Thoughts

Stocks are becoming more alluring

I remain optimistic that we are in a bottoming process and that stocks are becoming attractive on a risk/reward basis.

This morning's economic data were promising and supportive of moderate economic growth.

Despite the hyperbole and concerns that the sloppy stock market action is signaling a double-dip, the economic data this morning were promising and supportive of moderate economic growth.

Durable goods (excluding transportation) was up 0.9%, in line with the market's expectations. April was revised higher (from down 0.8% to up 0.2%). Durable good orders have now risen in five of the last seven months and are up by nearly 20% year-to-date, and with inventories down, the inventory-to-sales ratio is below 1.55 vs. 1.82 a year ago. Ergo, inventory restocking should continue and should lead to a better jobs and payroll/hours worked.

Importantly, capital goods orders were up a very robust 2.1%, auguring well for capital-spending gains.

A more robust outlook was also confirmed by the Business Roundtable CEO Economic Confidence Index, which rose to a four-year high.

At 457,000, weekly initial jobless claims were better than consensus and came in at the best reading in seven weeks. Meanwhile, the four-week moving average moved lower. This series has been an outlier compared to other labor market indicators (temporary employment, average hours worked, corporate profits growth and overtime hours) but now seems to be falling in line.

Even continuing claims, those that have been unemployed for some time, fell into the better-reading camp.

"Strategy Session" is comparing the U.S. to Japan. Comparisons are foolish, and are typically seen at or near market lows.

JPMorgan Chase, Bank of America and Citigroup are under pressure from the view that they will underwrite GSE losses.

I am adding to my C long, owing to the pressure in the stocks stemming from the silly view that banks will underwrite the losses at the GSEs.

That's plain stupid.

long C