The markets came off their mid-month lows to finish November about where they started. Technically, all three indices are currently between their 50-day and 200-day moving averages. The short-term trends are up, but the slope of the 50-day moving average is negative. The volatility index (VIX) moved just a bit higher in November, but is still below 20. This is typically a good place, but the uncertainty over the budget and fiscal cliff negotiations are keeping a lid on things for now.
We remain stuck in a trader's market. Investors lack the conviction to make long-term commitments to stocks for fear they'll get wiped out by a violent reaction to just about any piece of economic data or news on the cliff, Europe, or China. But, violent reactions can occur in either direction, and this looks and feels like a market that is ready to make a big, breakout move one way or the other depending on the news.
Another month, another weak jobs report...the economy created 146,000 jobs in November and the unemployment rate dropped to 7.7% from 7.9%, but even the department of labor admitted that the drop in unemployment was almost entirely due to discouraged workers giving up looking for work. Also, September and October's numbers were revised lower by a total of 49,000.
The November jobs report contained one big surprise. Super-Storm Sandy and the Nor'easter that almost immediately followed it were reported to have had a "minimal" impact on employment and average weekly work hours. One analyst with whom I agree says this is because most of the data was taken before the storm. I'm looking for big revisions to November's number in the next couple of months.
The biggest job gains were in retail, professional services and leisure and hospitality. Keep in mind, the bigger the bump in retail and leisure and hospitality we have in November and December, the bigger the letdown we have in January in February as those stores and restaurants release all the temporary, holiday help.
A few other data points that might sour the economic outlook a bit include a drop in consumer confidence. The University of Michigan-Thompson Reuters index fell from 82.7 to 74.5, far below the average analysts' expectations of 82. Another report that American households are once again turning their attention towards debt reduction, and reports of large layoffs being planned by several of the big banks (not just Citibank) and other large companies may put a damper on holiday spending. If that happens, all that extra, part-time, holiday help will hurt retail margins and 4th quarter earnings.
The question I'm asked most often has to do with the fiscal cliff and whether or not we're going over it. I'm still holding out hope for an eleventh-hour deal to be worked out to save us from it, but that hope is not as strong as it was a month ago. It is becoming very clear that neither side is interested in compromise, and as long as deficit spending is allowed to continue, I'll maintain neither side is really serious about fixing anything.
The republicans have once again allowed themselves to be painted into a corner of only being interested in protecting tax breaks for the wealthy. The democrats have proposed even more spending with a promise of spending cuts sometime in the future. Any hope of meaningful spending restraint and debt reduction is long gone...left to taxpayers that aren't even born yet.
To make matters worse, as we get closer and closer to the cliff, the debt ceiling is looming large as well and I have to believe that at least a few Americans are shaking their heads in disbelief. This is really simple. We are out of money. We have allowed our government to spend $16 trillion dollars more than we have and their proposal is more government spending.
Need proof? On Friday November 16th, Treasury Secretary Tim Geither was on Bloomberg TV's "Political Capital." Host Al Hunt asked him if he believes the debt ceiling should be eliminated. Geithner answered, "Oh, absolutely." Hunt later asked, "Is now the time to eliminate it?" Geithner answered, "It would have been time a long time ago to eliminate it...the sooner the better."
Remember the debt ceiling fiasco of last summer? Remember being told it had to be increased by $2.4 trillion or we'd default on our debt and cause an immediate end to deficit spending? Geithner's Treasury Department quietly admitted at the end of October that we'd be out of money again by the end of this year. Our congress is on the verge of achieving the seemingly impossible feat of hitting their heads on the debt ceiling while falling off a cliff.
I can pretty much guarantee you one thing...if we give congress infinite dollars to spend, they'll do it. Our elected and unelected officials have demonstrated time and again that they will never cut spending. Never in the hundred-plus-year history of the debt ceiling have they failed to raise it. I can't imagine many things more-foolish than giving our federal government a credit card with no limit.
The markets will react negatively if we go over the cliff and positively if we don't, but I don't believe a big move in either direction will be more psychological than fundamental and will not last very long. In hindsight, we'll be looking at either a huge buying opportunity, or a time we should have taken profits.
I know some of my readers are thrilled with the president's reelection. To say I'm disappointed would be an understatement. If this was indeed a mandate for socialism, then that is where we are headed as a country, but I think the winners should be careful in claiming it. Not long ago the shoe was on the other foot and they felt quite differently.
As proof, this quote from the "short memory" file..."Maybe peace would have broken out with a different kind of White House, one less committed to waging a perpetual campaign -- a White House that would see a 51-48 victory as a call to humility and compromise rather than an irrefutable mandate." - Senator Barack Obama on Bush's marginal defeat of John Kerry in 2004 from The Audacity of Hope.
Have a wonderful Christmas and New Year's! As always, our prayer is that you are able to spend it with those you love and care for, and that your generosity and charity would be a gift to all. Vicki and I are humbled by the many blessings this business brings to us, and eternally grateful for the continued loyalty and trust of our clients. Thank you all for sharing another wonderful year with us!
