Overall, Not a Bad Week at All

by Dan Wiener | December 23, 2011 4:12 pm

The final numbers on U.S. third-quarter GDP showed growth was slower than originally estimated. But with fourth quarter almost over and signs that economic activity has picked up over the past few months, investors are looking past that data. Now, they’re focused on another positive jobs report showing new claims for unemployment falling yet again[1]. And who can forget Tuesday’s rally?

That 335-point surge on the Dow was borne on the backs of two distinctly different, yet encouraging reports. First, Spain was able to once again sell bonds at a very attractive rate (for it), essentially completing its needed refinancings for the year. The beleaguered country was able to sell three-month bills at 1.74%, compared to 5.11% just a month ago, and six-month bills at 2.44%, rather than the 5.227% offered in the last auction. Not to throw cold water on this, but let’s not forget these bonds extend out for only three and six months. This isn’t a long-term fix, though it does give Spain a bit of breathing room.

Second, U.S. housing starts numbers jumped to a 19-month high in November. Issuance of permits also rose sharply. It’s been said that for every 100,000 new units of housing, 250,000 jobs are created. That would be a welcome gain for workers here. The overall housing market remains deeply troubled, which is evident due to the revisions to home sales data since 2007 showing the crunch was even worse than originally reported. Inventories are down, which augurs higher prices as demand picks up. But a big backlog of yet-to-be-foreclosed properties — and those which sellers have been reluctant to list — is hanging over the market. Still, on the bright side, the housing market is in recovery mode, however slow.

With the Dow jumping 2.9% on Tuesday, and following through with a tiny gain Wednesday and Thursday, and solid bounce (though on thin volume) on Friday. The Dow and S&P 500 both ended the week 3.6% higher. The Dow is once again above its 200-day moving average. Many technicians look at the 200-day average as a signpost, and the Dow was solidly above this marker for a year until dipping in early August. Since then it’s made brief appearances above water.

The pundits are out in force, as you might expect given it’s the end of the year. So, along with everyone else with an opinion, I thought you might be amused by this little “find” of mine concerning inflation:

Investors have been asking, “Will we see global inflation in 2012 or massive deflation?” Barron’s, in back-to-back stories this week, has “experts” in one story claiming we’ll see “face-ripping” inflation in 2012 as government printing presses begin operating overtime, while another duo predicts global deflation on the backs of loan defaults, asset write-downs and a huge contraction in spending by consumers, businesses and governments.

Remember this: They can’t both be right — but they could both be wrong.

Heading into December’s close, we’re getting the typical year-end slump in trading volumes, and while no one is willing to predict a Santa Claus Rally this year, the low volumes and decent economic news could indeed push prices at least a bit higher in the closing trading days after Christmas.

  1. new claims for unemployment falling yet again: https://investorplace.com/2011/12/top-stat-new-jobless-claims-lowest-since-2008/

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