Market Update

There is an all important U.S. unemployment report this Friday. It has long been our argument that an improving number is not necessarily a positive for stock prices. It would signal that the Federal reserve would begin raising rates sooner. What would likely be best for stock prices would be a continued gradual deterioration in the unemployment number.

The current fiscal stimulus is artificially propping up the market. We got into this mess because we have spent too much and saved too little. Now we are trying to combat that with more debt. In essence, we are like an individual who bought 10 homes and can't make the payments (too much debt). Then he goes out and borrows money to improve these homes or buy more homes to attempt to improve his situation. If the housing market recovers, rents comes in and home values increase, he may make it out okay. However, if things don't improve, then he goes bankrupt and his ability to borrow in the future is ruined.

Whether you believe in what the Fed is doing or not, there is risk and reward in it. The risk with increasing the U.S. debt by trillions is that it may not be successful. Our bullish stance on commodities and precious metals is based on what they are currently doing. If the economy improves, then they will have successfully navigated the first part of the problem, but will have to combat a lower dollar and big inflation. If the economy does not improve, then the dollar would likely get slammed and commodity prices (precious metals) could move dramatically higher accordingly. This increase in money supply has, to this point in time, improved the economy and company profits which has pushed stock prices upward.

We found it quite interesting to research back how the market moved immediately following the release of the unemployment report. You can see in the chart below that there is a common theme. That theme is for the current trend and momentum to turn regardless of which direction it has been in upon the report's release. If this trend continues, then you would want to enter Friday's trading day short stocks as the trend has been up and a reversal would send us lower. There is, of course, no guarantee that will continue, but it was an interesting phenomenon in 2009