But first, a quick view at Friday’s S&P 500 trading….

S&P 500 - Friday June 4, 2010 (intra-day)

Yes sports fans, that’s what “missing the boat” on an Employment Situation report looks like… (S&P 500: -3.44% @ 1064.88)

Friday, the world listened as non-farm private sector payrolls increased by only 41,000 jobs. Census hiring added 411,000, manufacturing 29,000, mining 10,000 and other temporary service jobs 31,000, while construction and financial services  lost 35,000 and 12,000. The headline came in at 431,000 non-farm payrolls added, while April was revised down by 20,000. For those of you unconscious last Friday and visually impaired, markets sold the news.

THE BOND KING SPEAKS

Take a moment to listen to the stance of Bill Gross, the head of PIMCO, the world’s largest bond fund, on the anemic jobs report last week and his strategy for navigating a sustainable path through the “new normal” economy, in the United States and abroad.

Following Gross’ comments on Friday, the manager of the PIMCO “Total Return Fund”, Mohammed El-Erian, weighed the outcome at the G20 in Sunday’s Financial Times.

In El-Erian’s words:

I fear that all this may continue to catch off guard at least three dimensions that are still significant in today’s marketplace:

• Mindsets that have difficulties recognizing regime shifts, preferring instead the illusionary comfort of the more familiar cyclical frameworks;

• Approaches that focus excessively on rates of change and inadequately on levels; and

• Investment portfolios that are over-exposed to equity and credit risk, and that maintain insufficiently hard interest rate duration.

Clearly the boys over at PIMCO have their doubts on the sustainability of the World Economy, but what’s more disconcerting is that G20 leaders are beginning to publicly admit similar fears.

ECONOMIC DATA

This week starts slow from a U.S. Economic Data viewpoint, where Monday will bring only the U.S. Consumer Credit report. Revolving Credit declined in March by $3.2 billion, while car loans kept the headline number positive, at $2.0 billion in March. On the heels of weak jobs data, traders will be quick to write off the consumer on Monday if it seems that revolving credit continued to decline in April.

Tuesday traders will watch the ICSC Goldman Store Sales and Redbook Sales, to get a gauge on weekly spending patterns. But the focus will shift to the bond auctions in the afternoon, when 4-wk and 3-yr Treasury debt is set to be offered. U.S. Treasuries appreciated 1.51% on Friday as markets sold off and we expect to see a strong auction on Tuesday.

Wednesday will focus primarily on normal weekly readings, as the MBA Mortgage Applications and EIA Petroleum Status reports come in. The MBA report should show continued weakness from the mortgage purchase category, which -4.1% and -3.1% over the past two reporting periods, securing a new 13 year low for purchase applications. The headline MBA Applications number held up at 0.9% and 11.3% last week and the week prior, due to refinancing founded on low mortgage rates.

The EIA report showed a net decline of -1.9 million barrels in crude inventories, marking a short term peak in inventory near 365 million barrels and weak yearly gasoline demand growth at 0.5%.

On Thursday it’s all about jobless claims. If claims come in higher than the 448,000 consensus or if the 4-week  average rises for a fourth consecutive week, we’re likely to see downward pressure on Thursday.

Friday will bring Retail Sales, Consumer Sentiment and Business Inventories reports. Retail Sales are expected to maintain last months 0.4% rise, while Sentiment will most likely maintain the six month plateau around the 73 reading.

Business Inventories have been a solidly healthy portion of the recovery in the U.S., because vicious slashing of inventories “on the way down” has allowed for a sustained inventory replenishment during the recovery of retail sales. We saw 0.4% and 0.5% growth in March and February and expect to see 0.5% growth reported in April, as the ratio of Inventory/Sales has trended lower to 1.24, symptomatic of quality sales growth. (If retail sales come in soft, we’ll expect to see some nervous reaction to the inventory report, as a higher I/S means unsustainable growth.)

ALLOCATING CAPITAL

It has been our stance for some time and will remain our stance that U.S. Government debt will benefit from increased risk throughout the world in the short-term, but will ultimately fail as a long term investment when the outlook for government revenues fails to meet a sustainable level, given the current liabilities of the Treasury and an unsustainable recovery.

We are recommending that clients dollar cost average over the next 12 months into vehicles that allow short exposure to U.S. long term debt, such as TYO (Direxion 10 yr Treasury 3x Bear fund), while maintaining overweight short positions in U.S. equities (SDS), short Crude Oil (DTO), and long CBOE volatility (VXX), as explained in our recent “trade flash” trade strategy report.

This week will likely begin with some relief for the Euro, on G20 plans to cut costs in Euro states, while the hangover from Friday’s U.S. Jobs data could continue into a “no news” Monday trading session. Look for pops to add to shorts early in the week, but keep stops tight leading into Jobless claims and Friday’s data.

Happy Trading

Specifically, Roubini states that despite the “money on the table”, the following three headwinds oppose a return of normalcy in the European Union’s debt markets.

1.) It has been, and will continue to be, politically arduous for nations to enforce the austerity measures required for eligibility under the plan.

2.) Raising taxes and cutting costs will cause nations to enter recession in the near term (i.e. 1-2 years at minimum).

3.) The rising value of the Euro from 2000 to 2008 has made Eurozone states increasingly less competitive, and has led to ballooning current account deficits.

Newly appointed president Papandreou has redacted promises of pay hikes, due to the looming risk of default and spiking bond yields, and instead has announced plans to cut pensions, jobs, and benefits across the board, to the tune of 10% of GDP. It is for reasons such as these, that Roubini goes on to predict a restructuring of debt in Greece, where riots  foreshadow the fleeting success of the hard-lined austerity measures.

Enjoy the analysis below, straight from the horse’s mouth…

Roubini has become more public in the recent resumption of volatility and uncertainty in Europe, as main stream business media seems to be returning to the “man with a plan”, who predicted the recession very accurately during the decline in 2008, and has since maintained a stance that more pain has yet to come.

The interview with Roubini below gives a more detailed analysis of the situation in Greece, only days before the $1 trillion dollar EU plan was announced…

We at Diamond Slice agree with Roubini, that Greece will be unable to avoid a debt restructuring, and suggest that following the prices of Gold, EU Sovereign CDS spreads, and EU Sovereign Bond Yields will paint the clearest picture of sentiment surrounding the situation.

Are we smoking something illegal here or do you agree with our slice of the issue???

SPEAK YOUR MIND in the COMMENT BOX!!!

What will happen if the citizens of Greece defy these cuts and drag out the process until market speculators have driven the continent and it’s mutual currency to it’s breaking point?

We won’t put money on this one, but we can tell you the video below doesn’t help us sleep at night.

Elliott Wave international, led by Robert Prechter Jr., is a financial market analysis firm that tends to focus on the market timing theory coined by Ralph Nelson Elliott in the first half of the 20th century, known commonly as Elliott Wave Theory. The group has been very successful in it’s timing of the bottom and top of the S&P 500 over the past year.

Click below to see Steve’s gritty bantering on CNBC’s Squawk Box…

To see the original version on CNBC.com click here…

We encourage you to check out the work currently being done at Elliott Wave International, by checking out their site. Unfortunately their content is mostly blocked to non-subscribers and even we don’t subscribe, so this interview may be the closest free thing you get to the real thing in their April 2010 report, “A ‘Deadly Bearish Big Picture’: The Flipside of Prechter’s February 2009 Forecast for a “Sharp and Scary” Rally”.

But don’t get too bummed out just yet! Remember you can ALWAYS find top tier global market analysis right here at Diamond Slice – Financial Market Analysis for FREE, and can sign up to subscribe to all of that rich market goodness by clicking right here!

AMR Capital, with the help of Naeimi, manages assets for some of Australia’s largest pension funds, with total assets under management close to $90 billion. Here we get specific analysis, regarding the fragility of the market rally at these levels, from a strategist who called a cyclical bottom in April 2009.

Start the video below to see this crucial report!

Having trouble with the video? Click the link below to see the original video on Bloomberg.com…

Bloomberg Video with Nader Naeimi

Bill Gross Manages PIMCO's Total Return fund, the largest bond fund in the world.

The “bond king” of PIMCO, Bill Gross, tells Bloomberg and the world his strategy on the issue of Greek debt… “Stay away!”

In the interview, Gross explains recent moves of the Absolute Return PIMCO fund, including record low holdings of Long Term U.S. debt and increased holdings of “core” European bonds, most notably Germany.

Having trouble with the video? Click here for the link to the player on Bloomberg.com…

We have seen a rational retrenchment by U.S. consumers over the past twelve months and credit to consumers continues to decline. While the government has spent an enormous amount of capital to aid the citizen's hand into his back pocket, this bubble of government endorsed spending may be the last before true reconciliation. 

Enjoy these speaking points and more in the simplistically wise words of one of the grizzliest "perma-bears" out there, Mark Faber…

Marc Faber, Indian TV Interview Part 1/3

Marc Faber, Indian TV Interview Part2/3

Marc Faber, Indian TV Interview Part 3/3

Is the Fed in bed with the Treasury to doctor a U.S. recovery at the cost of the Dollar?

Has a currency crisis already begun in the U.S. and what implications does such a crisis have on financial markets?

The video below, compliments of CNBC will address some of these questions as commentators Rick Santelli, Becky Quick, Congressman Paul and others attempt to gift wrap te sprawling issues of U.S. debt, Fed responsibility, and congressional spending.

Denis Gartman, of the well known "Gartman Letter", prepares investors for a shell shocked day on Wall Street as investors and traders catch up to the rest of the world by trading to levels congruent with the major U.S. equity futures that have been trading for the past 24 hours over seas…

Click here for standalone player

Source: http://www.Bloomberg.com