Saturday, February 05, 2005

Something doesn't add up

Maybe somebody can explain this one to me. We are seeing all sorts of mergers and acquisitions going on because corporations have lots of excess cash, however the jobs report this Friday showed a suprising lack of new jobs. Why are corporations hesitant to add new jobs if they have the cash to do it?

Could it be that corporations feel that they are on the threshold of overcapacity? If this is true, then it follows that we are nearing the end of the earnings growth spree that has been going on since 2003.

Technically, the market has been breaking down for a month. I'm quite a bit short right now and don't plan on covering until I see a bullish follow through day with big volume created by short covering and bull buying all at once. I haven't seen that yet, even though the market has been up a good little bit, the conviction betrayed by volume has been absent. On Friday, the naz was up 1.4% on 1.95 billion shares: average volume. A painful day for the shorts for certain, but not enough to worry about. We are still quite a bit under the 50-day moving average.

Bill Cara has been providing quite a bit of commentary on the flattening of the U.S. Treasury yield curve, a leading indicator for the equities markets. A flattening yield curve has bearish implications. The spread between the 3 month bond and the 30 year bond has narrowed to 214 basis points, which is the lowest I've seen it lately. According to Cara, a 300 basis point spread is a healthy number, whereas anything below 250 is starting to spell bad news for equities.

As usual, it will be fun to see how the market goes next week. Good luck to all!


At 5:21 PM, Blogger Steve said...

How about American's are LAZY? It's more effecient to hire foreign workers. Less chance of getting sued because the coffee maker wasn't cleaned today. It's pointless to hire extra people cause you have the money. After all you don't create a multimillion dollar business by hiring idiots cause you have an empty cube.

Also the absorption of another business creats redundancy of positions so much of the labor force is layed off which might offset any new positions being created.


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