Wednesday 12-01-2010 Recap - Risk On!

Ever see the Fantastic Four?  The human torch used to always say "Flame On!" and woosh, he was on fire.  Today we heard "Risk On!" and the market was on fire.  Why?

Ok, start with some decent economic news, ADP payrolls ahead of consensus (sounds good for NFP, right?).  From the release:

This month’s ADP National Employment Report shows an acceleration of employment and suggests the nation’s employment situation is brightening somewhat.  November’s gain in private-sector employment is the largest in three years.  This is the tenth consecutive month of gains, which have averaged 47,000 during that period.  Nevertheless, employment gains of this magnitude are not sufficient to lower the unemployment rate, which likely will remain above 9% for all of 2011.  Furthermore, given modest GDP growth in the second and third quarters, and the usual lag of employment behind GDP, it would not be surprising to see several more months of only moderate gains in employment even as the economic recovery gathers momentum.

Is this a nascent employment recovery taking hold?  I believe so.  Will it really move the needle?  I do not think it will for a while.  That said, the market is looking for reasons to rally, and this is giving it one.

Add in the perpetual EU comment and volatility:

(Bloomberg):  Trichet told the European Parliament late on Nov. 30 that some investors are underestimating governments’ determination to defend financial stability in the currency bloc.

(Bloomberg/BW): The EU's monetary affairs commissioner says measures like the weekend bailout of Ireland could pave the way for added steps from the European Central Bank to contain the continent's government debt crisis.  Olli Rehn says in a speech Wednesday that "these measures could provide a sound basis for the continuation of actions of stabilization by the ECB, which has played a key role in ensuring financial stability in the euro area, for instance last May."

(Reuters): European Commission President Jose Manuel Barroso said on Wednesday he had every confidence in the European Central Bank and was sure it would take whatever action is needed to protect euro zone stability.  "I am sure the ECB is analysing the current situation and that it will take the decisions necessary to guarantee the financial stability of the euro zone," Barroso said after attending a meeting in Brussels.

Whatta ya get:

And once again, the world is safe!  Place yer bets.

So, where was the equity action at (in the US)?

And what of the globe you ask:

Risk party like its 1999!

(looking for a better world snapshot page - suggestions????)

Did the re-risk trade extend to debt markets?

 Nope.

This was all about the lowest part of the capital structure, first loss and eternal duration.

Personally, I am not completely sold on the "risk on" trade, but who am I to fight it?  You know what they say about the collective wisdom of markets (or collective wisdom generally).

Treasuries got whacked, might want to start looking at long 10yr (let it get hit just a little more and start to leg back in).  Listen to the ECB to get EUR/USD direction (or market direction generally). Get out of the way of the A$, hearing fast money taking it off the table.  Large caps won the day, look for Mids to catch up and, as always, keep yer eyes on smalls.  Commodities doing well (ex-meats), let 'er ride.

And as always, be careful, make money and have fun (yeah, its possible).