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    MARKET EDGES

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One important component to my call this morning to be buying/covering stocks in the SP500 range of 885-900 (right where we are now), is to consider the chart below within the construct of expectations.

Before we look forward, let’s take a deep breath, and a step back… and look at where this chart has come from on this very January day of 2008 – when all smelled like a rose to those who couldn’t afford to foresee smelling anything else.

Today the fear associated with unemployment trends in this country are backward looking – the amount of emails I get about “Depressions” is one sure fire proxy of what that level of doubt investors have in their mind right now that this unemployment trend could reverse.

Looking forward, all I need to see is a probability that the delta in this chart turns to the negative (i.e. unemployment accelerates at a lesser rate). As you can see, there has been a steep ramp in expectations catching up with reality in this country. The trailing economic data is telling you why we just printed the 2nd worse year for the US stock market since 1871. The New Reality is that was 2008’s “news” and that the USA has a 7.2% unemployment rate.

While the pundit patrol talks about “Great Depressions”, after the big moves have been made (unemployment during that Depression was 23%, and if we were going there, I would be scared of my own shadow too), consider this question: could I be emailing you an unemployment chart on this same day, next year, reviewing that this was both a peak in terms of quarterly sequential acceleration and the US manic media’s pessimism embedded therein?

Keith R. McCullough
CEO & Chief Investment Officer