I don’t think I have to tell you how bad this could be. The market is already on shaky ground, and a week full of disappointing reports could plunge us back below the 7200 level.

With such a full week, I will briefly touch on a few of the more important reports.

Both the ISM Index and ISM Services reports are expected to show a drop for February. With a reading of 34 on the ISM, and 41.3 on the Services, both are indicating further contraction.

On Tuesday, the Pending Home Sales report for January is released, and is expected to show a decline of three percent. I actually expect this report to beat expectations with all the foreclosures and distressed sales in the markets.

The Fed Beige Book comes out Wednesday. While this only gives an overview of labor markets, wages, manufacturing, etc, in each of the Fed regions, it could give an early insight into whether any regions are seeing any sort of turnaround.

January Factory Orders are announced on Thursday, and no real surprise here. The decline is expected to continue, albeit less than the December report. Plain and simple, manufacturing is getting decimated.

The real blow this week could come on Friday when the Non-Farm Payroll report for February is announced. Expectations are for a loss of 615k jobs. If this is an accurate reading, that means that in the first two months of the year, the economy will have shed over 1.2 million jobs. That means in the first two months of the year, we will have lost half the amount of jobs the country lost all of last year.

Source: Employment Data Could End A Scary Week Of Reports

Well, front and center this morning is a rally in the currencies that began yesterday mid-morning, and has carried through the Asian and European markets. I’d tell you why the euro is 2.5 figures above yesterday morning’s level, but you’d laugh at me… No wait! That’s what you’re supposed to do, Chuck, tell the people what’s going on! HA! Seriously though… I don’t think you’d laugh at me, maybe the dolts that run trading floors around the world, or the pundits that write stories about the markets, but not me!

Here’s the skinny… Yesterday, I told you about how the markets were convinced the European Central Bank (ECB) was going to follow the Fed and reduce interest rates this week on Thursday. I also told you that I DID NOT believe the ECB would cut rates, right? OK… Well, yesterday, and I don’t believe for one minute that these guys read the Pfennig and said, “Hey, that Chuck Butler says the ECB won’t cut rates, we had better change gears”… But, yesterday, the thought that the ECB would lag the Fed with interest rate cuts began a whispering campaign, and before you know, there’s a headline story on the Bloomberg, say just that!

Fickle dudes, eh? One day they think this, the next day they think that. To think it is one thing but to spew it all out for everyone to read, is another! I know, I know, I change my mind sometimes, and I’m always reminded of the saying by John Maynard Keynes…”When the facts change, I change my mind. What do you do, sir?”

So… Anyway, back at the ranch, the euro is rising again, and the Aussie dollar is trading above 72-cents for the first time in three months! I’ve explained why this is going on, but in case you missed class that day… The Obama bounce, is giving a warm and fuzzy to the risk takers, and when risk comes back on board, the high yielders get a huge boost… Aussie, kiwi, reals, rands, they, even though their interest rates have been cut off at the knees, are still considered “high yielders”, and therefore, get all the love and attention, when the risk takers come on board…

U.S. stimulus spending is all the rage in the high yielders and the emerging markets, who have been beaten about the head and shoulders for far too long now! Yes, stimulus spending could be the key master to all that ails the world’s economic engine here in the U.S…. But at what cost?

I know, I know, you don’t want me getting on my soapbox and carrying on about the rising debt in the U.S. and our national debt going into the stratosphere, so I won’t… Not today…

There’s been a particular pattern going on in Gold that I think is worthy of mention. You see, yesterday a saw a story about Gold, and I decided to run a graph on what I thought had been happening, and the chart confirmed my thoughts… You see, Gold has been in a pattern of rising to fresh highs, and then falling back, but the falling back sees the lows at higher levels each time… A stair step if you will… Here’s a look at what I’m talking about…

In the past 3 months… Gold hit a low of $712.30 on Nov. 12, and rose to $821 to Nov 25
Then fell to $$756 on Dec 5, and rose to $852 on Dec 18.
Then fell to $846 on Dec 25, and rose to $882 on Dec 31.
The fell to $859 on Jan 5…

Where will it rise to this time? $900? Difficult to call, but this type of pattern usually indicates that each fall back in price (but to a higher low) creates a new base from which an asset can move higher. So, with that in mind, the outlook for a higher price in Gold in this pattern is possible.

Of course, $900, is a far cry from those that believe that Gold will get to $2500. But, I like small steps in assets, that way, it allows investors to still jump in without the asset getting away from them and then they chase the price higher and higher. Again, though, I shiver at $2500 Gold, because, if Gold is $2500, I can’t imagine the condition of the U.S. economy and the dollar…

The data yesterday in the U.S. was a mixed bag of bad stuff for the economy… The most important print was the ISM (non-manufacturing) Index. Recall yesterday I told you that the most important component of this report is the Employment component, which is my “secret” indicator of the National Jobs report (Jobs Jamboree). So… A quick look at the employment component indicates that the Jobs Jamboree, on Friday, will be close to negative -500K… This is what the “experts” are forecasting right now, and for once in a Blue Moon, I agree with them… Although, to me, I want to see the color of the November revision, which I explained all about the other day… Will it be -600K?

Factory Orders printed worse than expected yesterday… Factory Orders for November, collapsed 4.6% (remember the “experts” forecast -2.3%), and the prior was revised lower from -5.1% to -6.0%. I think that the back to back decline represents the biggest since data began in 1992.

The mixed bag part came in the form of the ISM (non-manufacturing) Index which measures the pulse of the Services industry, and for the first time in 4 months it did not contract. The index rose to 40.6… However, this is the 3rd month of below 45, which I’ve explained in the manufacturing side of this report indicates recession…

The Labor picture in Germany took a hit this morning, as the unemployment rate ticked up to 7.6% in December. You see, the Germans don’t have the Bureau of Labor Statistics (BLS) to help them out each month with “cooked books”… If the U.S. unemployment rate was accurately calculated it would be much higher than the 6.7% the BLS gives us, and wants us to believe…

Anyway… I didn’t mean to have that turn into a discussion about the BLS, I wanted to point out that even with a sour report like that in Germany this morning, the euro is rallying…

Speaking of unemployment… Did you see that ALCOA announced that they would cut its work force by about 15,000, or roughly 14.5% of its current employees and contractors. It also plans salary and hiring freezes, more plant closures and production cuts, and a 50% cut in capital expenditures? I did, and if that right there doesn’t illustrate the dark clouds over the global economic picture, nothing does!

One currency in Europe that rallied like there was no tomorrow, yesterday was the British pound… Before I knew it, the pound was taking names and pushing higher. This has to be a “cross thing”, because there’s nothing, nada, zero, zilch, in the way of good news from the U.K. economic and financial problems… So, when I talk about a “cross thing” I’m simply talking about how the currency “pairs” get crossed against other currencies, and in the end, a particular currency, which is a part of a lot of “pairs” gets marked up… Or down… It can go both ways… But in the pound’s circle, it got marked up yesterday… But, I just don’t think the pound can hold these gains… The Bank of England (BOE) WILL cut rates tomorrow, and before you know it… Voila! A weaker pound once again.

Here lately, it seems that I’ve highlighted a “Currency of the day”… I don’t want to keep going with that, because it could become a real pain to come up with a “currency of the day”… For now, I’m highlighting currencies that have BIG moves in a day… If I carried on with a “Currency of the day” I could be stuck highlighting a currency that moved .1%! UGH! So, I’ll steer clear of that one…

So, the latest on the Madoff scandal as reported by the Wall Street Journal… “Ten days before his arrest, Bernard Madoff received $250 million from a man who helped give him his start on Wall Street, a move that shows how the investment manager tried to raise cash to stave off his firm’s collapse.”

Geez Louise, how’d you like to be the guy that gave Madoff $250 Million and watch it go away, and the guy get carted off to jail? (well not yet) I guess if you have $250 Million to “give away” there’s more where that came from, eh?

Currencies today 1/7/08: A$ .7210, kiwi .5965, C$ .8455, euro 1.3630, sterling 1.4955, Swiss .9090, rand 9.40, krone 6.9350, SEK 7.7975, forint 195.50, zloty 2.9120, koruna 19.25, yen 93.20, sing 1.4715, HKD 7.7525, INR 48.76, China 6.8335, pesos 13.35, BRL 2.2070, dollar index 82.29, Oil $48.29, Silver $11.38, and Gold… $864.25

Source: A Trading Pattern For Gold

With the economic calendar being so light, I thought I would take some time to give you my thoughts on what I see happening in the markets over the next 12 months.

• As I mentioned in my piece on Dec. 17, I think the market will do well in 2009. There are just way too many coincidences lining up to lead me to believe otherwise. I still think there will be periods of decline, but overall, the market should close 2009 significantly higher.
• The banking industry will undergo historic consolidation. Like it or not, some of the $700 billion from the bailout will be used to buy up smaller banks. As larger banks scramble to right the ship, the deposit base of hundreds of smaller banks will be too hard to ignore
• The hedge-fund industry as we know it will cease to exist. Much like the investment-banking industry, the business model will come to an end. Regulators will be forced to rein in the industry as investors complain about mounting losses.
• The housing industry bottoms out during the first quarter or so, and then new regulations enacted by President Obama buoy the market. Foreclosures trail off as banks are finally willing to adjust loan balances to reflect market prices.
• Green investing finally gets the push it needs. Even as gas prices drop, people finally realize that long-term solutions are needed. “Green” stocks are one of the hottest sectors this year.
• GM and Chrysler are forced by the government to merge.

Source: Light Economic Calendar Allows For My Thoughts On 2009

There are plenty of reports this week, but not one that could be considered ‘encouraging’. Both ISM reports this week are expected to show further contraction. The ISM Index is anticipated to show a slight decline down to a reading of 38, while the ISM Service report will likely show a very slight decline to 42.6. Both of these reports need to show a reading above 50 to indicate expansion, so they have a long way to go to reach that threshold.

The Factory Orders report for October is anticipated to show a nearly three percent slowdown, and I wouldn’t be surprised to see this report be worse than expected. Last Wednesday the Durable Goods report showed the biggest drop since October 2006, and I think that this will also carry over to Factory Orders. A slowdown of over three percent won’t be shocking, and could push four to five percent.

The employment reports continue to be the darkest cloud over the market. The Non-Farm Payrolls report for November is announced Friday, and it looks like the economy will shed another 300,000 jobs. When this report is announced, I wouldn’t be blown away if they revise Octobers report to show a greater loss of jobs than initially thought.  The rate of job loss is accelerating, not slowing. At this rate, the country will shed a staggering 1.75 million jobs this year.

Source: Factory Orders and Employment Reports Continue to Drag Down The Market

The Services Index is likely to show a more dramatic shift. Last months reading was 50.2, which shows ever so slight expansion since the reading was above 50.0. This month the reading is expected to dip down to 48.5, signaling contraction.

Factory orders for September are expected to show another drubbing. After posting a 4.0 percent drop in August, this report is expected to follow that up with another 1.5 percent drop in September. With GDP figures last week showing a smaller decline than expected, it may translate into a slightly better final number, although I would still expect to see a negative reading.  The Chicago Purchasing Managers Index showed a much steeper decline than expected and this could be an indication of what to expect from the factory orders report.

The Non-Farm Payrolls report is the dark cloud looming over the market this week. So far this year the economy has shed over 750,000 jobs, and in the final quarter of the year, it shows no signs of letting up. If the current pace continues, one million people will lose their jobs this year, a truly staggering number.

Earnings:
Tuesday: UBS
Wednesday: CSCO, TWX
Thursday: QCOM
Friday: F

Source: Employment Reports A Dark Cloud, Earnings Wind Down