7/5/11…out with the old…in with the new quarter

This week’s holiday-shortened economic calendar is relatively light but includes the all important June Employment Situation (Friday). We will also get May Factory Orders (Tuesday), the ISM Non-Manufacturing Survey (Wednesday), the June ADP National Employment Report (Thursday), and May Wholesale Trade and May Consumer Credit (Friday). Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA

 

Bloomberg Top Stories:

 

*Treasuries Gain, Dollar Strengthens on Economy Concern: Wheat, Rice Climb

*China’s Local Government Lending Understated by $540 Billion, Moody’s Says

*Trichet May Save Face as S&P-Fitch Offer Quick Greek Default

*Treasuries Triple Global Returns With Primary Dealers Saying Time to Sell

*EU Stress Tests ‘Missing the Point,’ Credit Suisse Analysts Say – True! TB

*Corporate Debt Sales Slow to 10-Month Low on Greek Concern

*Best Consumer Credit Scores Since 2006 Reveal Lending Rebound Across U.S.???

*Bear Market in Tin Ending as Shortages Mean PT Timah’s Profit Advances 55%

*GM’s Widening Truck Inventories Risk Return to ‘Bad Habits’ of 2008

*Embraer Tops Boeing, Airbus as Jet Demand Surges

*Debt Ceiling Concerns in U.S. Complicated by Failure to Define a Tax Increase

 

Volume slipped again to 3.4B shares while Big Board volume dropped to 865 million shares. Only 6/30’s 996 million day was close to average for the week. The summer doldrums are upon us and we are vulnerable to flash traders games. Volume crossed 600 million just 15 minutes prior to the close. Meanwhile the VIX says ‘no problem’ as it plunged from 20 to 15.87 in just four sessions (lowest since April 30th!

 

Dow rose 1.4%; Transports up a huge 2.3%; S&P 500 +1.5%, Nasdaq Composite +1.4%, 100 +1.5%, and Russell 2000 +1.5%. That makes five straight up days for only the second up week in the past eight! We closed at the highest level since May 13…but you have to ask the question…why? New 52 week highs rose to 324 vs. 231 while new lows slumped to 37 from 54. Advance/Declines ran +5x on the NYSE and +3x on Nasdaq, while Breadth was +11:1 on NYSE and +7:1 on Nasdaq. Note that due to the 1st coming last Friday we have payrolls next Friday followed by options expiry the next Friday…could be an exciting three week ride

 

…beware of sharp rallies…especially ones that change a huge negative quarter into a neutral one and then continue to rally while ignoring much of the problems we face globally…not to mention domestically as the federal government toys with a debt ceiling and a budget. As if that isn’t enough, we have the states…Minnesota with most of the government shut down over failure to agree on a budget, and California which just passed one by ‘creating’ $4 billion of revenues that were not visible two months ago…and rolling back taxes while one-third of students will not have physical education in an effort to save teachers. Also, gone will be many support programs for lower income families. The point is the debate rages and there will be few winners…is this going to help the economy? You decide.

 

The five straight days of rally have been powerful…with the general argument being that the market was vastly oversold. If so, the Dow rally of 5.4% should have gone a long way (too far?) towards curing that imbalance (5.6% S&P 500, 5.2% Nasdaq, and even the lowly financials are up 5.5%…is this just a little too pat?)

 

Let’s see how the market does from here…with low volumes and hordes of people still fishing elsewhere. Also note there was no good sector in the last quarter – correlation across asset classed made it a poor quarter for stocks, bonds, and commodities. Happy fishing.

 

. . .  – – –  . . .    . . .  – – –  . . .

 

Hope you saw the debate over the Constitution on This Week last Sunday. It was one of the best shows they have done and ahead of the Fourth, while politicians throw out their American flags and copies of the Constitution using quotes from the Declaration of Independence and Constitution, as well as Bill of Rights interchangeably while condemning those of the other party for not knowing the Constitution.

 

While some, represented by George Will say the Constitution is the Holy Grail, most concurred that these were mere mortal men with great insight who provided a blue print not a detailed picture of how government should be run…and it was brilliant. But in their insight, which the ideologues lack, they left room to adapt to change…and who could have foreseen the technical advances made since then: the industrial revolution, air travel, computers and other technology? Look:

*in the jet age, why should a child born here of illegal immigrants or even a tourist passing through be considered a native born American?

*How did God become part of our government when that name is never mentioned in the Constitution’s 4,000 plus words? In fact, they went to great lengths to separate church and state. Utah was prevented from becoming a state for decades due to the control of the Mormon church.

*What powers does the federal government have over the states in a world of changing technology and legal entities for corporations? Is regulating them socialism? Should, for instance, insurance companies be able to monopolize business in a state at the expense of the citizens while the government stands idly by? (not that this matters as they have successfully kept the federal government at by thru lobbying efforts.

 

The most vocal of our elected officials are oversimplifying circumstances to enhance their own views. As a result we have Main Street considering itself the vast middle class and blaming social reforms on the financial crisis instead of the wealthy from Wall Street who continue doing business as usual and enriching themselves even more. That is the world we live in.

We had a magnificent Fourth of July in Minnesota…perfect weather and across the street from us an incredible fireworks show, while on our side of the lake some impressive displays by local homeowners…a beautiful sight!

Have a great four day week!

 

TB

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