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On the edge but staying long...

Normally I would have been liquidated by now.  I believe technical's are very important when there is a big question about the fundamental state of the markets and or economy.  However, I am staying long because there is no reason to make a short-term trade to cash and hope to get in at lower prices.  The S&P 500 could go to 980 and I say so what?  I like what I own albeit at higher prices.

I have not turned bearish because nobody can explain to me why the corporate yield spreads have remained intact.  If the market volatility were a sign of terrible things to come, then why are high yield and investment grade bond yields trending lower while T yields trend lower?  Shouldn't there be a blow-out in the spread?  I have called around to all of the traders I know and I get the same response.  Essentially it is more of a lack of interest to buy into this noisy market rather than fear of "double-dip". 

If this is a "double-dip" then why are tonnage rates higher?  Here is an excerpt from www.searates.com ..."When looking at PMI data, the Asian export boom shows signs of peaking. Manufacturing exports recovered fairly swiftly and started to expand again during first quarter of 2009 and the rate of growth of Asia ex-Japan exports reached a new record by some margin in February 2010. Since then the growth rate in new export orders has decreased. Export growth in China has slowed sharply since the start of the year, with the increase in foreign sales easing for the third month running in May to the weakest in ten months.

A part of the slowdown may be linked to a peaking in the inventory cycle. The global trade surges that followed the recession were boosted by the rebuilding of inventories by manufacturers globally, a growth that has now stopped. However the global manufacturing new-orders-to-inventory ratio is hovering around 1.2 and remains well above its long-term average of 1. This suggest that, while the growth rate of worldwide manufacturing output, and therefore exports from Asia, may have peaked, an ongoing expansion should be supported as we move into the second half of 2010, unless growth is being derailed by a contagious debt crisis."  ...I agree.

The fear is apparent as well as the risks of  us being in a recession, but I really think that the jobless claims has lost some momentum and the loss of jobs relative to the loss in GDP is way over done.  GDP growth typically tracks with nonfarm payroll growth (or vice versa).  Another question I have is why do we have such a huge disparity between the two numbers?  I think this last recession was so brutal (and the fact that it was created by the banking/financial system) that the lag time for unemployment will extend past the typical 6 month mark as confidence slowly returns to CEO's.   I can only hope that the upcoming employment numbers will reflect a change in downward momentum is here or coming soon.  The other reason, unfortunately, is the government and fed policies that helped the banking system has not added to an increased velocity of money. Put in simple terms, the banks are not lending to small and medium sized business owners (relative to other recoveries) and therefore jobs suffer.  This has to change eventually...

I don't want to think about the alternative.  The alternative is being priced in right now.  Just like a depression was priced in March of 2009 (the market lows).  The alternative is that all of the debt we just piled on is creating no jobs and no GDP growth.  Even if we are financing this debt at 3%, that is the deadliest of all conclusions. 

I don't think that is the case right now.  Again, I believe that there is a significant lag with this recovery and a pullback in equity prices was warranted.  That is why I sold in April.  I just entered into my stocks a little early and at prices that I feel will provide significant upside. 

If you have not bought in yet then try and catch the bottom.  Everyone (the traders I talk to) is saying 980 on the S&P 500.  I don't have to worry about it because I am Long the market and staying Long...for now. 

Good Luck,

Terry Monahan