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Weighing The Week Ahead: Here Come The Candidates!

 May 07, 2012 09:02 AM

(By Jeffery A Miller)  A In a light week for economic data, we can expect more attention to elections both in Europe and the US.

Political activity provides both an opportunity and a trap for most investors.  It is so easy to use our own electoral preferences in forming conclusions about economic and investment prospects.

Just as Democrats did when President Bush was in office, Republicans now want to make the economy seem as bad as possible -- and hopeless unless Obama is defeated.  This means super-spinning of every story.  This week's employment report is a good example.  Read Derek Thompson's fine article, The Official Guide to Spinning the April Jobs Report,to get your inoculation against the upcoming silly season.

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Now that the Republican candidate is known this will get much worse.  The Hill notes that for Obama, the gloves are coming off.

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In the conclusion, I'll offer some thoughts on how investors  can take advantage of the political noise.  First, let us do our regular review of last week's news and data.

Background on "Weighing the Week Ahead"

There are many good sources for a list of upcoming events. In contrast, I single out what will be most important in the coming week.  My theme is an expert guess about what we will be watching on TV and reading in the mainstream media.  It is a focus on what I think is important for my trading and client portfolios.

This is unlike my other articles at "A Dash" where I develop a focused, logical argument with supporting data on a single theme. Here I am simply sharing my conclusions. Sometimes these are topics that I have already written about, and others are on my agenda. I am putting the news in context.

Readers often disagree with my conclusions. Do not be bashful. Join in and comment about what we should expect in the days ahead. This weekly piece emphasizes my opinions about what is really important and how to put the news in context. I have had great success with my approach, but feel free to disagree. That is what makes a market!

Last Week's Data

Each week I break down events into good and bad. Often there is "ugly" and on rare occasion something really good. My working definition of "good" has two components:

  1. The news is market-friendly. Our personal policy preferences are not relevant for this test. And especially -- no politics.
  2. It is better than expectations.

The Good

The general economic data continues to be soft, while earnings have been very good.

  • The debt celing issue will not be revisited until after the election (via The Hill).  This is one of those worries that people keep bringing up, but is then ignored when it proves not to be true.  There is still a lot of heavy lifting scheduled for after the election, of course, but that is a very different problem.
  • Corporate earnings have been stronger than expected and so have revenues. Some observers continually write that earnings estimates are too optimistic. When the beat rate is excellent, they then say that the bar was set too low.  Which is it?  Here is a good chart from Dr. Ed:


    • ISM Manufacturing rebounded to 54.8.  The "internals" in this report were all good.
    • Gasoline pump prices may move lower, a boost for the consumer.  The Bespoke Investment Group observes, "No matter how you look at it, current prices for gasoline are high, but if the recent trend of lower prices continues, it could provide a strong boost to the consumer."  Here is one chart, but check out the article for further analysis.

    Gasoline 050212

    • Initial jobless claims (not part of the employment survey period) moved back to the prior range.  Here is the nice chart from Doug Short (but see the full article for much more):


    The Bad

    The most important economic news of the week was the jobs story -- a big disappointment.

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