This week was certainly an emotional roller coaster ride. Sunday brought us the daring raid on Osama Bin Laden’s compound in Pakistan while throughout the week, commodity investors certainly suffered motion sickness as oil weathered its biggest one week drop in history.
At Wall Street Sector Selector, we had a pleasant ride as our 2X inverse position in the High Conviction Portfolio experienced an unrealized gain of 31%, the Option Master portfolio garnered unrealized gains of 55% and 22% in two put options and our defensive positions in the Standard Portfolio moved higher, as well.
On My Radar
Volatility was the name of the game last week, and I believe that we can expect more ahead. Technically, the overbought condition was unwound to some degree, however, fear has reentered the market place as market participants wonder if “buy the dip” will work, yet again.
My suspicion is that it won’t.
The View From 35,000 Feet
The big news, of course, was the attack on Osama Bin Laden’s compound in Pakistan, but that was quickly swept away in the 24 hour news cycle by the collapse in the commodities market, particularly oil and silver.
The Euro declined sharply on dovish comments from the European Central Bank and Greece bubbled to the surface with a Friday night crisis summit among European financial leaders over what to do with sick stepchild, Greece.
Everyone seems to agree that Greece isn’t going to make it in its current form and rumours swirled that Greece could even leave the European Union. The script is the same here as it has been for months.
rumours, followed by denials, followed by the rumours proving true.
The most likely outcome for now is a restructuring of Greece debt with possibly some “haircuts,” but this is such a big monster that I don’t see it going away in the long run and that a default of some form is nearly inevitable.
At home, the S&P 500 had its worst week since March, Friday was the one year anniversary of the infamous “flash crash,” and Thursday’s new claims for unemployment took another unexpected jump.
Offsetting Thursday’s bad report, Friday’s Non Farm Payrolls showed a welcome rise in employment in the headline number, but that was offset by the household report showing a decline of 190,000 and the labour force participation rate at a quarter century low of 64%.
ü Factory Orders
ü Non Farm Payrolls
ü Initial jobless claims rise
What This All Means To You
What this all means to us is continued weakness in the economic reports, negative seasonality and an epic collapse in the commodities sector all adding up to a treacherous May ahead.
Throw in not insignificant factors like increased geopolitical risk in the aftermath of the “Obama Got Osama” affair, the looming breach of the U.S. debt ceiling and ongoing squabbles in Congress over the budget and how to cut it, and we face significant headwinds ahead. Everyone agrees the budget needs to be cut, but with government supplying 35% of the income flow in America, this can only be bad news for a GDP that stands just above flat line as it is.
At Wall Street Sector Selector, we remain in a defensive posture.
The Week Ahead
Major Issues/Themes: Watch for the “Greek Tragedy” to continue playing out while otherwise, things could be relatively quiet compared to last week as earnings season winds down and economic reports are relatively lighter with bigger news on the retail and inflation fronts coming on Thursday and Friday.
Tuesday: April Small Business Index
Thursday: Initial Unemployment Claims, Continuing Claims, April Retail Sales, April Producer Price Index
Friday: April Consumer Price Index, May Consumer Sentiment
Leaders: (NYSEArca: EPU) Peru (NYSEArca: TLT) 20 Year bond
Laggards: (NYSEArca: IEZ) Oil Equipment (NYSEArca: IYE) Energy
I’d like to take a moment to wish “Happy Mother’s Day” to all Mothers among our readers.Among careers, there is none more important, as truly you are doing the work of civilisation.
Have a great Mother’s Day and a wonderful week and we’ll talk soon,
Wall Street Sector Selector