Friends
Welcome from the frozen tundra here in Texas. What the heck is going on around here. If this is what “climate change” is all about, you can count me out. Anyway, let’s get to the markets. As we reported earlier in the week, stocks got above the Dow 12,000 level and the S&P 500 1300 level on Tuesday. So far we have been able to hold on to those levels, despite the political unrest in Egypt, which could have given traders all the reason they need to sell. I would like to point out this morning what we think is a very important story developing. In January, though the final numbers are not in, it looks like stocks had positive cash flows of more than $8 billion in U.S. equity funds and more than $7 billion in global equity funds. This phenomenon, which we have been expecting, begins to verify our thesis that money is starting to move from fixed income funds and money market funds into equities. We still think that this is just begun. Remember, it has been a couple of years since we have seen positive cash flows into equities, as bond funds had been the recipient of most of the individuals investment dollars.
In economic news, the non-farm payroll numbers were just released, and the number of new jobs created was only 36,000 which was much less than the estimates had indicated. The unemployment rate, on the other hand dropped to 9% which sounds a lot better. If you can figure this out, would you please let me know? Analysts on television are calling the numbers meaningless. I’m sorry, then why do we even pay attention to them. Better yet, why do we listen to the “talking heads” on television. I have to, because its my job. My advice to you is to tune a lot of it out and use your eyes and ears to get a real life indication as to how things are doing. We tend to watch market reaction to get a feel for expectations and so far, futures have held in at slightly positive levels in pre-market trading.
Back to the real world. What we are watching is the continued flow of funds from bonds to stocks, oil prices rising, commodity prices rising around the world and the real effects of inflation. The economy seems to be getting better slowly. Job creation, though anemic, is in a positive direction and most of the people I talk to every day seem to feel a little better about things. Though the latter may not be measurable, it is the one that I feel is the most realistic.
Let’s watch to see if stocks can hold on to these levels that we got through this week. The bears continue to look for corrections and the bulls are emboldened by the breakout. While all this is going on, we continue to watch money flows, because when all is said and done, where money is flowing will determine asset prices.
Have a nice weekend, enjoy the Super Bowl and stay warm.
