May 4, 2008

Market Comments for May 4, 2008

1) Non farm payrolls came in at -20,000 instead of the anticipated -75,000. The unemployment rate fell from 5.1% to 5.0%. Money poured into financials and technology stocks. The biggest job losses were in the construction area. Interestingly, the hot new job growth area is the retraining of auto workers in Michigan into health care workers. That next male nurse who attends to you may have calluses on his hands.

2) Unemployment in Poland has dropped from a high of 20% a few years ago to 11.1% in March. Wages are starting to climb, especially for skilled laborers. Wages in Poland are up 20% YOY, and are up 30% for construction workers.

3) $108 billion in stimulus checks are about to hit bank accounts. How long the assist will help the economy is anyone's guess.

4) The euro hit $1.53. I believe it can go to the old breakout level of $1.38 sometime this year. This will create a huge stimulus for the stock market.

5) The yield on two year Treasury notes hit 2.55%, 55 bp over the Fed funds rate, indicating an enhanced appetite for risk. This is up from -100 bp just six weeks ago. This has been an excellent indicator for calling the bottom of the market.

6) The Fed engineered a massive global liquidity injection early this morning. Lending at the Fed window to investment banks was increased from $100 billion to $150 billion. It announced it will start accepting AAA collateral backed by car loans, credit cards, and student loans. It increased swaps with European central banks from $20 billion to $50 billion. This will go a long ways towards stabilizing the credit system and shortening the recession.

7) Momentum traders have been flocking into technology stocks. Apple, which I recommended on March 12 at $126, hit $185. The next target is Intel, which gets 80% of its sales from overseas, could rise 50% from here. Helping is the fact that pc inventories are at 5 year lows and distributor inventories are at 10 year lows. Intel's $250 'Adam' chip, which is designed for sale in low cost computers in emerging markets and is expected to have huge demand, comes out in Q3.

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