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A Normal Correction

June 8, 2011 – 5:00 pm

There will not be much in the way of economic data out this week. However, yesterday consumer credit numbers out for April was reported. It is not a leading economic indicator so it does not tell us about the future. Credit rose about 3% but ‘credit card’ debt actually fell by 1.4%. It was car and student loans that increased.

There is little doubt about the weak patch in the economy and that has translated into a weak stock market. Many people are ignoring the underlying strengths. Corporate balance sheets, large cash holdings, earnings, stock buy backs and easy money will mean that we will likely not fall into another recession for a while. Instead everyone is focusing on the Euro default possibilities, weak job
market and real estate that is still falling.

I am not pretending these are not problems but it certainly sounds like a replay of last summer. We are entering the summer doldrums and we are just going to have to live through it. Once Japan begins to rebuild and the supply chain restored and the fall in commodity prices begin to filter down to the consumer we should get a mild bump up in the economic statistics. There is no doubt the economy is struggling but there is no reason to for it to do much worse and more reason to think that it will do better.
Currently, too many people think it is going to get worse. That should be positive for stock prices, but just not yet.

Good Trading
Steve Peasley

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