Gloom and Doom for the Shorts

The current jobs release today showed a robust addition of 180,000 jobs and the unemployment rate dropped to 4.4%. This conflicts with the recent economic data that showed slowing economy and possible recessionary fears. But a closer look at the past jobs data and unemployment rate would reveal that this economic report is a lagging indicator by about 6 months to 1 year.

If you consider 2000 before the tech and dot com implosion, the jobs and unemployment rate preceding the 3 months leading to the downfall, was robust. Yet, the main stream media is on full offensive today, touting the strength of this economy and prediting a broad Wall Street Rally come Monday. Perhaps. I beg to differ.

The current market rally is predicated on Goldilocks mentality of the market. The need for this market to be "just right" is exactly why this market is headed for trouble. I mentioned about complacency of the bulls and the markets that have been rising again. The bulls are now getting comfortable that the rising market conditions are the norm. Any potentially important economic news is neither digested or heeded and is rather dismissed and not considered if the data points to weakening economy. Why is this? It is human nature. We do not want to face the reality sometimes because we don't want the party to end. The party in this case is the unprecedented market run up since last July 2006. In fact, many on Wall Street are dismissing the last February 27 as a minor correction, a blip on the radar, instead of heeding what it was trying to tell the investors: Volatility.

The markets applauded the resolution of the Iranian hostage crisis as a monumental positive for world peace. Yet, in my opinion, this served to place Iran right in the center of world stage. That Iran won the political battle because they dared to take the British soldiers and held the whole world's attention for 2 weeks is something that everyone should worry about. It allowed Iran to test the nerves of the world resolve and opinions. It tested what UN, the British, the US, and its allies would do. They have an answer. They can do what ever they please without much repercusion and more "tests" will probably be on the horizon by the Iranians. If anything, the Iranians are now emboldened. This is because no one has forcefully pressed the issues with the nuclear ambitions, no one has pressed the issues with the legality of the caputre of the 15 British soldiers in "hostile" waters. This in and of itself is a hostile act and intentions by the Iranian regime because it is telling the world that Iranian territory is at war with who ever encroaches on their waters. There is no peaceful message here. Yet the world is happy that the 15 British sailors and marines got home safely. Just as the world continued to appease the Hitler regime in the 1930's, the Iranians will continue to press and see what they can get away with in the coming months and years, until it is too late.

Back to the markets. So, in a nutshell, the market is now finally forced, once again to come to grips with the inflationary fears. UBS has all but reduced the rate of FED interest cut to nothing. The very premise that the market has been rallying for the past two weeks. There is no indication that the inflation will abate. The oil still stands at $64 and change. The Iran crisis resolution did nothing to bring that price down. The jobs and unemployment numbers should be heeded carefully as the jobs created are not the ones that will benefit this economy. It is service related jobs that pay a little bit over minimum wage. If the markets want to cheer any data that seems positive and spin it, they do so at their own peril.

I remain short on Countrywide and bearish on the near, mid, and long term market conditions. I see the recent rally as a dead cat bounce.

As for Countrywide, I see that they will have to at some point, stop spinning their position because with each unraveling of the supbrime issues, we find more and more that they are more heavily leveraged to this arena than they want the markets to realize. They can play this spin game for so long before the rest of the market catches up and criminal indictments start in earnest. The SEC is now looking into the options granting process and CFC is now involved in the options probe. I am not sure if Countrywide will preannounce a dreary earnings, I am betting they will. In the mean time, I will have to continue to test my resolve. As of currently, I am strongly short Countrywide. But for the rest, cash is the best place to be.