi Army in late March?

You would think that President Bush would want to keep things calm in Iraq so that the Republicans could continue to use their “The Surge is Working” campaign tactic. You would also expect Bush to tell Maliki to postpone an offensive until after the election. So why would Bush permit increased fighting in Iraq? And why would Maliki leave the safety of the Green Zone to lead a force of Keystone Cops to fight the Mahdi Army in Basra? A mission that anybody could see was doomed to failure?

I think Maliki’s real mission was to create a situation where fresh intelligence could be collected on Iranian involvement in the fighting in Iraq. That intel would then be used to support a “Strike Iran” campaign, if such a policy were to be given the green light.

An alternative motive would be to create an “Iranian Menace” campaign issue. If such an issue were to gain traction, it could be expected to benefit McCain.

Bookmark It

Hide Sites

Lots of bullish commentators are in denial about today’s bad jobs data. Some have even gone so far as to say that large-scale layoffs are proof that the recession is already over. Yes, employment is a lagging indicator, but it doesn’t lag by that much!

The bulls are also telling us that the stock market is looking past the recession. Since the bear market is already six months old, I suppose that is possible. However, it’s pretty obvious that the recession is accelerating downward. If you are a bull planning to ride out the recession, you have to seriously consider if you are missing an opportunity to sell here and buy your position back at a lower price in the future.

That would have been the smart move at this point in the business cycle during the last recession. Remember, feeding off of bullish denial is one of the ways bears are able to make money in the face of an economy that grows exponentially in the long run.

Bookmark It

Hide Sites

This morning’s ADP report surprised to the upside, but it’s still not good news. From the report:

Though positive, the slight increase of 8,000 in March signals a continuing sharp deceleration of employment growth from previous levels.

A research firm has told me via email that my withholding data is off because of a “calendar quirk.” I don’t buy it. I have studied the calendar and the data very closely. I see the same “sharp deceleration” that ADP sees.

Bookmark It

Hide Sites

All of the first quarter withholding data is out, and the quarter-over-quarter comparison is ugly any way you slice it. Growth slowed to an alarming 1.76%. It was slightly negative taking into consideration the leap-year as noted in yesterday’s post.

The dramatic plunge on the year-over-year chart on the main withholding page for today’s data point is not a typo. Because of calendar quirks, you get an exaggerated drop like that from time-to-time. The chart will probably bounce back up a little bit going forward, but the algorithm is consistent - that data point is just as real as any other on the chart.

On the main withholding page, I have posted both quarterly charts - one with the leap day and one with the full calendar quarter near the bottom of the page. Both look very bad.

We had a big rally in the stock market today in the face of this data. Gun-to-head, I would short this rally. However, it is important to keep in mind that while we have this withholding data going backward for ten years, it is still only a little longer than one full business cycle. We don’t know how well this indicator worked for recessions prior to the last one.

Bookmark It

Hide Sites