Jobless claims came out this morning – another 457,000, higher than estimates, the nunmber in a healthy economy is 150,000-250,000 - and for those looking to the future, this number cuts through the noise generated by the elections and short term trading around QE II.
In the real world, it is all about jobs – jobs, or lack thereof, gave the Republicans the House, if they find a candidate acceptable to independents it will give them the White House. Lack of jobs is retarding consumer spending, helping to jeep housing the doldrums and creating great skepticism about the supposed recovery and the stock market.
Traders, of course, are following a new mantra on Wall Street:
If economic data is bad, go long, the market will go up because Bernanke will keep the printing presses on. If economic data is strong, go long, the market will go up because corporate profits will be great in 2011.
Translation: trade for today, tomorrow will never come. So far, since March of 2009, this has worked for traders. Baded on this morning's activity, the trade around QE II continues to be gold and silver, the GLD and the SLV.
I believe in fundamentals that, right now, do not matter to the Street. The economy is in very weak shape; housing inventory equals eleven years of sales at their current pace and nine million mortgages are in default or in the process of foreclosure, about 28 years worth of inventory at the current pace of sales; the coming austerity in Europe and budget pull backs in the US guarantee a recession by mid year next year; corporate profits are going to hit a wall in 2011.
What to do if you are not a trader and you are one of the two or three investors left in the market? Since I am one of them, this is what I am doing:
- I am going long, with hedges, “breakout companies” – smallish, about to be profitable companies that save money, or lives, or both for customers. Right now, I like Cepheid (CPHD) (market leader in molecular diagnostics) and Cerus (CERS) (market leader in blood pathogen inactivation, i.e. cleaning blood platelets) – I will write more about them in coming days.
- I am keeping cash handy for shorting bubble stocks with ridiculous valuations – e.g. OpenTable (OPEN), Salesforce.com (CRM) – and the market in general when corporate profits hit a wall next year.
- I am trading in and out of major trends.
Disclosure: No positions