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Bad Numbers

August 25, 2010 – 4:54 pm

The economic statistics are still showing weakness. This morning the durable goods report was up only .3% and all of it was for the big ticket airplane orders. Take airplanes and other transportation orders out of the equation and it fell 3.8%. That is a strong reduction when the expectation was for it to be much higher.

Yesterday the existing homes sales for July fell by a very large 27% with an increase in inventory by two months. This report was for July and most experts point to the expiration of the government tax incentive to buy homes. Just like the ‘cash for clunkers’ program, any time the government tries to manipulate demand with a short term benefit buyers will take advantage and once it expires demand dries up. It seems obvious that this kind of manipulation does not work except in the short term. This morning the new homes sales report for July tracked the weakness in the existing homes sales report. It was down 12.4% or 276,000 homes when the expectation for 330,000. So why did the government bother with their tax gimmick? If they want sustainable growth they must enact sustainable benefits.

The market reacted on the down side this morning but not as much as these numbers would indicate. The stock market is at oversold territory so expect a
relief rally but there will be no sustained rally until these economic numbers start to make better month over month comparisons and I don’t see that happening until August numbers are reported in September and September and October numbers are reported in subsequent months. Even with better comparisons it is only going to tell us that we have an economy that is growing weakly, producing few if any jobs.

Good Trading
Steve Peasley

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