James Byrne's  Instablog

Investors turned cautious as we closed out October seeing swings of 200 points the last three sessions.   Troubling was the rejection of higher prices in the face of what appeared to be investor friendly news from Corporate earnings and Economic data.  What needs to kept in mind, is October is year end for many hedge funds, and could have added to the volatility. 

This week kicked started November with strong numbers on pending home sales and the Purchasing Managers Index (PMI) both.  Buried within the PMI is an employment index which finally went from contraction mode last month, 46.2 (above/below 50 reflect contraction/expansion) came in at 53.1 suggesting jobs are being created.   Will that expansion be reflected in Friday's Non-Farm Payrolls release.  If not, it would be just the fourth time over the last thirty years that a positive ISM employment index is not reflected by a positive non farm payroll number.  Now Friday's number, estimated to reflect a contraction in the job market by 175,000, may come in negative, but the PMI cannot be ignored. 

On the corporate front, Ford (F) came front and center with terrific news of an almost $1billion dollar profit.   That profit came on cost cuts and market share gains, but a dramatic improvement from the staggering losses we've grown accustomed to hearing.  

The good news as of this writing, is the market is responding as expected with a triple digit move higher.   It makes it a bunch easier, when the data releases and corresponding market response makes sense.   We'll continue to monitor the dollar and the inverse relationship it currently enjoys with the equity markets.  For now, we'll enjoy the level of chi achieved within the market this morning.  

For fixed income investors I'll refer to one I've touched on in the past as well as in this post, Ford 8% ABS Trust (XVF).  While Mullaly continues this turnaround of the automaker, investors can enjoy a yield just inside of 11% with the opportunity for capital appreciation above 30%.   Obviously risks remain to this turnaround, but with the company's ability to trim capital outlay while continuing to introduce attractive new models into the marketplace, confidence is building that Ford will be a winner. 

As always, do your own due diligence and consult your financial professional before making any investment decisions. 

In a note of full disclosure, I may currently own or may plan to purchase for my own account or those of my clients the securities listed above.