Huge Bounce off 50 Day Moving Average in NASDAQ

Buyers came out in force once the NASDAQ threatened the 50 day moving average.  We've seen a 1% move in about 2.5 hours.  No real headway for bears or bulls on days like this; just a lot of churn - start up, sharp selloff, rally strong lately.  Only good for daytraders.

As always the close is more important than intraday so its a 3rd successful hold of serve on the NASDAQ for the past 2 weeks.

Spreadtrum Communications (SPRD) Beats Expecations by 4 Cents, Raises Future Revenue Guidance Significantly

A very nice earnings report from old friend Spreadtrum Communications (SPRD) late last week, along with a big upgrade in revenue guidance - frankly I am surprised the stock only gained 6% (it was up some 12% in after hours Thursday night)   The stock obviously stalled at an almost identical place as the mid February intraday high.  This makes it tricky; one would probably like to buy in any 'gap filling' moment, and/or at a new high - currently it is sort of in no man's land.

The main worry here is the product mix as China (and other emerging markets) move to 3G.  Spreadtrum seems to be growing leaps and bounds in the older technology interfaces - but hard to know the competitive landscape in the newer generation build.

•  Sales of wireless chips by unit volume rose 46% from Q3 for chips serving “2G” and “2.5G” cellular connections, the company said. Sales of chips for 3G connections rose 7% from quarter to quarter. Average selling price was down 2% from Q3 and down 26% from the prior-year period.

But for now that is an issue for another quarter as there seems to be enough global landscape in 2 and 2.5G, as the guidance raise was significant.

• For the current quarter, the company sees revenue in a range of $130 million to $135 million, beating the average $109 million estimate.

An interesting blurb by Needham as well late last week:

• Needham & Co.’s Quinn Bolton today reiterated a Buy recommendation on Spreadtrum and a $30 price target, writing that the ability of its chips to support phones with multiple “SIM” cards is helping Spreadtrum to expand in India, Africa and Latin America.

Via AP:

• Spreadtrum Communications Inc., a Chinese company that makes semiconductors for wireless devices, on Thursday reported fourth-quarter results that beat analysts' expectations as sales of its 2G and 3G chip products jumped.
• Spreadtrum said it earned $30 million, or 56 cents per share, compared with $1.4 million, or 3 cents per share, in the fourth quarter of 2009.  Excluding one-time items, the company said it earned 61 cents per share. Analysts polled by FactSet expected 57 cents per share on that basis.
• Revenue tripled to $126.5 million from $42.3 million in the same quarter in 2009, topping analysts' estimates for $123.5 million in revenue.
• Fourth-quarter operating margins at the Shanghai-based company rose by 16 percentage points to 22.3 percent,. 
• For full-year 2010, Spreadtrum earned $67.2 million, or $1.28 per share, compared with a loss of $19.3 million, or 43 cents per share, the year before.  Revenue more than tripled, rising to $346.3 million from $105.1 million in 2009.

[Nov 18, 2010: Boggling Reaction to Great Earnings Report from Spreadtrum]
[Aug 13, 2010: Spreadtrum Communications with Big Beat but Hostage to the Market]
[May 27, 2010: Bookkeeping - Beginning Spreadtrum Communications]


No position

Federal Reserve's Lockhart: Oil Shock Could Lead to QE3

From the "Office of That was Not a Surprise" we have news reports that Federal Reserve President Dennis Lockhart is offering that higher oil prices could lead to the next round of Quantitative Easing.  

• If oil prices continue to climb, it could force the Federal Reserve to make a new round of asset purchases, according to Atlanta Fed President Dennis Lockhart.
• Appearing at the National Association of Business Economics in Arlington, Va., Lockhart said that while he doesn't think additional purchases are currently warranted, more stimulus could be needed if oil prices continue to climb.
• "If [the rising price of oil] plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation," Lockhart said at the conference.

This is not a shocker on so many levels.... The Bernank seems to live in a surreal world where he claims QE is raising the price of assets but ONLY in the stock market.  There is some chinese wall apparently where the flood of liquidity stops the minute it gets to commodities, but only goes into stocks.  I guess to sleep at night you have to delude yourself into some sort of logic like this.  But larger picture this is akin to Bernanke's Iraq war... he will find a reason to QE infinity.  The specific reasons are really quite immaterial - they will find one.

Even more laughable is what I wrote last week -

Ironically the more QE to come, the more speculators will drive up commodities.... which will impair corporations (who might cut jobs to preserve profit margins) and consumers... which (in the Fed's mind) will require more QE.  Circular logic anyone?  

If this policy weren't so darn pathetic and hurtful to those in the lower and middle tranches of society it would be laughable.  The higher oil goes, the more they QE, which will help speculators drive oil prices even more high, which will require more QE.  Rinse. Wash. Repeat.  I believe Charlie Sheen would call this policy "Winning." This is where you laugh.  Or cry.  

Anyhow, based on track record I am sure we're in good hands  - ahem.

NASDAQ Breaks 50 Day Moving Average Intraday

I mentioned the past few weeks that I should have kept a closer eye on the NASDAQ versus my normal heavy emphasis on the S&P 500.  The reason for this is the market bounced as the NASDAQ hit its 50 day moving average - indeed right after it broke it intraday.  Well, here we are again.   At this moment we are slightly below 2728, the 50 day exponential MA.  (for those curious the simple moving average is 12 points higher at 1240)  Two weeks ago the NASDAQ did not close below the 50 day, so if that happened today it would be another change in character.

As mentioned this morning, it remains a time to be cautious as the market seems to now finally be changing in its actions these past 2 weeks.

Update 1:35 PM - like clockwork the buyers came in to defend this spot and the NASDAQ picked up 6 points and now sits at 2731. Somehow I don't think I am the only one who watches key technical levels... ahem.  Let's see how they close 'em.

Time Magazine: Are America's Best Days Behind Us?

I give my top recommendation to the cover story of Time magazine, written by one of the smartest journalists on Earth - Fareed Zakaria.  Frankly, if you have not been around this site for longer than a year, it could have been an article based off a few hundred blog entries I've written, but offered in a far more eloquent manner than I ever could write.  It deals with everything from the 'short termism' nature of our culture, the dysfunctional crony "capitalism", a bought and paid for political system, the inability for many Americans to believe they can learn one thing from any other country, weakness in education and even healthcare, etc etc.  I especially love how Fareed reminds us how those who use the 'founding fathers' as a crutch for every dogmatic belief, do not realize the founding fathers were flexible, pragmatic folk who evolved and changed (trying to improve) ideas even in their relatively short period of time.  Something those who practice dogma are not practicing at all.

I am heartened to see such prose in such a visible place, because without admitting the problem we cannot even begin to come up with solutions - but I am also pretty sure this will fall on deaf ears by the masses.  Instead the slow boil (with us as frogs) continues - frustratingly.  After all, as long as they give us our circus and bread, it's all good.  Plus we know the pat retort "if you don't like it, then move sucker!"   Learn from Finland on why they are so highly ranked in math and science?  "Screw it you socialist - move there if your going to complain!"  [Dec 7, 2010:  U.S. Students 17th in Science, 25th in Math - Bernanke Offers Solution to Education Crisis via QE6]  Germany finding a way to reduce the social cost of high unemployment?  "Nothing to learn there.... plus have I mentioned you hate America for even bringing it up?" [Oct 1, 2010:  German Unemployment Rate Down to 7.2% after Peaking at 8.7%; Can We Learn Anything?]

What should be absolutely frightening to people is the U.S. was built on socio-economic mobility.... effectively anyone could move from the lowest tranche of society to the highest.  While still possible, it is much less likely than in the past, and we've fallen behind many "socialist" countries in this regard.   Anyhow I could link to about 200 of my own posts for reference points that support Fareed's work [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] [Sep 27, 2008: What Years of Neglect and Lack of National Policy is Creating], but I'll just point you to the Time piece... must read.

(p.s. there is some sort of special on this topic on CNN March 12th 8 PM EST/PST)

Some snippets via Time:

• I am an American, not by accident of birth but by choice. I voted with my feet and became an American because I love this country and think it is exceptional. But when I look at the world today and the strong winds of technological change and global competition, it makes me nervous. Perhaps most unsettling is the fact that while these forces gather strength, Americans seem unable to grasp the magnitude of the challenges that face us.
• Yes, the U.S. remains the world's largest economy, and we have the largest military by far, the most dynamic technology companies and a highly entrepreneurial climate. But these are snapshots of where we are right now. The decisions that created today's growth — decisions about education, infrastructure and the like — were made decades ago. What we see today is an American economy that has boomed because of policies and developments of the 1950s and '60s: the interstate-highway system, massive funding for science and technology, a public-education system that was the envy of the world and generous immigration policies. Look at some underlying measures today, and you will wonder about the future.
• The following rankings come from various lists, but they all tell the same story. According to the Organisation for Economic Co-operation and Development (OECD), our 15-year-olds rank 17th in the world in science and 25th in math. We rank 12th among developed countries in college graduation (down from No. 1 for decades). We come in 79th in elementary-school enrollment. Our infrastructure is ranked 23rd in the world, well behind that of every other major advanced economy. American health numbers are stunning for a rich country: based on studies by the OECD and the World Health Organization, we're 27th in life expectancy, 18th in diabetes and first in obesity. Only a few decades ago, the U.S. stood tall in such rankings. No more.
• Many of these changes have taken place not because of America's missteps but because other countries are now playing the same game we are — and playing to win.  To this historical challenge from nations that have figured out how the West won, add a technological revolution. It is now possible to produce more goods and services with fewer and fewer people, to shift work almost anywhere in the world and to do all this at warp speed. That is the world the U.S. now faces. Yet the country seems unready for the kind of radical adaptation it needs. The changes we are currently debating amount to rearranging the deck chairs on the Titanic.
• Sure, the political system seems to be engaged in big debates about the budget, pensions and the nation's future. But this is mostly a sideshow.   Only four months ago, the Simpson-Bowles commission presented a series of highly intelligent solutions to our fiscal problems, proposing $4 trillion in savings, mostly through cuts in programs but also through some tax increases. They have been forgotten by both parties...
• So why are we tackling our economic problems in a manner that is shortsighted and wrong-footed? Because it is politically easy. The key to understanding the moves by both parties is that, for the most part, they are targeting programs that have neither a wide base of support nor influential interest groups behind them.
• It's not that our democracy doesn't work; it's that it works only too well. American politics is now hyperresponsive to constituents' interests. And all those interests are dedicated to preserving the past rather than investing for the future. There are no lobbying groups for the next generation of industries, only for those companies that are here now with cash to spend. There are no special-interest groups for our children's economic well-being, only for people who get government benefits right now. The whole system is geared to preserve current subsidies, tax breaks and loopholes.  (amen)
• A crucial aspect of beginning to turn things around would be for the U.S. to make an honest accounting of where it stands and what it can learn from other countries. This kind of benchmarking is common among businesses but is sacrilege for the country as a whole. Any politician who dares suggest that the U.S. can learn from — let alone copy — other countries is likely to be denounced instantly. (amen again)
• If someone points out that Europe gets better health care at half the cost, that's dangerously socialist thinking. If a commentator says — correctly — that social mobility from one generation to the next is greater in many European nations than in the U.S., he is laughed at. Yet several studies, the most recent from the OECD last year, have found that the average American has a much lower chance of moving out of his parents' income bracket than do people in places like Denmark, Sweden, Germany and Canada. 

[click to enlarge]

• And it's not just politicians and business leaders. It's all of us. Americans simply don't care much, know much or want to learn much about the outside world. We think of America as a globalized society because it has been at the center of the forces of globalization. But actually, the American economy is quite insular; exports account for only about 10% of it. Compare that with the many European countries where half the economy is trade-related, and you can understand why those societies seem more geared to international standards and competition. And that's the key to a competitive future for the U.S.
• American companies are, of course, highly efficient, but American government is not. By this I don't mean to echo the usual complaints about waste, fraud and abuse. In fact, there is less of those things than Americans think, except in the Pentagon with its $700 billion budget. The problem with the U.S. government is that its allocation of resources is highly inefficient. We spend vast amounts of money on subsidies for housing, agriculture and health, many of which distort the economy and do little for long-term growth. (yes, yes and more yes)  We spend too little on science, technology, innovation and infrastructure, which will produce growth and jobs in the future. 
• The tragedy is that Washington knows this. For all the partisan polarization there, most Republicans know that we have to invest in some key areas, and most Democrats know that we have to cut entitlement spending. But we have a political system that has become allergic to compromise and practical solutions. This may be our greatest blind spot. At the very moment that our political system has broken down, one hears only encomiums to it, the Constitution and the perfect Republic that it created.
• We have a political system geared toward ceaseless fundraising and pandering to the interests of the present with no ability to plan, invest or build for the future. And if one mentions any of this, why, one is being unpatriotic, because we have the perfect system of government, handed down to us by demigods who walked the earth in the late 18th century and who serve as models for us today and forever.

This next point is SO CRUCIAL!

• America's founders would have been profoundly annoyed by this kind of unreflective ancestor worship. They were global, cosmopolitan figures who learned and copied a great deal from the past and from other countries and were constantly adapting their views. The first constitution, the Articles of Confederation, after all, was a massive failure, and the founders learned from that failure. The decision to have the Supreme Court sit in judgment over acts of the legislature was a later invention. America's founders were modern men who wanted a modern country that broke with its past to create a more perfect union. 
• What is really depressing is the tone of our debate. In place of the thoughtful concern of Jefferson and Adams, we have its opposite in tone and temperament — the shallow triumphalism purveyed by politicians now. The founders loved America, but they also understood that it was a work in progress, an unfinished enterprise that would constantly be in need of change, adjustment and repair.

[May 4, 2008: Fareed Zakaria - The Rise of the Rest]

NYT: In Price of Farmland, Echoes of Another Boom

Long time readers know what I stated 3 years ago as potentially the best long term investment on earth (hint, it is in the title of this piece).  I am beginning to read quite a few stories about farmland in the popular press of late - quite interesting.  Bubble territory already?  Hmmm, call me when TLC rolls out "Flip That Corn Field" or Bravo announces "The Housewives of Omaha" - then it may be time to unload some of that merchandise on those city slickers! ;)  Or more likely.... when NYC starts rolling out a bevy of "Farmland" hedge funds.

Via NYT:

• The 80 acres of rich farmland that Jeff Freking and his brother Randy bought near Le Mars, Iowa, on Monday for $10,000 an acre would seem to have nothing in common with a condo in Miami or a house in Las Vegas.
• But as prices for agricultural land surge across America’s grain belt, regulators are warning that a new real estate bubble may be forming — echoing the frothy boom in home prices that saw values in Miami and Las Vegas skyrocket and then plummet.
• “It just seems to be going up in leaps and bounds here,” said Jeff Freking, who bought a similar farm, also in northwestern Iowa, for $6,000 an acre just two years ago. “Everybody thinks it’s crazy.”
• The surge in prices has been dizzying throughout the Midwest, with double-digit percentage increases last year in Illinois, Indiana, Iowa, Kansas, Minnesota and Nebraska. In parts of Iowa, prices for good farmland rose as much as 23 percent last year, according to the Federal Reserve Bank of Chicago.
• Just a few years ago, farmers marveled as land prices began to rise in response to demand for corn to make ethanol. More recently, soaring prices for wheat, corn, soybeans and other crops have driven the increase.  
• Average grain prices, adjusted for inflation, are nearing the giddy levels they reached in the late 1970s, the peak of the last disastrous boom-and-bust cycle for agricultural land.
• “History has taught us that it is nearly impossible to determine how much of the farmland boom may be an unsustainable bubble driven by financial markets,” said Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City, in testimony before the Senate Agriculture Committee last month.
• Officials at Mr. Hoenig’s bank warn that farmers face a “huge” risk that rising interest rates, perhaps combined with falling crop prices, could undercut land values. Farmland values could drop by a third to a half in such a situation, Mr. Hoeing testified.
• Prices have risen so far so fast that “it’s getting scary,” said Mike Green, a real estate auctioneer. He brought the hammer down last Friday on a 118-acre farm in Yetter, Iowa, that sold for $11,000 an acre, which he said was a record for farmland in Calhoun County, in western Iowa. In December, Mr. Green said, he got oohs and ahs when a parcel went for $9,300 an acre. Last fall, similar farms were selling for less than $8,000 an acre.  “It’s very hard to guess what a property will sell for these days because it seems like it’s been changing on a weekly basis,” he said.

[click to enlarge]

• Farmland values have been pushed up by several factors. As crops like corn, wheat and soybeans bring higher prices, the land on which they are grown becomes more valuable. Low interest rates have also contributed; they draw investors seeking an alternative to low-yielding certificates of deposit and the volatile stock market as well as create an incentive for farmers to buy more land rather than invest their profits elsewhere. (Thanks Bernanke - more distortions of our economy at every corner)
• “Farmland has been a favored asset class in a world where a lot of other asset classes have fallen out of favor,” said Richard A. Brown, chief economist of the Federal Deposit Insurance Corporation.  “If it were to be a bubble,” Mr. Brown said, “it would be in its formative stages.”
• Today’s farmland market has some crucial differences from the 1970s bubble and the housing boom of the last decade. In the 1970s, another period of low interest and high crop prices, farmers loaded up on debt, using their farms as collateral. In the housing bubble, many buyers were seduced by gimmicky loans, such as subprime mortgages with floating rates, that magnified risk. Today, farmers have about one-third less debt over all than they did at the peak of the last boom, according to U.S.D.A. data.
• But a big worry for regulators is that farmers will start taking out loans on property they already own, based on today’s elevated values, and use it to buy more property or make other purchases. That would be similar to what farmers did 30 years ago and what homeowners did in the housing boom. (agreed - essentially this is akin to buying stock on margin .... or buying that Phoenix condo on your 2nd mortgage)  Jason R. Henderson, a vice president at the Omaha branch of the Kansas City Fed, said he had heard reports from bankers that such a pattern might be emerging.
• The rising prices have also brought in speculators. A survey by Iowa State University found that investors made a quarter of farm purchases in the state last year, a slight increase from 2009. “It’s been very aggressive as far as bidding action,” said Todd Hattermann, an auctioneer who sold a farm in Paullina, Iowa, about 30 miles from Le Mars, for $9,600 an acre last week. Investors, he said, were “running the values up. A lot of them may not be the final bidder but they’re bidding all the way through.”
• There is no agreement on whether a bubble is emerging. Michael D. Duffy, an agricultural economist at Iowa State University who conducts the annual land value survey, said the market appeared fundamentally sound and that land prices were responding properly to high crop prices. “If you’ve got good ground, it’s worth a lot of money,” he said. 

[Feb 16, 2011: WSJ - Midwest Farmland Surges Double Digits in Q4 2010 Alone]
[Nov 15, 2010: Farm Economy Headed for Record]
[Dec 31, 2009: Bloomberg - Ethopian Farmers Lure Investor Funds as Workers Live in Poverty]
[Jun 2, 2009: The Economist - Outsourcing's 3rd Wave - Buying Farmland Abroad]
[Jun 14, 2008: Bloomberg: Farmland Reaps Bonanza for TIAA]
[Jun 5, 2008: NYTimes: Food is Gold, So Billions Invested in Farming]

Market Tops are a Process...

Trying to call a top to this steroid full market has been a fool's game for months on end, so I am not going to begin that game here.  Indeed, I never really play that game - generally if one catches the middle 60-70% of a move, repeatedly, you can leave the glory of catching the bottom or top to others.  As I review the S&P 500 chart (amongst others) I remain in a cautious stance until I see a new high.  After non stop gains since Thanksgiving-ish, the market has stalled for the first time.  This need not mean the end of the move is here, but one need not press the issue either.  If the S&P 500 (or your favorite index) breaks out to a new high - one should be able to buy more there with impunity as once this market breaks out, it tends not to look back anymore.

On the other hand, the saying goes 'market tops are a process' - as opposed to an event.  So it is plausible this hiccup could be an intermediate top and the long awaited correction finally hits.  What is clear is we have become range bound for now, and breaking out of this range from the top (more gains) or the bottom (correction time) should give us the roadmap for the following few weeks.  But until then it is a time for chopping and flopping around.  What is clear is the 50 day moving average is fast approaching the bottom of the recent range, so we are receiving a very nice 'danger Will Robinson' line in the sand if and when.

Of course, we seem of late to be more a hostage to oil, which finally is reaching a price where the speculator class no longer considers its advance a sign of health, and now considers it a potential threat.  Every lead news story on national news was about gas prices so congratulations to Bernanke - inflation expectations have been ratcheted up.  And there goes much of the 2% instant pay hike every worker received Jan 1 via the payroll tax cut. 

Crude (and silver... and gold) - unlike the general U.S. market indexes - is definitely in breakout mode.  While most likely overbought in the near(er) term, when news events matter as much as fundamentals, technical strategies take a bit of a back seat.

Update: S&P 500 Priced in "Hard Assets"

As I've mentioned in the past the performance of the U.S. dollar is a bit misleading since its compared to a bunch of very ugly ducklings - namely the Euro.  This morning ECB President Trichet is indicating inflation is a potential concern overseas and the euro has continued its recent rally against the dollar - but again, this is like picking among two bad choices.  [Dec 23, 2010: Is the US Dollar Weak or Not?]  Unfortunately none of the major global currencies are in great condition as almost all developed countries / regions are trashing their currency in a global race to the bottom.  One exception is Germany but since it is embedded within the EU, you cannot benefit from the old 'mark'.

When one compares the U.S. dollar versus items which have no 'obligations' if you will - hard assets in particular, the story is very different.  What has been strange the past few weeks is during a time of consternation the normal "safety trade" into dollars has not happened - instead, people have moved into precious metals.  This should make you (a) worried and/or (b) peeved as a holder of U.S. dollars - essentially it's a damning indictment.  But when your entire fiscal strategy as a country is print more electronic bills, it is not surprising.

In economic terms we should always look at nominal v real returns.  For example if we print enough dollars we can get to Dow 40,000... or 60,000... or 100,000.  Those who only look at nominal returns would be giddy.  Those who look at real returns, not so much.

So rather than looking at the stock market priced in our trashed fiat currency, every so often I like to look at it priced via a few commodities - today we'll look at it versus the general CRB index (commodities), gold, and then silver.

S&P 500 priced in CRB

S&P 500 priced in gold

S&P 500 priced in silver

As you can see - in 'real' terms versus assets that hold no obligations, the "awesome rally" in the S&P 500 is not so wonderful.  But since most of the public only focuses on the market priced in dead presidents, they don't realize they are in many cases treading water ... if not worse.

On the positive side, the S&P 500 has rebounded priced in Canadian and Australian dollars (two far more fiscally conservative countries) versus the last time we checked.

46% of February ETF Inflows Went into Energy, with over 20% into Energy Select SPRD (XLE)

An astounding statistic on CNBC today about how heavy the flows in February are into 1 fund.  This also showcases why so many stocks, especially of the large cap kind within a sector, move together.  The hot money in the hedge fund world all piled into Energy Select SPDR (XLE) in February, with nearly 1 of every 4 dollars headed this way.

•  Net inflows into exchange-traded funds in February were $7.51 billion .  XLE was the inflows leader with almost $1.6 billion in new investments.

TOP HOLDINGS

Company name	% Net assets
ExxonMobil Corporation	17.81%
Chevron Corporation	12.66%
Schlumberger, Ltd.	8.22%
ConocoPhillips	5.03%
Occidental Petroleum Corporation	4.45%
Apache Corporation	3.41%
Halliburton Company	3.18%
Anadarko Petroleum Corp.	2.89%
Devon Energy Corporation	2.87%
National Oilwell Varco, Inc.	2.55%
Percentage of holdings 63.07%

You can see Exxon's chart is not very much different from the ETF - quite amazing when an ETF can affect the country's largest stock.

No positions

[Video] CNBC: Rare TV Interview with Manager of World's Largest Hedge Fund - Ray Dalio of Bridgewater Associates

It is ironic how some smaller hedge fund managers get a lot of publicity while a few of the largest rarely surface in the media.  The fund manager of the largest hedge fund - and a person the casual investor probably has never heard - Ray Dalio made a rare appearance on TV today.  Apparently there are some articles running around the internet speaking of such bizarre practices leading to a 30% annual turnover at his firm.  That was enough to smoke him out... it is a quite lengthy and interesting interview; any frankly anyone managing $60B is worth listening to.

24 minute interview - email readers will need to come to site to view.






Some quick hits via CNBC (sorry about the caps)

Dalio on Being an Independent Thinker:

IN ORDER TO MAKE MONEY IN THE MARKET YOU HAVE TO BE AN INDEPENDENT THINKER. AND I THINK ALSO CREATIVE, YOU HAVE TO BE WILLING TO MAKE MISTAKES. AND SO THE PROCESS IS THAT ANYBODY IN THE COMPANY, IF ANYTHING DOESN'T MAKE SENSE TO THEM, THAT THEY CAN BRING UP WHAT DOESN'T MAKE SENSE TO THEM IN A NONHIERARCHAL WAY AND LOOK AT WHETHER IT'S TRUE OR NOT AND WHAT WE SHOULD DO ABOUT IT. WE PARTICULARLY LIKE LOOKING AT MISTAKES OR WEAKNESSES THAT WE HAVE IN ORDER TO GET STRONGER. 

Dalio on the Dollar:

I THINK IT'S INEVITABLE THAT THE DOLLAR'S ROLE AS A WORLD CURRENCY DIMINISH FROM THE DOMINANT WORLD CURRENCY TO ONE OF A FEW AND IT WILL HAPPEN OVER A GRADUAL TIME. WE'VE BEEN VERY LUCKY, BECAUSE THE DOLLAR IS THE WORLD'S CURRENCY AND CONSIDERED THE PLACE THAT'S SAFE SO FOREIGN COUNTRIES WILL SAVE THERE AND WE'VE BEEN ABLE TO BORROW AT CHEAPER RATES THAN WE COULD HAVE OTHERWISE. AND SO THAT IS DIMINISHING. 

Dalio on the World Being Broken in Two-Parts:

THE WORLD IS BROKEN INTO TWO PARTS NOW. WE HAVE THE DEBTOR-DEVELOPED WORLD. SO THE UNITED STATES, EUROPE AND JAPAN BASICALLY ARE COUNTRIES WHICH ARE OVERLY IN DEBT AND EXPENSIVE. THEN WE HAVE THE EMERGING WORLD. BASICALLY, IT'S 50-50. EMERGING WORLD NOW ACCOUNTS FOR 53% OF GDP. THE DEVELOPED WORLD IS 47% OF GDP. 

Dalio on the Emerging Market:

THE ONE WORLD IS BOOMING. THE EMERGING MARKET. INFLATION RATES AND STRONG GROWTH RATE AND TIED THROUGH THIS CURRENCY LINK TO THE U.S., EUROPE AND JAPAN. AND AS A RESULT, THEY HAVE TOTALLY INAPPROPRIATE MONETARY POLICIES BECAUSE IF YOU HAVE A CURRENCY THAT'S LINKED, YOU HAVE INTEREST RATES THAT ARE LINKED. AND IT'S CREATED TOTALLY UNECONOMIC BEHAVIOR IN THOSE COUNTRIES. THIS IS GOING TO BE THE BIG NEXT SEISMIC SHIFT, I BELIEVE. I THINK THAT PROBABLY SOMETHING IN 2012 IT WILL BECOME INTOLERABLE TO MAINTAIN THOSE CURRENCY LINKS AND WE'LL PROBABLY HAVE A BIG SHIFT. 

Dalio on US Equities:

U.S. EQUITIES FIRST ARE STILL COMPARATIVELY CHEAP. BUT MORE IMPORTANTLY, THE FLOWS ARE BENEFICIAL TO THEM BECAUSE U.S. EQUITIES BENEFIT FROM CURRENCY DEPRECIATIONS. I THINK, AS I SAY IN 2012, THE DEVELOPED COUNTRIES' CURRENCIES WILL DEVALUE IN RELATIONSHIP TO THE EMERGING COUNTRIES' CURRENCIES.

ISM Services Up a Bit in February v January

While ISM Manufacturing gets much of the attention, that sector represents just over 10% of the U.S. economy.  Meanwhile services dominates, so today's ISM figure is much more relevant.  Much like last month it was a nice headline print, with cost pressures increasing and some positive trends in employment - which have yet to really filter through to the government's monthly data.

• Headline figure at 59.7 in February versus 59.4 in January.
• Employment Index increased 1.1 percentage points to 55.6 percent, indicating growth in employment for the sixth consecutive month and at a faster rate. 
• The Prices Index increased 1.2 percentage points to 73.3 percent, indicating that prices increased at a faster rate in February.

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS* FEBRUARY 2011
	Non-Manufacturing						Manufacturing
Index	Series Index Feb.	Series Index Jan.	Percent Point Change	Direction	Rate of Change	Trend** (Months)	Series Index Feb.	Series Index Jan.	Percent Point Change
NMI/PMI	59.7	59.4	+0.3	Growing	Faster	15	61.4	60.8	+0.6
Business Activity/Production	66.9	64.6	+2.3	Growing	Faster	19	66.3	63.5	+2.8
New Orders	64.4	64.9	-0.5	Growing	Slower	19	68.0	67.8	+0.2
Employment	55.6	54.5	+1.1	Growing	Faster	6	64.5	61.7	+2.8
Supplier Deliveries	52.0	53.5	-1.5	Slowing	Slower	11	59.4	58.6	+0.8
Inventories	55.5	49.0	+6.5	Growing	From Contracting	1	48.8	52.4	-3.6
Prices	73.3	72.1	+1.2	Increasing	Faster	19	82.0	81.5	+0.5
Backlog of Orders	52.0	50.5	+1.5	Growing	Faster	2	59.0	58.0	+1.0
New Export Orders	56.5	53.5	+3.0	Growing	Faster	6	62.5	62.0	+0.5
Imports	53.5	53.5	0.0	Growing	Unchanged	7	55.0	55.0	0.0
Inventory Sentiment	57.5	60.0	-2.5	Too High	Slower	165	N/A	N/A	N/A
Customers' Inventories	N/A	N/A	N/A	N/A	N/A	N/A	40.0	45.5	-5.5

So Much for Resistance...Premarket Gappage on the Way

After a busy 2 days on Capital Hill, Bernanke is back in the turret and futures are surging. ;)

That resistance at S&P 1314 will be smoked in premarket - as almost any resistance level the past 2 years has been taken care of.

Weekly jobless claims came in at a 368,000 - the lowest we've seen in some 2+ years.

Amazingly, after quarters of incredible productivity growth out of the U.S. workers we still saw a 2.6% print today for the fourth quarter.  Which is good on the surface but when you combine it with a 0.6% drop in unit labor costs, it continues to paint a fantastic picture for corporate profits but not so much for the labor force.

• Productivity increased at an unrevised 2.6 percent annual rate, the Labor Department said on Thursday. The growth pace was in line with economists' expectations.  
• Productivity, a measure of hourly output per worker, grew at a 2.3 percent pace in the third quarter. For the whole of 2010, productivity expanded 3.9 percent, the fastest pace since 2002.
• Depressed unit labor costs will help to keep inflation pressures contained at a time when rising oil prices are pushing up input costs for many businesses.   For the whole of 2010, unit labor costs fell 1.5 percent after declining 1.6 percent in 2009.

LA Times: Corn Based Ethanol Producers are Cranking Up as Oil Soars

The LA Times reports on the fuel that is good for the corn industry, but not so much for everyone else.

• Corn-based ethanol is the renewable fuel environmentalists love to hate. But as turmoil in the Middle East and North Africa has sent oil prices soaring, U.S.-made ethanol is making a comeback.  Plants mothballed during the economic downturn are reopening. Domestic ethanol production hit record levels last year, topping 13.2 billion gallons, according to the Renewable Fuels Assn. in Washington. 
• The recovery can be seen in Stockton, where a once-shuttered factory is now thundering to life. Train cars laden with Midwestern corn arrive daily to feed the grinding mills and steaming pipes that distill the grain into gasoline substitute. The surrounding air is pungent with the smell of yeast.
• That's largely because of Uncle Sam. Concerned about U.S. reliance on foreign oil, federal lawmakers mandated the nation to quadruple its use of biofuels to 36 billion gallons annually by 2022 from 2008 levels. Corn-based ethanol is assured a 15-billion-gallon share of that market. Plus it's heavily subsidized. The federal government gives producers a 45-cent-a-gallon tax credit. A number of states provide subsidies as well.
• The liquid is blended into almost every gallon of unleaded gasoline sold in the U.S and accounts for about 10% of the fuel that motorists pump into their cars. That percentage is set to rise as the U.S. Environmental Protection Agency recently approved the use of blends of up to 15% ethanol for newer vehicles.
• But whether corn ethanol is good for the planet, U.S. taxpayers, the global food supply — or even an automobile's engine — is a matter of intense debate.
• Some scientists have concluded that growing corn, harvesting and distilling it, and trucking it to refineries causes as much environmental damage as burning oil. Many environmentalists want taxpayer subsidies devoted to developing next-generation biofuels rather than supporting big agribusiness and the oil companies that are now operating ethanol plants.
• An estimated 35% of the U.S. corn crop will be devoted to ethanol this year, a figure that makes some agricultural and global food policy analysts uneasy.
• ...."We have to become energy independent. We don't want to do it at the expense of food riots," Clinton said.
• Auto manufacturers are concerned as well. They're suing the EPA to stop sales of the 15% ethanol blend, known as E-15, which they said would confuse consumers and damage older vehicles.Ethanol industry officials said E-15 pumps would be clearly marked, so consumers would not be misled. 
• Critics of ethanol aren't deterring investors — 17 idled ethanol plants have reopened across the United States in the last year. And the country's largest producer, POET Ethanol Products, is seeking federal help to construct a 1,800-mile, $4-billion ethanol pipeline.

[Video] NBC News - Apprentice Programs Popping Up to Compensate for Lack of Higher End Skills in U.S. Manufacturing Workers

Pretty interesting story from NBC news last night on the changing face of manufacturing in the U.S. - 4 minutes with Tom Brokaw.  No more low skill set jobs.

Visit msnbc.com for breaking news, world news, and news about the economy

The Bernank Does not Rule out QE3

Not much of a confrontation today between Ron Paul and Bernanke as Rep Paul did most of the talking; I would have preferred a nice Q&A session but tough to do anything in 5 minutes.  Instead a lot of lawyers who have no idea about economics seem to have spent a lot of time talking partisan issues.

Anyhow, within the conversations were some blanket "non answers" by Bernanke, which open the potential up for QE3.  My working assumption right now is after QE2 ends in June, there will be a break for at least a while.  But last time that happened spring 2010 the stock market promptly plummeted 17% and since Bernanke seems to think manipulating managing the stock market is part of the Fed's role, I could be very wrong on his plans.

With our employment issues being very much structural, and not as much cyclical, and the Fed's favorite measures of inflation muted, Bernanke could be QEing for years more from here under his current guidelines.  Slow wage growth among the masses is now seemingly a permanent feature in the U.S. as globalization leads to wage arbitrage so by the formal economic theory, there cannot be widespread inflation if consumers don't have excess money to accept increasing prices.  They will just cut back on other expenditures as say food and energy soak up more of their incomes.  Current spending levels are being supported by never seen before levels of federal assistance as it is.  [Nov 5, 2010:  USA Today - Anti-Poverty Programs Surpass Cost of Medicare] [May 25, 2010: 1 in 5.5 Dollars of American Income Now Via Government; All time High]   Additionally, recall if the recent payroll tax cut is not extended in 2012, the 2% wage gain every worker just received goes away in 10 months as well - another stress.

Ironically the more QE to come, the more speculators will drive up commodities.... which will impair corporations (who might cut jobs to preserve profit margins) and consumers... which (in the Fed's mind) will require more QE.  Circular logic anyone?  But in The Bernank's view his actions only make the stock market go up and not other assets (read: commodities) so he won't make the connection. 

-----------------------------------

Via Bloomberg:

• Federal Reserve Chairman Ben S. Bernanke didn’t rule out expanding the central bank’s asset purchases aimed at stimulating the economy, saying he doesn’t want to see the economy relapse into recession.  
• Asked at a House Financial Services Committee hearing today what conditions would warrant a third round of so-called quantitative easing, Bernanke said that “what we’d like to see is a sustainable recovery. We don’t want to see the economy falling back into a double dip or to a stall-out.”
• Bernanke’s testimony today and yesterday signaled that he will keep the Fed on course to complete $600 billion of Treasury purchases through June under the second round of quantitative easing, a policy criticized by Republican lawmakers as risking an inflation surge. He’s avoided saying what the central bank may do after that.  A third round of purchases “has to be a decision” of the Federal Open Market Committee, and “it depends again on our mandate” for stable prices and maximum employment, Bernanke said in response to Texas Representative Jeb Hensarling, the House panel’s vice chairman and a critic of QE2.
• Responding to a question from Representative Nydia Velazquez, a New York Democrat, Bernanke said the Fed’s policy of keeping its benchmark rate near zero for an “extended period” helps provide support to the economy, “which in our judgment, it still needs.” “The economy’s recovery is not firmly established, and we think monetary policy needs to be supportive,” he said.
• Since August, when Bernanke signaled the Fed might buy securities to stimulate the economy, “downside risks to the recovery have receded, and the risk of deflation has become negligible,” he said in testimony this week.
• Inflation is likely to remain low through 2013, Bernanke, 57, a former Princeton University economist, said in Senate testimony yesterday.
• At the same time, the labor market “has improved only slowly,” and it may take “several years” for the unemployment rate to reach a “more normal level,” he said. “The housing sector remains exceptionally weak,” and “slow wage growth” is keeping labor costs in check, he said.
• The Fed’s preferred price gauge, which excludes food and fuel, rose 0.8 percent in January from a year earlier, matching December’s year-over-year gain, the lowest in five decades of record-keeping. Fed officials aim for long-run overall inflation of 1.6 percent to 2 percent.

20 Day Moving Average Held as Resistance So Far

So far so good for those of bearish inclinations.  After a cursory morning bounce, the S&P 500 went to touch the 20 day moving average and was pushed back.  We are in a bit of a range here between some recent support levels and this 20 day moving average, so it will be interesting to see which way we break.  I would think downward based on the technical action of late, but using historical precedent has been a losers game of late.  Whatever the case the easy melt up 'balls to the walls' trade seems to have finally taken a pause.

This morning we had the monthly ADP report and it came in 'better than expected' at over 200K, but there has been such a disconnect between this number and what the government reports 2 days later, it seems to have been ignored.  ISM Services tomorrow at 10 AM and Friday's employment data should be the 2 big drivers of the next few days..

That said, the market seems to be trading more on a 1:1 with oil at this moment... and gold and silver continue to surge as the people use precious metals rather than the U.S. dollar as a safe haven.  Silver is in yet another parabolic move...+30% in 5 weeks.  I wrote on the 18th it had broken out [Silver Broke Out Yesterday], and aside from a wicked reversal head fake last Thursday it has been straight up action since.

No positions

OECD - Food Crisis Not as Severe as 2008 Due to Rice Prices

I've written the past few quarters to keep your eyes on oil and rice.  The former for obvious reasons and the latter due to the huge influence in most of the East.  While many other commodity prices surged in 2010, rice was one of a handful (such as natural gas) that were limp.  And thus far in 2011, price appreciation has been contained again.

[click to enlarge]

So in a relative sense, we've (they've) been lucky that the massive inflation in such things as corn, cotton, wheat and such has not hit in rice, or global turmoil would be taken to the next stage.  [Mar 19, 2008:  Philippines Brace for Rice Shortage]  [Apr 6, 2008: Agflation Hits Rice - Prices Up 50% in 2 Weeks]


Via Bloomberg:

• A global food crisis on the scale of what happened three years ago isn’t recurring because an increase in the cost of rice, a staple for half the world, has lagged behind a jump for other grains, according to the OECD. 
• Rice futures rose 3.4 percent in the past 12 months, compared with 60 percent for wheat and 93 percent for corn. World milled-rice output will rise 2.4 percent to a record 451.7 million metric tons in 2010-2011, the U.S. Department of Agriculture forecasts, helping keep stockpiles near the highest in seven years.
• Rice prices almost tripled in the 20 months to April 2008, contributing to a worsening in world hunger that meant a record 1.02 billion people were deemed by the United Nations to be undernourished in 2009.
• “The scale of the problem is not as bad for large parts of the world as it was in 2008,” said Ken Ash, the trade and agriculture director at the Organization for Economic Cooperation and Development in Paris. “With two-thirds of the world’s hungry largely reliant on rice as a staple, rice prices have not increased and supplies are relatively strong.”
• Rice added to the previous peak in food costs in 2008, with prices climbing 33 percent in 2007 and another 11 percent the next year, after export bans by producers including Cambodia, Vietnam, India and Egypt. Rice, which jumped as high as $25.07 for 100 pounds in Chicago in April 2008, traded at $14.315 ...today.
• Global food prices rose 28 percent in the past 12 months and reached a record in January, according to the UN’s Food and Agriculture Organization. That’s fueled riots across North Africa and the Middle East that have already toppled leaders in Tunisia and Egypt. More than 60 food riots occurred worldwide from 2007 to 2009, according to the U.S. State Department.
• Rice planting in the U.S., the world’s third-largest exporter, may drop 25 percent this year because growers can earn more from corn and soybeans, according to the median in a Bloomberg survey of nine analysts and farmers in January.
• “Good seasons” in parts of Africa and Asia have helped build up grain supplies there to levels above those of 2007-08, reducing the impact of rising world prices, Ash said. “Local grain supplies in parts of Africa and Asia are very good.” 

[Jan 5, 2011: World Food Prices Surpass 2008 Records]

Sina (SINA) Hit on Small Beat and Inline Guidance - Weibo Users Double to 100M

You can tell how much mind share a company is getting by the number of news outlets that report it's earnings.  For a long time Sina (SINA) barely received any attention, but based on how many different outlets reported on its earnings, this company has definitely hit the big time in terms of attention.  The company reported ok results, essentially a small beat in EPS and in line guidance. (Full report here)  It was already very expensive after a huge run up (doubling) in latter 2010 and early 2011, as it is being valued not so much on its underlying business but the potential in Weibo ("Twitter of China").  On that end the user base has doubled in short order (4 months) to 100M users and is fast approaching the size of Twitter itself.  But for now there is no monetization of that service so the stock will appear to be quite pricey.  (keep in mind, Twitter is being valued somewhere in the $7 to $10 BILLION range in the private market) There does appear to be some first efforts at monetization coming in the 2nd half of this year.  Bigger picture, from this seat I'd love to see an spin off IPO in 2012 of Weibo.

• Chao said Sina will further pursue partnerships with e-commerce startups and consider offering an e-commerce advertising platform on its microblog, or payment services for e-commerce companies. 

Technically the story for Sina is very different from 2 weeks ago when there was not a care in the world and the stock surged to the mid $90s.  Since then, there have been two gap downs, $20 of losses, and a break of the critical 50 day moving average.  $75 is the recent low and if that breaks there could be some more prominent downside - that said, it would offer long term oriented investors the first attractive opportunity in a few months if we another major tumble.  Any move down to the 200 day moving average would be very appealing for entry.

One very interesting move is the intent to purchase a 19% stake in Chinese online apparel maker Mecox Lane (MCOX) for $66M.  Hmmm... that came out of left field.

• China's biggest Internet portal also said it will pay $66 million to buy a stake in Chinese fashion e-commerce company Mecox Lane Ltd. (MCOX) as the company explores further ways to participate in China's booming e-commerce industry. It will buy the shares from Maxpro Holdings Ltd. and Ever Keen Holdings Ltd., both units of Sequoia Capital. 

Via IBD:

• China Web portal Sina (SINA) late Tuesday reported Q4 results that edged views, but swung to a net loss on a big impairment charge. The company's per-share profit minus items jumped 48% from the year-earlier quarter to 46 cents. That beat the 45 cents expected by analysts polled by Thomson Reuters. Sales rose 12% to $110 million, where analysts were expecting $104.4 million.
• For the current quarter, Sina said it expects revenue excluding certain items of $93 million to $96 million. Analysts were expecting $95.2 million, but it was unclear if that also excluded the same items
• The company said its ad revenue last quarter jumped 30% to $82.5 million from $63.2 million in Q4 2009. It expects Q1 ad revenue of $71 million to $73 million.  The expected drop in revenue from Q4 to Q1 is seasonal, says Mike Hickey, a Janco Partners analyst who rates the stock a buy.
• "The first quarter is actually not good for advertising because people are offline spending time with their families during the Chinese New Year celebration, so seasonally it's the lowest point in advertising spend," Hickey said.
• The company's stock has doubled since late August to more than 80 but is down 14% since mid-February, as Goldman Sachs cuts its rating to neutral from buy. Goldman cast doubt about when Sina's Weibo microblog will generate revenue.
• "2010 has been a year of transformation for Sina," Chao said. Besides ad growth, "we have successfully built Sina microblog Weibo into the largest and most influential social media platform in China, with user base increasing by more than 25 times in 2010."
• Weibo has more than 100 million users, a figure he says doubled in the past four months. The service is "the centerpiece of Sina's new media growth strategy," Chao said.  Sina hopes Weibo will bring users and software developers that offer value-added services. It expects advertisers then will follow.
• Investors are having a hard time trying to value Sina because its microblog still hasn't generated any revenue, says Hickey.  "But in the future, it could be an incredibly valuable asset," he said.
• China's government likely remains the biggest hurdle for Weibo, Hickey says. "There is concern that the government is going to come in and tighten its grip on those sort of platforms like Weibo and that has taken the top off the stock (since mid-February)," he said.
• For Q4, Sina reported a net loss of $100 million, or $1.51 a share, including a write-down of $128.6 million related to an impairment of an equity investment in a Chinese real estate entity called CRIC.

[Feb 18, 2011: BW - A Twitter Knock Off has China Talking]
[Feb 16, 2011: Goldman Sachs - Sina Cut to Neutral; Says Weibo Fully Valued]
[Jan 31, 2011: Sohu.com Results Should Bode Well for Sina,com]
[Jan 11, 2011: Word is Getting Out on Sina's Secret - Weibo]
[Dec 9, 2010: The Twitter of China - Weibo]

No position

Why this Reversal "Could" be Important Technically

One thing you want to see as a technician is a constantly higher price on each upward thrust.   On this last rebound from 1295, the S&P reached intraday 1330 yesterday (and briefly higher today).  However it obviously failed to reach the last peak point over 1340.   If there is no imminent reversal back up in the coming 1-3 days, I'd offer that this reversal day could be important technically as this would be the first time we've seen the move up after a drawdown of any sort (which have been extremely rare the past half year) not surpass the old high.

The S&P 500 currently sits at the 20 day moving average, just as did when we came back from holiday last Tuesday.   Those pressing against this market want to see this level obviously break and then a new low formed (i.e. break last week's S&P 1295).  Then the pattern of 'higher highs and higher lows' is broken - and a much more cautious stance is warranted.  Very tricky here in the short term because this is the one week of the month that economic news actually matters (ISM Services, and monthly employment data) so we are prone to quick moves off of macro news.

But to the earlier point, the lack of reaching to a new high on this bounce could be something we look back in retrospect in a few weeks as a very important development.

As an aside, the NASDAQ has the same issue...

Bifurcated Economic News

The economic news the past 12-15 months has been quite interesting in the U.S. - it is almost as if we are staring at two petri dishes.  In one, is a lot of dead bacteria; that dish is known as "housing and employment".  In the other dish, is everything else which has rebounded solidly in most cases, although in relationship to the demonic drop suffered in economic activity in 2008 thru early 2009, has been somewhat uninspiring.

The one area that has been impressive is what remains of U.S. manufacturing - but unfortunately we're culled that down to only 11% of GDP (and 9% of employment), so while the figure is closely watched on 'the Street', we are not living in the 60s or 70s anymore when manufacturing activity was a more dominant piece of the economic pie.  [Nov 29, 2010: America Has Less Manufacturing Jobs Today than Before the War.... World War 2]  Today's ISM Manufacturing figure was another impressive data point, coming in at 61.4  (50 is the reading that separates expansion from contraction). 

• Manufacturing in the U.S. grew in February at the fastest pace in almost seven years, driven by gains in orders, employment and exports that signal factories will continue to propel the expansion.  The Institute for Supply Management's factory index increased to 61.4, the highest level since May 2004.

Prices paid continue to ratchet up as "no inflation" continues to be seen everywhere, except at the Fed:

• The gauge of prices paid increased to a seven-year high.

Meanwhile on Capital Hill:

• Bernanke, who will testify for a second day before a U.S. House of Representatives panel on Wednesday, said the Fed expects inflation to remain low and that long-term inflation expectations appear contained, both according to market indicators and surveys of consumers.
• "The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation," Bernanke said. 

Technically he could be correct because without wage increases to absorb increasing costs, consumers will have to cut back elsewhere.  Hence firms won't have pricing power to pass along rising costs.  Which should be bad for Wall Street as margins are threatened ... in theory anyhow.

--------------------------------------

Showing the bifurcation in the economy, construction spending fell 0.7% - to the lowest level in 5 months.  Perhaps we can just blame it on the weather, which has been a convenient reason for every illness of late.

• The Commerce Department said construction spending fell 0.7 percent to an annual rate of $791.82 billion, the lowest since August.
• Private construction spending in January contracted 1.2 percent as investment in nonresidential projects tumbled 6.9 percent to $244.44 billion, the lowest since August 2004. The percentage decline was the largest since January 1994.

The one area of strength in construction has been apartment buildings, as former homeowners return to their roots.  In just about every other area, the U.S. overbuilt during the credit "house ATM" steroid era.

• However, private residential construction rose 5.3 percent, likely reflecting a pickup in the construction of multifamily homes as demand for rentals rises.

As for jobs, we have the keenly watched monthly employment data this Friday.  The last few reports have been major head scratchers as the labor data has not really seemed to fit with a lot of other economic markers.  While the unemployment rate has dropped from 9.8% to 9.0% much of this has been due to Americans disappearing from the labor force.  (remember, in America if you don't actively week work for 4 weeks - you no longer are unemployed)   So while many have been expecting monthly job readings of 150-200K per month, this has not happened.   Perhaps one of these months we'll see a 'catch up', as the previous few months of under performance vs expectations all pile into one month.  Frankly we've been waiting for 150-200K job creation since early 2010 - they keep promising us it will be "this month".

Ironically good employment data may be the worse thing for Wall Street because it might mean QE3 is not coming in July.  Or QE4 in March 2012, or QE5 January 2013.

• The labor market “has improved only slowly,” and it may take “several years” for the unemployment rate to reach a “more normal level,” Bernanke said today. “The housing sector remains exceptionally weak,” and “slow wage growth” is keeping labor costs in check, he said.
• Some, like ex-White House advisor Christina Romer, argue that the economy could benefit from another round of Fed bond buys when the current $600 billion purchase plan ends.

Rare Event

Well, really 2 rare events - first the obvious; a market in the U.S. down on the first day of the month.... and second, one that started in the green and is degrading severely during the day.  The once relatively common intraday reversal, has been another strange missing character since March 2009...

p.s. Hey Bernie Madoff - looks like they found a sacrificial lamb inside Goldman after all.  But a board member rather than a trader? Hmmm...

• CNBC has reported that the SEC has filed suit against former Goldman Sachs Board Member Rajat Gupta regarding allegations of insider trading.
• The Securities and Exchange Commission today announced insider trading charges against a Westport, Conn.-based business consultant who has served on the boards of directors at Goldman Sachs and Procter & Gamble for illegally tipping Galleon Management founder and hedge fund manager Raj Rajaratnam with inside information about the quarterly earnings at both firms as well as an impending $5 billion investment by Berkshire Hathaway in Goldman.

China PMI's Slow Down, European Manufacturing Quickens

Along with a U.S. market that almost always goes up, the other thing that happens on the first day of the month are global releases of manufacturing data.   US ISM will be out at 10 AM. 

China's 2 PMI's (one from govt, one from HSBC) showed a slowdown, while Europe was stronger.  The Chinese slowdown could actually be seen as a positive, as they are trying to slow their economy and China seemingly can turn on a dime when needed.  Early last fall I believe their PMI readings were near 50, then they turned the spigot on - and were back off to the races.  Plus during Chinese New Year, the data is not as useful.  Through most of these reports there continues to be cost pressures, which either need to be absorbed by consumer or producer.  Thankfully the U.S. is an inflation free zone ...

Via Marketwatch

• Chinese manufacturing activity softened in February, as mounting inflationary pressures acted as a negative drag on demand, though overall manufacturing activity still expanded, according to two purchasing managers’ surveys of the nation’s industrial activity released Tuesday. 
• Analysts cautioned against reading too much into the data, as it offers a snapshot of factory activity during a month when businesses shut down across the country to mark the Chinese Lunar New Year holiday.
• China’s official purchasing managers’ index, released by the China Federation of Logistics & Purchasing, was 52.2 in February compared to 52.9 in January.    Tthe survey marked the 24th straight month that the PMI remained above the all-important level of 50, which separates expansion from contraction.
• Meanwhile a privately compiled PMI put out by HSBC and U.K group Markit, eased to a seven-month low of 51.7, down from 54.5 in January. 
• New export orders were negative on a month-on-month basis, marking the first such contraction since August.  HSBC also said....was the sharpest month-on-month drop since the series began in April 2004.
• HSBC’s chief economist for China, Hongbin Qu, said concerns about a slump in growth were “unwarranted,” though he acknowledged the data confirmed China’s manufacturing is cooling.  “This is a good number, suggesting Beijing’s policy tightening is starting to cool excessive growth and inflation."
• Bank of America-Merrill Lynch downplayed both PMIs because of potential distortions during the holiday month and an inability to adjust the data series the for seasonal factors in a credible way. 
• The HSBC survey covers 400 companies, while the federation's monthly reports measure data from 820 companies across a range of industries and is an indicator of future trends. 

Via Reuters:

• European manufacturing growth accelerated to the fastest pace in more than 10 years in February, a further sign the economy is gathering strength.  A gauge of manufacturing in the euro region rose to 59 last month from 57.3 in January, London-based Markit Economics said today. That’s the highest since June 2000. A reading above 50 indicates expansion. 
• British manufacturing also grew strongly, at its fastest pace in nearly two decades.
• The output price index in the 17-nation euro zone hit a record high for the survey, which was conducted February 11-21 before oil prices spiked again last week. 
• The ECB is not expected to exit from the ultra-loose monetary policy it adopted in the depths of the financial crisis when it meets on Thursday but economists expect an interest rate hike by the fourth quarter of this year.
• Raw material costs have risen broadly with oil. Worries abound that a sustained rise in commodity prices, from metals to grains, could reduce demand and so slow economic activity around the world.  

U.S. Market Has Not Fallen on First Day of the Month Since Last Summer

I noted a few quarters ago how the "first day of the month" was becoming strangely positive....it was not relatively known at the time and I was joking my 2nd fund would only be open 1 day a year - buying just before the end of close on the last day of previous month and going to all cash by end of day on the first.  The past 3-4 months I have seen notice of this 'situation' pop up all over the financial blogosphere.   Indeed it is now so obvious that even 'old media' has figured it out as we see in this morning's Wall Street Journal.   I will keep repeating these sort of comments but "in the old days" when everyone knew something, it stopped working.  Something has changed the past few years, where 'obvious' things now self fulfill much often, despite everyone (and their mother) knowing... not sure exactly why that is.

Bespoke blog has a chart of the past 14 "first day of the months" and as you can see there are only 2 losing sessions.  Ironically (grassy knoll alert) those happened when QE1 was over and QE2 had not begun.  I don't recall when QE1.5 happened exactly (rolling over of funds from expiring MBS into Treasuries) but I think maybe Julyish.  Whatever the case or reason, it is what it is....

Even cooler, Bespoke made a chart of returns during this 14 month period showing how it really does not bother to be in the market the rest of the month, especially if you understand risk adjusted returns versus just plain old returns.  You have a winning percentage (how often the first day of the month leads to gains) in excess of 80% and can capture in those few days almost the entire gain of the S&P 500.  That's risk adjusted nirvana.

[click to enlarge]

Again, until blue in the face, this is so obvious it should no longer work... but it continues to.

-----------------

Some snippets from the WSJ piece

• It is the latest twist on an old adage: Trade the first day, and stay away.  Some traders have been adopting a new ritual in recent months—buying early on the first day of the month and selling by the day's close—taking advantage of a peculiar phenomenon that has seen the Dow Jones Industrial Average rise substantially on the first day of each month. That one-day move often has accounted for much of the Dow's gains for the entire month.
• Ed Yardeni, president of Yardeni Research, an economic-consulting firm, is recommending a new trading strategy: "Work during the first trading day of the month, and take the rest of the month off."
• Just why the trend has been so consistent is a mystery. But market watchers like Mr. Yardeni point to the release of nationwide manufacturing data that usually hits on the first day of the month. The manufacturing sector has been one consistent source of positive surprises during the economic recovery.  Others suggest that the first day of the month is when money comes out of paychecks and into 401(k)s, ready to be plowed into the market.  Some also point to window-dressing by investors whose performance is measured monthly. These investors often sell toward the end of the month to lock in any gains, only to jump back in at the beginning of the fresh month.