Cashin’s Comments
AN ENCORE PRESENTATION
On this day in 1405 A.D., one of history's most effective, vicious and unlikely conquerors died of overwork. He was one of a succession of Mongol warriors (and claimed to be a descendant of Genghis Khan). He began by conquering his native
land, the Russian Republic we now call Uzbekistan (if you don't have a map handy it used to be called Transoxiana or more recently Soviet Turkmenistan...there, now that
its location is clear in your head let's go on).
Once he got control of the old neighborhood, he set up a capital (Samarkand...maybe you heard). He then set about overrunning and plundering all the neighboring areas. In the next 30 years, he conquered over 1/4 of the earth. But then like most successful folks he had a system.
His system was to show up at the gates of your town (with da boys) and announce -
"Surrender and you may live....Oppose me and all will die...for each moment you take
to decide I will behead 10 villagers at random"....It was a remarkably effective system.
And...if some folks seemed indecisive, he would build a pyramid of their skulls along
the nearest trade route. Even without electronic super highways, the message
seemed to get around.
On this day in 1405 A.D., as he was planning to overrun China, exhausted, he fell ill
and died. In a terrified Europe, this Mongol Hero Solider was "Tamerlane." Some
think this was just a bad translation of his name among his own people...he was
"Timur the Lame." He was handicapped from birth and often had to be carried on a
platform into battle. In an age when the strongest, ablest and most powerful
ruled...this barely educated genius used his mind not his body to rise to the top. We
assume that's the last time something like that happened.
There were no pyramids of skulls along Wall Street's road to riches Tuesday. In fact,
markets celebrated Mardi Gras with low volume levitations in stocks, gold and oil.
Buck Buckles And Other Assets Ascend – Currencies ruled the world of finance in
front of the beginning of Lent. As we had noted in Tuesday’s Comments, some signs
of hope (or, at least, a decline in pressure) moved into the “Greek Crisis” picture. The
Greek polling data and the thirty day window granted a sharp sigh of relief rally in the
Euro and a plunge in the dollar.
The key benefit of the thirty day deadline was that it signaled the crisis was not
immediately imminent. If European authorities gave Greece thirty days to come up
with a plan, they must assume that any implosion was at least thirty days away. So
traders shifted focus to more immediate concerns.
The currency reaction was dramatic. The WSJ headlines its story with – “Euro Has
Field Day Against Dollar”. The dollar drop had an equally dramatic impact on the dollar carry trade. Gold spiked $30. Oil spiked $3. And, as noted, the Dow spiked about 170 points. Unfortunately, it was all done on holiday-like volume. The late day, second leg of the rally took the averages close to some critical resistance. Things may get interesting from here.
Small Business Stagnation Draws More Attention – Last Tuesday we wrote about the rather stagnant state of small
business in the struggling recovery. Over the weekend, Business Week published an editorial on the same topic. Here’s how it began: Could small businesses become the Achilles' heel of the U.S. recovery? Companies with fewer than 50 employees helped lead the economy out of the last four recessions as entrepreneurs, sensing opportunity, opened new businesses. And smaller suppliers provided the tools and equipment needed for larger companies to boost production. But this time, almost six months after the U.S. economy began growing
again, small businesses continue to cut capital spending and dismiss workers.
Such caution has big implications for the speed and strength of the recovery. That's because tiny businesses have an outsize impact on employment. In fact, total U.S. payrolls would have fallen between 1980 and 2005 without the jobs created by business startups—most of them companies with fewer than four workers, according to new U.S. Census Bureau data.
So a drop in the unemployment rate, which fell to 9.7% in January from 10% in December, may stall later this year if these companies don't start hiring. And growth likely won't meet the median 3% annual rate forecast for 2010 by 68 economists surveyed by Bloomberg without more small company investment. "Will you have a sustainable recovery a few years down the road without getting some small business spending? No," says Cary Leahey, senior managing director at Decision Economics. The article then notes how extensive concern is within the small business community, but may be masked by other indicators.
Recent numbers suggest "the official data are too heavily weighted towards bigger companies, which are
doing better than credit-constrained smaller firms," says Ian Shepherdson, chief U.S. economist at High
Frequency Economics. However, he adds, "The latter employ half the workforce."
Surveys of small business owner sentiment don't presage a pickup anytime soon. The NFIB's index of small
business optimism has been near historic lows for 16 consecutive months, hitting 89.3 in January. During the
four prior recessions, going back to 1980, it dipped below 90 only once. Just 17% of NFIB members reported
sales growth in the fourth quarter, while 47% saw declines. And just 1% said they expected conditions to be
better in six months. "Optimism has clearly stalled, in spite of the improvements in the economy," says
William Dunkelberg, the NFIB's chief economist.
Small companies have been particularly reluctant to invest in the one area the economy needs most right
now: jobs. In January, small companies eliminated 3,000 jobs, according to Automatic Data Processing (ADP),
the world's largest payroll processor. And in January, 19% of NFIB members reduced employment, while only
9% added workers. "They're still apprehensive about hiring people, because they're not seeing enough
customers to translate into another worker," says Holly Wade, policy analyst at the NFIB.
So, we see that the sector of the economy that provides half the jobs and produces half of the GDP remains in a deep
funk. It is also the sector that cannot easily outsource and, thus, does not export jobs. Washington should wake up.
Cocktail Napkin Charting – Tuesday’s levitation took some of the averages right up to some critical resistance areas. In
Tuesday’s Comments, we wrote that the napkins showed second level resistance in the S&P at 1093/1097. Yesterday’s
high was 1095.67. Coincidently, the 50 day moving average is around 1097.
The bulls may face some chart challenges in this area. There looks to be significant resistance around 1103/1108 and a lot
more at 1113/1118. For today, we’ll start with resistance at 1097/1101 and use the others as fallback. Support looks like
1083/1088 and then 1074/1077.
Consensus – It’s still all about the Buck versus the Euro and how that impacts the “dollar carry trade”. Volatility seems to
be back with a vengeance. Stay very nimble.
Trivia Corner
Answer – We were looking for three two-term presidents in a row. At least that’s how we poorly worded the question.
That allowed the smarty pants division of the Triviates to pounce. They noted there were four two-termers in a row if you
start with Washington. Then came Jefferson, Madison and Monroe. Sister Herman Joseph maintained that Washington
wasn’t elected but rather acclaimed to the presidency. We’ll watch our wording (hopefully) in the future.
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