Zig-Zag

by Larry Levin

Wow, the market started off today right where it left off yesterday afternoon - choppy! Although it was very two-sided early, it eventually rallied before returning to its early choppiness in the afternoon. Sadly, today's trades were zigging when the market was zagging.

Apparently the market couldn't decide what to do with this morning's economic data, so it reverted to its current favorite: when in doubt, ignore.

We received two more pieces of economic data this morning - weekly jobless claims and the PPI. In a nutshell the jobless rate is increasing, wages are decreasing, and prices continue to escalate albeit at a much slower rate.

We have been told repeatedly in the financial media that not only is the employment picture a "lagging indicator" but it's improving. The truth at the moment is something different. The Labor Department reported this morning that initial jobless claims rose 32,000 to a seasonally adjusted 637,000 in the week ended May 9. This put the number at the highest level since mid-April. Moreover, the four-week average of new claims rose by 6,000 to 630,500, also the highest level since April 18.

The level of continuing claims, however, reached a new level. Continuing jobless claims jumped by 202,000 to a record 6.56 million. This data point indicates how hard or easy it is for unemployed workers to find new jobs. Therefore it stands to reason that businesses continue to off workers at a rapid pace and that finding a new job is turning out to be very difficult.

Isn't it odd that when the employment data is bad we're told to ignore it - it's a lagging indicator? However, when there is the slightest sign the worst may have passed, the very same employment data is now a leading indicator? Odd, indeed.

The Producer Price Inflation report (PPI) showed us that prices are on the rise again. This is surely good news for the Feds since they are concerned about deflation, but this combined with rising unemployment probably isn't a good combination. The PPI rose 0.3% last month, which mostly came from broad-based increases in food prices.

But we don't have to worry about another commodity price spike in my opinion. Despite last month's gain, the PPI index has fallen 3.7% in the past year, marking the biggest year-over-year fall since January 1950. Some believe there is a great deal further for the PPI to fall, suggesting that the overall PPI could fall as low as 7% from last year.

"Deflation is a bigger risk than markets or policy markets want to admit," said Steve Ricchiutto, chief economist at Mizuho Securities, in an interview. "Everyone is so interested calling the turn in the economy that they are missing the actual developments."

Perhaps Mr. Ricchiutto is wrong? Maybe nobody should worry about deflation? After all, we have Helicopter-Ben on the case at the Federal Reserve. He says deflationary problems won't be an issue. And he has been so right on so much - yeah right.



Previous Day's Trading Room Results:

Trade Date: 5/14/09

E-Mini S&P Trades*
(before fees and commissions):

1) VA sell @ 9:00am at 882.25 = -1.50 (1 lot)

2) Engf sell @ 9:30am at 886.75 = -1.50 (1 lot)

3) VA buy @ 12:10pm at 890.25 = -1.50 (1 lot)

4) 80% sell @ 12:30pm at 890.25 = -1.50 (1 lot)

5) OTF sell @ 1:00pm at 891.75 = -2.00 (1 lot)

6) Algorithm positions (1)...combined Secret's and Algo total...-9.25


Electronic (YM) Mini-Dow:

1) None today



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