Making a Point of Not Talking About Expiry

The market had a little bounce yesterday, a bounce-ette if you will, post the better than expected data. The Philly fed came in well ahead of expectations but the real eye-catcher was Continuing Claims printing lower than the previous week for the first time in 2009. A little bit of deduction and it’s not too hard to work out that last week was…the high. Does it seem counterintuitive to think these previous claimants have now found jobs? When you get results like those from Fedex, and you see statistics such as the number of hours worked declining, it is clear the real economy is still very much in trouble. When companies scale back they tend to cut hours worked before actually cutting headcount. It makes it easier and less costly to increase production when things turn around. No severance pay, no search costs when it comes to rehiring; it makes sense. So it seems surprising that the continuing claims fell last week, no? Surely companies would just allocate some more hours to their existing workforce rather than hiring new staff? It’s interesting to note however that unemployment benefits last for 26 weeks. Continuing claims rose steadily for 22 weeks running. Now you can get extensions in cases etc but it would be my guess that the decrease in claims is largely the result of people becoming ineligible for benefits and not actually finding jobs.

I saw a push yesterday for the imminent return of risk appetite should next week’s ECB refi facility have a lot of takers, which this piece was saying it would, and I don’t disagree with the many takers part. I wonder though…swapping illiquid assets for cash or cash equivalents has been done before although admittedly the 1 year term is attractive, but will the equity market pay that much attention to it? I’m not sure it will. What may well react (although not react well) however is the Euro if all these hundreds of billions of Euros are handed out. Will it simply hit the Euro while employing another buying time strategy?

Outside of the de rigueur doom and gloomery (which I wouldn’t persist with if I genuinely saw something which changed my opinion); something I haven’t seen in a while, a single stock research note getting real traction. Exane have a big piece out on Heineken today, the central tenets of which are A) Buy it…and to back that up…B) Cost savings to come through and C) Raw material price falls will benefit them. UBS have Heineken on their conviction list and published a European Strategy piece last week with their top picks. Anyway it’s up 5% today (and while a bit of good weather is always a good excuse to buy a beverage company), my point is this; people seem to be looking more for best in class names and willing to trade them and believe they will outperform their sectors. During the times of hyper volatility, intra-sector correlations were pretty close to one and buying X to sell Y probably wasn’t going to get you very far. With the fall in volatility, and I believe, even though I am bearish, we won’t see volatility return to the previous levels, or anything like it (I’d point to March 9th VIX to back this up), that there is better opportunities for individual stock selection within sectors. Although for sure, if the market tanks, I’m certain you’ll still make good money getting short of SXAP,SXPP, SX7P and long SXDP, SX3P, SXKP etc etc, you’ll just make more doing the stock specific groundwork and sorting the good, the bad and the ugly.