Tomorrow the unemployment numbers are released from the US Dept of Labor.

In the good old days of open outcry pit trading this was the biggest day of the month. It still sort of is if something out of the ordinary happens-except traders today are less scalpers and more position traders. Sometimes Unemployment days give you an opportunity to take off or put on a position that wouldn’t normally happen. But you have to be fast.

Today’s jobless number sent a shudder through the market. The debt situation in Europe isn’t helping either. In addition, Tim Geithner of the Obama administration testified on “carried interest” which continued the attack on the banking sector by them.

Tomorrow will be a very critical day. It’s been about a year since the stimulus package was passed. Unemployment has gone up. Stimulus has actually added to unemployment. Without the Keynesian stimulus, we would be in better shape today-especially if they decided to use tax cuts rather than increased spending. The multiplier effect of government spending in the economy is 0, or even negative.

Trading is based on expectation and perception. So, what do we expect? 9.9-10.2% which is a really wide range. I would look for the number to be closer to the 10.2%. The fear is that it might even go up after today’s jobless announcement. Then there is non-farm payrolls. This number is volatile. Many a trader has sold the market on the headline number only to see it rocket back up in their face on a non-farm payroll number or revision. Non-farm payrolls are expected to be -40k to -75k. This means we lost that many jobs last month.

My guess is the number will be higher. If it’s a lot higher, look for the entire stock market to tank. Dow 9500. It will be a really bad day. If it’s within the range, or even just a little higher, the market will go down-but I see this as a buying opportunity. Of course, if the numbers come out better than expected, or at the low end of expectations-the market will rocket much much higher. No way that happens, and if it does I smell a rat.

The pros are all big bears now. They have seen a year of Obama and Geithner, and they have lost confidence in them. The Democratic controlled Congress ran on a ticket to balance the budget-which the market likes. In actuality, they have spent more money than the Republicans did, and that is a hard thing to do! You got to work at it to spend that kind of dough. With the pros bearish, they look to sell every rally and endure pain. When the market breaks, they push it and see if they can’t squeeze people out. That has been the trade over the last week. They will be light buyers on one way traffic south tomorrow.

The fundamental question is where should the market be trading? It is an understatement to say that it’s a tough call. At 666 on S+P-too low. But 1200 is too frothy. We need to test the old gap lows before we will really know the convictions of investors. There is so much uncertainty that it will be extremely difficult for the market to sustain a long well invested rally.

If history is a guide, look at a chart from the 1930’s after Roosevelt was elected. Keynesian stimulus along with more terrible fiscal policy tore up the employment picture in America. The market that had crashed in 1929, rebounded, only to have a precipitous drop from 1933-1937. The Lend-Lease Act with Great Britain, and World War Two lifted us out of Depression. I think we will see a lackluster 2010, with the market staying steady, or even losing a little ground. the current economic policies have frozen credit, frozen the economy, and added to the deflationary pressure in the system.
Roubini and Taleb say get short US treasuries, but I think you have a lot of time to do that. Inflation is around the corner, but you might have to walk a few blocks before you turn.

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