08/23/10-08/27/10

   We get an interesting week of Economic reports as we limp toward the end of the month, leading off with Existing home sales on Tuesday.  This isn't going to be a good number.  The market expects an 11% drop from the previous month to 4.75M, and the briefing forecast is for a 14% drop to 4.6M... If the actual number comes in, say, around 4.3M, pop goes the weasel.  I don't expect it to miss by that much, but it certainly can't be ruled out considering jobless claims for the week prior have been revised higher each of the last 4 weeks AND initial claims have risen each of the last 4 weeks. (News Flash: I don't think this week's jobless numbers are going to be any better!)  No jobs = No money = Deteriorating Credit.  Take in to account the sharp rise in the number of people drawing from, or borrowing against their 401K plans in order to survive, Fidelity marked a 2% rise last month, and it is hard to envision a number north of 4.6M.  At some point, the biggest real estate players will begin to start snapping up properties en masse at these ridiculous relative discounts, but I don't see that starting to happen with any effect until early spring of next year, if then.
   Durable Goods and New Home Sales are Wednesday, and since the easy bet is for New Home Sales to come in under expectations (it will) the more interesting number will be Durable Goods.  The Philly Fed came out with a "shocking" negative number last week that marked a 12 point reversal from the previous month's reading of 5.1... That means manufacturing in the region declined by 12% in one month, and there is no reason to believe this won't have a significant correlation to Durable Goods orders this week.
   The slow down in manufacturing is also telling of the jobs picture we are looking forward to.  We saw fairly significant declines in weekly initial jobless claims through the spring as companies that cut back too much during the height of the collapse brought workers back on the payroll, and as the vacation/travelling season got underway.  Since the end of July we have seen weekly rises in initial claims that the Government wants to blame on the gradual laying off of census workers.  Let's be clear on this point: Almost every job the stimulus has paid for has been temporary, some only lasting hours, and we have gone beyond the scope and range of the stimulus... School has started again, and the service industry will go through its seasonal swing.  Pairing that with a slow down in manufacturing, and a pick up in Mergers and Acquisitions gives us predictably higher unemployment rates.
   On Friday we get the revised GDP numbers for Q2.  Given a rather drastic decline in productivity last month, I'm expecting a downward revision, with very little hope of an upside surprise.  So the economic data this week, instead of shining like that green beacon of hope and prosperity on the far shore of the lake, is swinging above us like the hangman's noose.  The two wild cards for the week are the Jackson hole conference for the Fed, and whatever M&A deals get announced this week.
   Jackson Hole is usually not a significant fed meeting, but clearly will be this week.  No one is expecting any solid policy decisions from Bernanke this week either, but depending on how much darker the jobs picture gets, I think we can reasonably harbor expectations for continuingly progressive language regarding Quantitative Easing 2.  The market has not received the Fed warmly over the last few weeks though, so there is no real way of predicting what kind of reaction we will see this week.
   M&A started to pick up last week, and the consensus from the "hopers" is that this week will be better.  It's hard to predict if we'll see any blockbuster deals though.  We know there is an inordinate amount of cash on the books for a lot of companies, but that hasn't been helping me sleep at night.  These companies are holding that cash for a reason.  With the big wigs coming back from vacation, and the promise of legitimate market volume returning over the next few weeks, my guess is that some of that cash will start to get tossed around, but will there be enough THIS week to buoy the market if the economic data is as gloomy as I expect?  I don't think so.
   There will certainly be deals this week, and I hope I get lucky enough to have some naked calls on one of them, which is a sentiment that may prop up a number of stock prices through speculation, but I also believe this market is seeking the bottom end of the range around 9800-9900 on the Dow, and 1030-1040 on the S&P.  My guess is that we get there this week through some very choppy trading.  The volume still isn't back, and that will cause some big daily swings, but when the dust settles on Friday, I'm saying we are 2-400 points lower.