Stocks and a GDP Slowdown

by Rick Ackerman, Rick’s Picks

Stocks were struggling to get airborne late Sunday night after dive-bombing the tarmac Friday on news that the U.S economy had created a measly 120,000 jobs last month. Index futures traded just briefly on Good Friday before electronic markets closed at 9:15 a.m. for the holiday, but that was long enough for DaBoyz to take stocks down to fire-sale levels on near-zero volume. The E-Mini Dow futures plummeted 120 points in less than two minutes, setting the glum tone when trading resumed Sunday evening. However, our hunch is that shares will not go much lower on the opening, since the dirtballs who work the night shift are so good at shaking down the rubes on ostensibly bad news.  We say “ostensibly” because, for every trader who was disappointed that the alleged economic recovery appears to be losing steam, there were undoubtedly others who saw a new excuse for yet more Fed easing.

A cynical calculation, to be sure, since everyone understands by now that even though the central banks have been running wide open for years, it is not benefiting employment, only stocks. Not that Wall Street cares. Who needs jobs when it’s possible to promote runaway asset inflation with less effort and at a fraction of the cost? Granted, that’s not the way Mr. Obama and his supporters on Capitol Hill would prefer it, since higher share prices alone are unlikely to fool voters come November. But for the time being, a rampaging stock market still holds the promise of reviving job creation and perhaps even of causing home prices to start recovering.

Click on graph for larger image.

We see neither happening, implying that the stock market could be on shaky ground. For even as Q1 earnings estimates have come down, down, down, the broad averages have barely paused for breath since late November. Something’s got to give, and we think it will be share prices as it becomes clearer that first quarter GDP will be well under the 2% threshold the spinmeisters need to maintain the pretense that things are improving. Some of the smartest financial advisors we know are betting the figure will come in at around 1%, and they have heavily positioned their clients in Treasury paper to take advantage of this. From a technical standpoint, their logic will be hard to argue with if the price of the 10-Year Treasury Note pops above late February’s high. Note in the chart above that the June futures were close to this threshold Sunday night, just as stocks were potentially setting up for an avalanche once DaBoyz’ short-term shenanigans have run their course.

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