Weekly Marketmail

Stat of the Week: 257,000 New Private-Sector Jobs Created in January
The Fed is a “Party Pooper” (and Ben Bernanke is our “Designated Driver”)
The Darkest Cloud on the Horizon May be a Military Strike against Iran

Stocks Soar in Early 2012 Due to Job Growth & “Facebook Fever”
By Louis Navellier

The overall stock market seems to be benefitting from the Facebook IPO buzz and Friday’s report of a quarter-million net new jobs added last month. The S&P 500 rose for its fifth consecutive week in 2012, up 2.2% last week and nearly 7% year-to-date. NASDAQ is up 11.54% so far in 2012, reaching an 11-year high. This winning streak can’t go on forever, but I hope you like 2012 so far.

Stat of the Week: 257,000 New Private-Sector Jobs Created in January

The big news last week was Friday’s January payroll report. The Labor Department announced a better-than-expected 243,000 rise in payroll jobs, over 100,000 better than the economists’ consensus estimate of 140,000. The private sector added a net 257,000 jobs – the largest increase in private-sector payrolls since last April. Meanwhile, the government sector shed another 14,000 jobs – another positive trend. The overall jobless rate fell to 8.3%, the lowest rate since the first full month of Obama’s Presidency.

Overall, the January payroll report was simply stunning. For instance, the beleaguered manufacturing sector added a very healthy 50,000 jobs. Also, the total of new jobs for November and December was revised higher by 60,000, while aggregate wages increased 0.4% in January and personal income rose 0.5% in December. These numbers should fuel consumption growth and rising consumer sentiment.

In another great jobs report, the Labor Department announced that new weekly jobless claims declined by 12,000 to 367,000, and the four-week average of new jobless claims fell to 375,750, near a four-year low. But last Wednesday’s ADP (private sector) jobs report was not as euphoric as Friday’s government report. ADP said that “only” 170,000 private sector jobs were created in January. The most positive aspect of the ADP report was that small businesses created most (95,000) of all new jobs. By contrast, large companies (with over 500 employees) only created 3,000 new jobs, and medium-sized businesses added 72,000 jobs.

In other positive economic news, Thomson Reuters reported that the 21 big retailers they track posted positive same-store sales growth in January. Big discount retailers, like Costco* and Big Lots, fared best.

Also setting a positive tone for the stock market, the Purchasing Managers Indices (PMIs) in Asia, India, and Germany all turned up. That bodes well for global GDP growth. Any perception of stronger global demand will likely continue to put upward pressure on crude oil and other commodity prices as well.

The Fed is a “Party Pooper” (and Ben Bernanke is our “Designated Driver”)

Despite a dozen consecutive weeks of healthy economic news, Federal Reserve Chairman Ben Bernanke continues to throw cold water on the U.S economic recovery. Last Thursday, he warned Congress that a sudden financial crisis was possible unless Washington comes to grips with the budget deficit…quickly!

It has often been said that the Fed’s role is to “spike the punch” during recessions and then lock up the liquor cabinet when the economy is roaring. But Ben Bernanke is acting like a “designated driver” by spiking the punch bowl with low interest rates while talking down our chances for sustained recovery.

In his latest role as the nation’s economic chaperone, Bernanke told the House Budget Committee that “Although historical experience and economic theory do not indicate the exact threshold at which the perceived risks associated with the U.S. public debt would increase markedly, we can be sure that without corrective action, our fiscal trajectory will move the nation ever closer to that point” (emphasis added).

Bernanke’s caution is good for stocks. Since the Fed continues to talk down interest rates, big companies continue to issue new bond debt at record low rates. According to the Barclays Capital index, the average yield on investment grade bonds fell to a record low of 3.07% last week. On Wednesday, Procter & Gamble* sold 10-year bonds with a yield of only 2.3%, while IBM* sold 5-year notes yielding only 1.25%.

Some big companies can now issue short-term debt below LIBOR rates. For example, Procter & Gamble just sold two-year notes that yield 8 basis points less than the 3-month LIBOR rate. This is incredibly bullish, since companies will likely continue to borrow at these ultra-low interest rates and aggressively buy their stock back, which, in turn, boosts their underlying earnings per share, pushing the market up.

The Darkest Cloud on the Horizon May be a Military Strike on Iran

The rising possibility of a military strike on Iran’s nuclear facilities is keeping oil prices high. The U.S. press has been reporting that the Obama Administration is publically disagreeing over the timing of a potential attack on Iran’s nuclear facilities. On Friday, Bloomberg reported that according to Aaron David Miller, a former Mideast peace negotiator in the Clinton Administration, the U.S. and Israel have a “significant analytic difference” over the estimates of how close Iran is to shielding its nuclear program from an airstrike. Miller said, “There’s a growing concern – more than a concern – that the Israelis, in order to protect themselves, might launch a strike without approval, warning or even foreknowledge.”

On Thursday, Israeli Defense Minister Ehud Barak said that Israel must consider launching an operation before Iran reaches an “immunity zone,” referring to Iran’s goal of protecting its uranium enrichment and other nuclear operations by moving them to deep underground facilities such as the one at Fordo, near the holy city of Qom. In an address to the annual Herzliya Conference at the Interdisciplinary Center campus north of Tel Aviv, Barak said, “The world has no doubt that Iran’s nuclear program is steadily nearing readiness and is about to enter an immunity zone” and added that “if the sanctions don’t achieve their goal of halting Iran’s nuclear weapons program, there will arise the need of weighing an operation.”

On Friday, U.S. State Department spokesman Mark Toner said the U.S. “is absolutely committed to preventing Iran from getting nuclear weapons.” Whether or not the U.S. and Israel are playing a game of “good cop, bad cop” on the world stage is uncertain. All that is certain is that crude oil prices are destined to remain high while the tension persists between Iran and the Western countries that are imposing an oil embargo later this year. Let’s hope that the escalating war of words does not spin too far out of control.