USA Economy: A Glimmer of Hope

The Non-Farm Payroll Report on Friday, indicating a net loss of 10,000 jobs for November and slight decrease to 10.0% unemployment rate, has created a change in market perception.  The consensus estimate was a net loss of 100,000+.  The market reaction was reminiscent of the memo by Vikram Pandit of Citigroup on March 9, the equity market bottom and beginning of this current rally, stating the bank had been profitable the first two months of 2009.  The market began to see the economy differently, more positively.

A reasonable, unbiased, general commentary on the new market outlook is by Cliff Wachtel, who has summarized the implications to the markets at Seeking Alpha, "Global Market Outlook: Improved Expectations":

Happy days are not here again, but the continuing downward spiral of the USA economy does appear to be mitigated, at least for the present.  The consumer and commercial mortgage crisis is far from over and bank failures continue managed by an technically insolvent FDIC, for example.  The economy is not boom nor gloom, but struggling along attempting to stabilize at a very low level after the devastating financial crisis.  This could be a short honeymoon; even if the December Non-Farm Payroll Report is fairly positive.  I expect the January NFP Report to be rather dismal as consumer spending decreases after the Holidays.

Short-Term Outlook (3 months): The sharp downtrend of the US Dollar has abated for the next 30-60 days and equities have at least one more upside breakout remaining of 5%+.  Possible decoupling of US Dollar and equites for next few weeks.  With the downward pressure on the US Dollar slowed, a continued equities breakout could be reversed in January or February via a pullback and correction to current levels.  FRB maintains 0% interest rate environment.  Commodity prices, especially oil, should stabilize.  Even Saudi Arabia stated last week they are happy with the current oil price.  Longs I like are NASDAQ 100 (QQQQ), GOOG, AMZN, CRM, HPQ, MSFT, IBM; AAPL, SMH.  Emerging market longs I like are Brazil (EWZ), Australia (EWA), India (EPI, PIN) or EEM to play in general for short term and intermediate term.  I like VIX short, for reduced volatility and fear, per Goldman Sachs outlook but if I got a nice gain I would take it and get out.

Intermediate-Term Outlook (6 months): Downward pressure on the US Dollar and possible beginning of interest rate increases by FRB.  USA equites stabilize and consolidate, if US Dollar does.  Global semiconductor market has stabilized, I like SMH, INTC long.  Cloud computing continues growing, I like GOOG, CRM, MSFT, IBM, AMZN long.  Mobile continues to change the world, I like GOOG, AAPL long.

Long-Term Outlook (1+ year): Downward pressure on the US Dollar and FRB begins interest rate increases in .25%/.50% increments.  The first rate increase will generate the most reaction by the markets, as a turning point.  At some point inflation will cause USA equities to skyrocket as economy improves.  USA fiscal budget deficit and large Treasury debt problems will force US Dollar down and USA equities up.

Current Positions: Long AAPL, CRM, EWZ.  Wife is long AAPL, GS, EWZ, CHK.  Watching other trades mentioned for entry point.

FYI: I mostly analyze and chart technology and emerging markets.  I monitor US Dollar, bonds, commodities, and other equity sectors.  At some point I will post some charts as I get my blog up and running.  I wasn't going to post this week, but with the surprising 10% unemployment rate on Friday, I wanted to say something.