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Tuesday, November 22, 2011

U.S. Economic Data Gap Widening Versus Europe

Despite today's revised GDP growth for the third quarter (revised down from 2.5% annualized growth to 2% annualized growth), the U.S. economy is beginning to show signs of improvement.  We have seen retail sales improving, corporate profits overall looking solid, and even some minor improvement in employment (from 9.2% to 9%).  In fact, initial jobless claims last week fell to 388,000, which was the lowest level in seven months, the Philly Fed manufacturing index, which translates to 53 on an ISM basis, shows a very strong employment component.  Earlier in the week, the index of industrial production beat estimates with an especially strong reading on business equipment. This translates to strong capital-goods investment, which is also a job creation engine.  Retail sales in October also beat estimates, and rose over 7 percent versus October of 2010. Both producer and consumer price inflation dropped slightly in October.  Well-respected economists like John Ryding and Conrad DeQuadros are predicting 3 percent real GDP growth for Q4. Joe LaVorgna even thinks GDP could be 4 percent in the fourth quarter.

Our problem is that we are completely focused on the problems in Europe, which are overshadowing the improvements we are seeing at home.  Stock markets here in the U.S. are being whipsawed day-to-day, week-by-week, as news from Europe roils global markets.  But the reality is that we are (finally) starting to see real progress here, and that will translate to better financial market performance at some point.  It's that "at some point" that is the 800-pound gorilla in the room.

I believe the key change in perceptions for U.S. investors (and by extension U.S. markets) will come when we see fourth quarter consumer spending results for the holiday shopping season.  As we move into January and begin to get the final results from retailers, I believe we are going to see that, for the first time since the Lehman Brothers failure in late 2008, consumers are gaining real confidence in the future of our economy and are spending money again.  I still feel that they will be looking for bargains, but when they find them, they will pull the trigger.

If the divergence between U.S. (positive) economic improvement and negative news from Europe continues, I believe that U.S. investors and consumers will eventually begin to focus on what is happening here with our economy and will therefore start to look ahead to 2013 and beyond with optimism.  I further believe that this optimism about the future will translate to positive stock market performance, improving employment, and a much stronger economy, notwithstanding the rapidly growing national debt, which is now above $15.3 trillion and rising very quickly ($122,000+ per taxpayer, and $49,000+ for even man woman and child (citizen) of the United States).

Sunday, November 20, 2011

What is the government thinking??

It's official, the U.S. government is now the largest holder of our own national debt, surpassing China and now holding more than $1.6 trillion in U.S. treasuries.  How are they buying these bonds?  They are printing currency - U.S. dollars, devaluing our currency to push long-term interest rates down by 20 or 30 basis points. Why are they doing this?  Because they think (wrongly) that if rates are lower, somehow banks will lend more money and it will help the economy.  The 10-year treasury was already well below 3% and is now below 2%, yet banks are not lending any more money today than they were before the government started buying these bonds.

Here's a novel idea: instead of printing money to buy our own debt, why don't we spend the same $1.6 trillion on infrastructure?  We have an estimated $2 trillion in needed rebuilding, repairing and replacement that is needed.  We could have not only paid for the vast majority of this (80%), but could have also made a nice dent in the unemployment rate at the same time.  Every $1 billion in infrastructure spending is estimated to create 30,000 new jobs.  More notable still is that, if that much money was spent in the economy, it would have a massive multiplier effect, which would create more economic activity and more jobs.

I am not in favor of printing money, but if we are going to do it, wouldn't it make more sense to spend that money on something beneficial to the economy and that would create jobs, instead of simply buying our own debt?

Kramer is a complete moron

Jim Kramer of CNBC is a complete moron.  This guy tried to run money and completely failed.  To reward him, CNBC puts him on air, not only giving him his own show, but also puts him on in the morning after the death of Mark Haynes.  He takes credit for being right when he says to buy a stock the day before the company reports positive earnings, or sell a stock before negative earnings, when, in either case, the stock moves a few percentage points.  No wonder he never made anyone any money.  The guy is a joke.  I can't believe anyone ever listens to this bonehead.

Sunday, November 13, 2011

Asia and Europe moving higher on Italian hopes

Both Asian and European markets are looking higher after Berlusconi stepped down and the lower house in Italy passed austerity measures designed to bring their $2.6 trillion debt under control.  Mario Monti has been selected as the new Italian president, heading up a technocratic government tasked with attempting to turn around Italy's failing economy and out of control government spending.  The Technocratic movement first appeared in 1919 after World War I when scientists and engineers were thought to be better-able to run governments.  This movement gained strength as a result of the Great Depression, but lost favor when FDR's New Deal, seen as a more democratic solution, was implemented.  With the apparent failure of socialist governments across Europe to rein in spending and deficit, this movement appears to be once again gaining a following.  Monti will be the first to test the validity of this resurgent movement.  In the short-term at least, it appears that financial markets welcome this change.  We should see US markets also open higher reflecting global optimism that Europe may finally be getting their financial house in order.

Wednesday, November 9, 2011

Italian bond yields spike, pummeling world financial markets

The yield on the 10-year Italian bond has spiked well above 7%, which was seen as the tipping point for Greece and Portugal forcing the EU to bail them out.  The key difference is that Italy, Europe's third largest economy, is simply too large to bail-out.  The ECB (European Central Bank) has been furiously buying Italian bonds, but this has not stopped prices from plummeting.

Financial markets across the globe have been hit hard, with most major exchanges down well over 2%.  We are going to open down well over 200 points on the Dow.  This will be a key test of the support levels on the market.  If we can hold today at or above support, it should give technical traders some confidence to buy the market higher, hopefully pushing us closer to the 200-day moving average.

Tuesday, November 8, 2011

Major indexes show improving technicals

All three of the major indexes are showing strong technical improvement, with the Dow forming a nice "W" pattern with a break-out above the top of that "W."  The S&P 500 i forming a "W" pattern right now, and looks to possibly break-out shortly.  The chart below shows that "W" for the S&P 500 (far right side of the chart), with tops right around the 1,260 level.  The 200-day moving average is at about 1,273.  If we break-out of this "W" we could certainly see a test of that 200-day and if we can get back above that level, it would be a huge positive for the markets.

Typically markets will stay above or below a 200-day moving average for long periods of time.  We broke down through the 200-day for the S&P 500 around the beginning of August and except for a recent, brief penetration, about a week ago, we have been stuck below it.  It can take a few tries before successfully surpassing the 200-day on the upside, but it appears that we are close to trading up into a higher range.  This would be welcome progress on the technical front, especially in light of all of the negativity in the markets we have endured of late.

Thursday, November 3, 2011

Slower traffic keep right

If you believe that the slower traffic keep right laws should be enforced and expanded, please follow this link and sign the petition: