David Fry's  Instablog

Pundits keep talking things up but who's left to listen? We rallied initially on better economic data (below) but there's a dark cloud over the market and quadwitching is ahead Friday. Adding to the uncertainty was influential Goldman Sachs strategist Jan Hatzius who commented: "A reduction in the lending of foreign banks to U.S. counterparties could have a meaningful impact on U.S. growth."  He continued to assert that ongoing upheavals in the eurozone could shave 1% off U.S. GDP growth which frankly would put is in or near recession. And, per Hatzius, Goldman Sachs estimates U.S. banks are exposed to (gulp!) $1.8 trillion of counterparty risk from euro banks. Funny thing Bernanke and Geithner didn't mention this to us.

Further, the OECD warned that 2012 will see a potential funding crisis for developed countries with (cough!) $10.5 trillion in borrowing needs.

Economic news was positive as Jobless Claims were lower at 366K; however, inside the numbers things were somewhat worse. Extended benefits increased by 322K and Continuing Claims rose to 3603K from 3583K which isn't encouraging. One could subsume the report overall wasn't that great but, it's about the headlines baby! Empire Mfg Survey increased to 9.53 from .61 which is positive. But again, inside the numbers Prices Paid 24.42 versus 18.29 compresses margins and is potentially inflationary. Speaking of inflation, the PPI increased to .3% from -.3% previous. 

Stocks rallied sharply early on the economic news but then fell into a funk as the day wore on making little progress with most early gains given back. Gold continued lower and some of the selling may be due to a higher LIBOR and lease rates impacting borrowers. Jesse at Jesse's Amercain Café has this possibility well outlined. The dollar, euro and bonds were essentially flat while oil and base metals were weak.

Volume per the WSJ was quite light perhaps in anticipation of quadwitching Friday. Breadth was positive to mixed overall.