The latest jobs report came out today and the news was not good but better then expected. The unemployment rate soared up to 8.9% as the economy shredded another half a million jobs.
The stunning rise in unemployment that we are witnessing is breathtaking when you compare it to previous recessions:
Uhhhh...Can you say WATERFALL? As you can see above, we are seeing job losses on an unprecedented scale. I am sure Wall St is right though. The recession should be over by the second half of the year. NOT!
How does Wall St expect everyone to continue to pay their bills when they have zero dollars coming in the door?
The markets liked the number today because we "only" lost half a million jobs. Folks, this is utter bullshit. You need job growth of +400k in order to see economic growth in this country. The trend on job losses is still firmly downward.
The fact that we slowed down the losses should have been expected. At the rate we were losing jobs the past few months, no one would be working a year from now! The fact that the media and Wall St are spinning this as a green shoot is simply ludicrous!
Market Gone Wild
The financials continued to roar as the S&P 500 closed up 21 points at 929. Bear market rallies tend to be severe and powerful. The more violent this move gets the more I think its just a bear market rally. Bear markets don't end in a straight line higher. especially one of this magnitude.
There is obviously some severe manipulation going on here. The government and Wall St. realize that their lives are on the line.
Here is my best guestimate as to whats going on:
I believe that the trading desks on Wall St all turned desperately bullish after learning about the stress tests.
They all knew that they would be forced to raise equity on their own or die because Congress was done throwing billions of dollars in bailouts to them. The Fed warned them this would be the case while these stress tests were being conducted. The easiest way for the banks to raise cash is by selling new shares of stock. You saw bank after bank repeatedly roll out new offerings last night following the stress test announcement.
Wall St knew that the higher their stock prices were, the easier it would be to raise capital. It would also result in less dilution in their stock price. For example: If you need to raise $5 billion in capital your dilution effect is twice as much if your stock is at $10 versus $20 because you need to sell twice as many shares in order to raise the same amount of capital.
So, as a result, the large banks all had a huge vested interest in taking the market higher.
What made this easier to do was the fact that the banks became buyers at a time in which their liquidity had increased significantly after receiving huge infusions of cash via the Fed. The banks coffers were already a little more full to begin with after severely reigning in their lending.
Further fueling their liquidity positions was the suspension of market to market accounting. This relief allowed them to spend reserves that they had been holding to pay off losses per the FASB accounting guidelines.
When you add this all up you end up with a pack of bank bulls on steroids!
I think once these offerings are wrapped up you may see a change in market sentiment.
Trying to fight the banks and the Fed on the short side is a tough tough battle right now. That being said, I will take a shot at them with a few SPY PUTS once we get up over 950. There is some severe resistance in this area as the S&P approaches its 200 day moving average.
Once the banks have ensured their survival via capital raisings you may very well see a pretty solid correction.
Next week should be interesting. Have a great weekend.