Once again, oil plunged and it took stocks along for the ride. Although, I do think other worries have popped up, including questions about our super-duper economy. In addition to oil’s continued stumble, the ten-year Treasury yield cracked 2% and the Institute of Supply Management (ISM) Report on the service economy was a historic miss.

In the last few days, I have interviewed some of the smartest people on Wall Street and some of the smartest people in the financial media, including Jon Hilsenrath of the Wall Street Journal. Overall, they continue to be overly confident in the economy and in the stock market. Part of the reason is the cheap oil and the strong U.S. economy, but how strong is the economy?

Last Wednesday, the Dow popped 80 points at the open only to struggle to hold on to slim gains while other major indices were slammed.

Yesterday, the Dow was up 75 points, but the more it digested the ISM report on service, the rally faded. Perhaps, it was triggered by the realization that for the first time ever, all ten components of the report were lower than the previous month.

ISM Service	December Read	Percentage Point Change
Overall	56.2	-3.1
Business Activity	57.2	-7.2
New Orders	58.9	-2.5
Employment	56.0	-0.7
Deliveries	52.5	-2.0
Inventories	50.0	-5.5
Prices	49.5	-4.9
Backlog	49.5	-6.0

Then, there are the bond yields. The ten-year is nearing the October low and a record all-time low typically associated with the unfortunate economic circumstances in America. I am leaning with the cool dudes on the street who say, “It’s different this time, but it is a bright yellow flag.”

The Pain of Being Down

They say that breaking up is hard to do and now scientists have zeroed in on the physical reasons why it hurts so much:

• Your brain goes through anguish
• Your tears are less salty, resulting in swollen eyes
• Chest pain is equal to being punched
• Sudden heart attacks are not uncommon
• Divorced people suffer more mobility problems
• Weight gain around the stomach
• Skin disorders develop

Yet, I contend for many, losing money in the stock market has an even greater impact on the body and mind.

Scientists tell us loss aversion means a loss of $100 is twice as impactful as the gain of $100.

Here’s the rub: there is a giant difference between being down in a stock or in the market and actually losing. I got a tweet this morning that said, “78% of investors lose money in the market.” I am not sure where that nonsense comes from, but I know lots of people who buy one stock and often sell at a loss… mostly, because the stock is lower.

The greater the pain, the more likely we are nearing a bottom. You must be prepared to buy into the pain for maximum gains.

Today’s Session

Non-farm job growth came in stronger than expected for the month of December. ADP estimates that private payrolls grew  by 241,000 jobs, significantly higher than the 235,000 consensus estimate and the upwardly revised 227,000 (from 208,000) reading in November. Nevertheless, economists forecast that this Friday’s employment report will read 238,000 new jobs versus the 314,000 added in November. The positive ADP report, coupled with the US trade balance narrowing, is encouraging to investors and led the markets back to positive territory.

Goods Producing (Preliminary Figures)
Employer Size	Small (less than 50)	Medium (50-499)	Large (500+)
Month Change (Jobs Added)	14,984	17,186	13,830

Comments

It appears to me that YOY job increases in Nov, and Jun reflect increased hiring for the holidays (Nov) and vacation time (Jun). Therefore new jobs are not all that great especially when many new jobs are part time. cjmcd on 1/7/2015 10:41:31 AM

There is a ton of money to be made eventually in oil related equities. Help us gauge the bottom Charles so we can get in!! Jimmy on 1/7/2015 10:56:32 AM

Wait till the layoffs begin by tying up boats in Alaska and Gulf of Mexico involved in oil services contracts. Albreed on 1/7/2015 11:19:41 AM

Charles, when you express worry, I get watchful. I know that you have a bent toward optimism from all the fun you have with the doomsayers. I hear you that the recent reports are not as up as the general mood would infer. On the other hand, being in Texas, I have a different perspective on the service industry report. I wonder if the slide is not in part due to a change in the norm. Here in the Southwest, we are very sensitive to the Swiss cheese border attitude of Mr. Obama and his cronies. We are also sensitive to the leadership he is giving in taking this country to a belligerent attitude toward rule of law. These screw-ups by our country's "Chief Defective"have led to a huge increase in service jobs which are "off the books". They don't obey any of the laws the rest of business must obey. No income taxes. No retirement. No insurance. No sales tax. No minimum wage. They operate in the black market, and are generally owned by illegal immigrants who hide in immigrant communities where they are invisible to law enforcement that doesn't care any more. I suspect that a large part in the drop in service sector reporting is due to not picking up the shift toward using these "off the book" companies which are not being picked up in the numbers and compete for prices below where honest companies can. We have seen a huge increase in the Dallas area in such companies in the last 5 years Bob G on 1/7/2015 12:38:02 PM

Bob G may be on to something. I just heard of a house (in NJ, not Texas) that has been on the market for a year and just sold at a huge discount to a Mexican couple who are paying all cash. Meanwhile, most middle class buyers have trouble scraping together a down payment. It's just anecdotal, but that doesn't mean it can't signal a trend. It does suggest who's able to save money in this high cost area. They may well be honest, hard-working people, but not too many others can do this. Dennis Howard on 1/8/2015 11:55:00 AM

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