Central Banks Save the Day…….For Now

          

                Let’s start with the news of the day which was a worldwide coordinated central bank action to provide liquidity to European banks.  Yay, were saved right? Wrong.  What this actually signals is that European banks were basically not lending to each other.  This was the same thing that spurred the selloffs and consequent market crashes in ’08.  If anything we should take this as an early warning of bad things to come.  That being said, we continued the rally from Monday adding over 4% across the board.

                The economic data came in as follows:

                                MBA mortgage index -11.7% Vs. previous of -1.2%

                                Challenger Job Cuts -12.8% Vs. previous of 12.6%

                                ADP employment change 206k Vs. previous 130k (revised from 110k) beating                                                                     expectations by 81k

                                Productivity for Q3 2.3% Vs. previous 3.1% missing expectations by .3%

                                Unit labor cost -2.5% Vs. previous -2.4% missing expectations by .4%

                                Chicago PMI 62.6 Vs. previous of 58.4 exceeding expectations by 5.1

                                Pending Home Sales 10.4% Vs. previous of -4.6% exceeding expectations by 10.3%

                                Crude inventories of 3.932 m Vs. previous of -6.219 m

                I’ll let you decide what the numbers mean as they are mostly mixed with the exception of the mortgage index, job cuts and pending home sales, and can be interpreted in many ways.  What was probably more important was the Fed’s “beige book” which is a compilation of economic data that the Fed has been looking at to determine the general state of the economy.  The beige book pretty much said that the economy was growing at a “slow to moderate” pace.  Nothing we didn’t know already but points to things being, again, worse than the above numbers seem to indicate.  Two possible things are happening here.  One, things are actually getting better and we should be confident in the markets.  Or two, things are being skewed by some people taking advantage of the economic situation.  I am more inclined to believe the second.

                I should also mention that China eased its reserve requirements for its banks.  Is this good or bad?  I’m not really sure.  I seem to recall that until the European crisis became the main focus, we had our attention fixed on the Chinese economy and every time there was a hiccup in the data our markets would turn down on fears that China was slowing.  This is just evidence that, yes, they are slowing and they are trying to keep it going by any means necessary.  Their rate of inflation should be a very clear sign of that.