Saturday, February 4, 2012

KFN at $9???

Regarding today's jobs report, here is the downside to the "strong" labor report (that could constrain, though probably not deny, the upward movement in stock prices):

1. Today's outsized REPORTED jobs "gains" eliminates any chance of QE3, which the bullish cabal has expected.
2. A strong labor market, if it in fact exists/continues, will force the Fed to raise the federal funds rate well before the recently announced date of late 2014.
3. A so-called much improving economy raises re-election odds of President Obama. Most consider a Democratic/Obama win in November's presidential contest as not as market-friendly as a Republican (presumably Romney) win.

According to a Washington Post article, Secretary of Defense Leon Panetta believes there is a growing possibility that Israel might attack Iran as early as April.

The Secretary's remarks are in line with a recent lead article in The New York Times Sunday magazine section two weeks ago.

The real issue for risk markets is how will stocks respond to a successful attack? My guess is down on the news but up, in the fullness of time (once it is digested by the markets), as planet Earth is rid of a nuclear Iran.

From there, the issue likely becomes whether Iran retaliates.

Regardless, I believe the greatest risk to the markets is geopolitical, not economic.

Higher stock prices plus lower bond prices equals an ideal setting for life insurance stocks.

F and GM are uniquely positioned to benefit from unleashed pent-up demand for cars, reflecting in part the record 10.8 years average age of the existing car fleet on the road.

The automobile industry, unlike the housing industry, is not burdened by the supply of unsold home inventory.

On Thursday January light vehicle sales rose to 14.2 million units (SAAR). Expectations were for 13.5 million, in line with December.

January's sales represent the best SAAR in three and a half years and were substantially above the fourth quarter 2011's 13.4 million units and suggest that consumer spending on durables will remain firm in first quarter 2012.

The current sales rate of 14.2 million units is still well below the trend line demand of over 16 million units, so there is a lot of runway left for the industry to recover.

This auto sales release and other recently released high-frequency economic statistics call into question the recessionistas' downbeat views and suggest that a self-sustaining economic recovery is in progress.