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VERSACE: ‘Cliff,’ layoffs make for a not-so-merry Christmas

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ANALYSIS/OPINION:

It's a short week for the stock market this week as we honor one of my favorite holidays — Thanksgiving. I can't think of anyone who doesn't have something to be grateful for and this holiday is a great way to remember and reflect on the blessings each of us has in our lives.

What tends to happen when the trading week gets compressed is we have the same amount of data — economic, policy, industry and company specific — but spread across fewer days. That tends to result in a flurry of activity and greater volatility. Helping tame the volatility this week is far less discussion of the pending "fiscal cliff." Not that a deal has been hammered out — far from it. Rather, both Congress and President Obama are out of Washington this week and that means the prospects for any grand deal this week are extremely low.

That's allowed us to focus on the fundamentals and those showed the housing recovery continued in October as new housing starts and existing home sales rose month over month. The underlying data in the existing home sales report that showed a continued drop in months supply and steady increase in the median price bodes well for new housing construction. Over the past few months as the industry data has firmed, I have shifted my view on the housing market from skeptical to hopeful. That said, the real long-term driver of housing demand is job creation and while there is reason to think there is more to go in the housing recovery, a long-term boom is not likely until job creation accelerates from tepid levels.

That's a natural segue to this week's initial jobless claims, which were released a day early given the Thanksgiving holiday. While the weekly data dipped after last week's sharp jump, it remained well above the 400,000 level. To me that confirms that last week's rise was due to factors other than just the fallout from Hurricane Sandy. Those other factors include a growing number of companies announcing headcount reductions and layoffs as we get closer and closer to the "fiscal cliff." While many ears have turned to the news of Hostess Brands shuttering its doors and laying off 18,000 workers, many ran to the stores in search of the last few remaining boxes of Twinkies, Ding Dongs, Ho Ho's, Wonder Bread and more. While that last ditch effort was under way, more layoff announcements were made by Citigroup, Cliff Natural Resources, Kaiser Permanente, medical giant Stryker, and a number of municipalities and townships.

That will likely make for an unpleasant Thanksgiving for many Americans this year. It will also make for an interesting holiday shopping season that kicks off Friday, which is better known as Black Friday. Over the past few years, what has been a three-day shop fest for many has been transformed into a four-day shop-till-you-drop long weekend given the rise of Cyber Monday. That moniker refers to the number of deals that hit retailers webpages the Monday after Thanksgiving. This year, however, a newer trend in holiday shopping is taking hold -- more retailers opening their doors earlier on Thanksgiving Day. While I understand the desire for retailers to capture what consumer dollars they can, my concern that such efforts are reducing Thanksgiving dinner to a "dine and dash" event.

Headlines making the rounds on Friday and into the weekend will be comparing the start of holiday shopping with pundit issued forecasts. Of the several forecasts out there, the range seems to call for flat holiday spending this year compared to last year to up 4 percent or so. Hardly a barn burner of improvement. With the "fiscal cliff" still in play and more companies likely to announce layoffs as long as it is in play, prospects for a less than merry Christmas for more Americans is on the rise.

Chris Versace is the Editor of the PowerTrend Brief and PowerTrend Profits newsletters. Visit them at ChrisVersace.com or follow him on twitter @chrisjversace. At the time of publication, Mr. Versace had no positions in companies mentioned; however, positions can change.

About the Author
Chris Versace

Chris Versace

Chris Versace, the “Thematic Investor,” is the director of research at Think 20/20, an independent equity research and corporate access firm located in the Washington, D.C. area. Before Think 20/20, Mr. Versace was the portfolio manager of Agile Capital Management (ACM), a thematically driven alternative investment fund. The groundwork for ACM was laid during Mr. Versace’s tenure as senior vice president of equity ...

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