Archive for the ‘depression’ Category
Thursday, February 18th, 2010
The report this morning of weekly unemployment claims jumped unexpectedly which demonstrates the weakness of the economic recovery. Jobs have not started to return and likely won’t for some time. It will be a slow process and will feel like a jobless recovery. The job market is improving but at such a glacial rate no one is going to be happy about it.
Wholesale inflation numbers reported this morning also jumped. January’s number was up 1.4% but core inflation which excludes food and energy was up only .3%. The problem is that both numbers were above expectations.
We will see retail inflation numbers tomorrow. I have a feeling that the producers might be experiencing inflation but they are going to have a hard time passing it along to the consumers. The economy is just too weak at this point to absorb price increases.
It may not feel like it but the economy is gaining strength and will likely continue to do so throughout most of this year. The stock market will realize this and will rise, just do not expect it to be in a straight line or expect it to be like last year’s rally. The rally is going to be much more muted this year.
Good Trading
Steve Peasley
Posted in Current News, Industry Analysis, Uncategorized, depression, jobs | No Comments »
Wednesday, May 6th, 2009
The market struggled this week but was resilient. In the first part of the week fear about the ’stress test’ hovered over the traders. The unknown result will not be known to the public until next week or the week after. On Tuesday there were hints that Bank of America and Citicorp were being pressured to increase their capital structure though the CEOs didn’t agree. That pressure was a direct result of the stress test- at least that is the assumption.
Consumer confidence increased sharply in April. The Conference Board’s reading went from 26.9 to 39.2. That reading is still low but the degree of increase was unexpected. Later in the week a Consumer Sentiment report was released and it too was higher. I would not read too much into these numbers. You can look at actual retail sales each week which will give you more information than a monthly confidence report. Much of the confidence (or lack of confidence) by consumers may mean very little to us as investors. The swine flu for instance may affect consumer confidence but will that mean consumers will stop spending? They might spend differently. Any recent event will affect how people ‘feel’ about things, good or bad, but will it actually spur them to spend or stop spending? The evidence is unclear.
Also out this week was the Case-Shiller 20 city home index report. The problem with this report is it was for February. That is ancient history to the stock market. It showed a fall of 2.2% adding to January’s fall of 2.8%. Prices year over year were down 18.6% from 19% in January. This report is virtually useless. It tells us what happened two months ago. Who cares! I will not be writing about this report in the future. We know from more recent data that sales in homes are increasing and inventory looks to be flattening. It’s still too early to come to any conclusion. Housing will be weak but evidence suggests a bottom is on the horizon.
Also out this week was the first quarter GDP number which was down 6.1%, a bigger drop than expected. The market rallied strongly when this number came out. Welcome to the psychology of the stock market. So why would it move up? First, this number is also backward looking, but looking closer you will see that there was a large drop in inventory and exports. Managing inventory is something that traders watch closely. Inventory has fallen to a point that requires a build up over the next few months. At the same time consumer spending has gone up putting more pressure to increase inventory. Inventory building will mean a better GDP number in the future. All that is in the future and of course that is exactly what stock investors and traders react to.
On Thursday Chrysler’s bankruptcy was announced by President Obama. This is a good thing. We need to let the bankruptcy laws work. It would probably be better to let other companies file for bankruptcy as well. Did we need to save the banking system? The answer is yes. Do we need to save any other industry? The answer is no. Even in the banking system those responsible for the failed banks need to be punished, but the system needs to be supported for the short term. The real question is how long and how intrusive will the government be in private industry? One of the biggest U.S. criticisms in recent years has been foreign government involvement in foreign companies. Those companies with government backing were seen as unfairly competing with private industry. Now we, in the U.S. are doing the same thing. It damages the U.S. argument that we let free enterprise pick the winners and losers and not support otherwise failing companies with government dollars. That seems a bit hypocritical.
This morning, Friday, a stronger ISM (Institute of Supply Management) indicated that the industrial sector is picking itself up. It is still shrinking but improving. This was the fourth month in a row of an improving ISM report.
No matter what spin you put on it, the stock market is telling us that things are going to get better for the economy. History tells us that over the next year or two there will be a rally of over 50% in the stock market. This will not be a march straight up in prices. Expect pullbacks and use them to buy. Do not let fear control your decisions.
Posted in Currency, GDP, Industry Analysis, banks, depression, inflation, stock market | No Comments »
Tuesday, April 28th, 2009
This will be the last big week of earnings reports for the first quarter. There will be more in the weeks ahead but the amount of companies reporting will fall dramatically. Earnings as reported for the first quarter have been poor but surprisingly better than expected especially in the financial sector. The real story is in the tech stocks. Their earnings have been very good in comparison to other industries. Profits are
still rolling in nicely. Qualcom and Verizon reported with Qualcom numbers coming in at the high end of forecast. Verizon grew their earnings by 5%. Much of that was from the acquisition of Alltel Corp, but they also increased their client base without the purchase.
The worst in the economic slump is over and stocks will begin to trade based on fundamentals again. Those fundamentals are weak and will only begin to improve in the coming months. However, stock prices may have hit their lows for this cycle. The market is still down for the year but things are looking up and we have had a sharp move up from the bottom. Of course there was a sharp move down for the first two months of the year with the cycle low on March 9th. That low is the bottom – at least it appears that it will mark the bottom.
Good Trading,
Steve Peasley
Posted in Currency, depression, inflation, recession, stock market | No Comments »
Friday, April 17th, 2009
This week we had a blizzard of economic news and earnings reports for the first quarter. Overall the economic news was poor, but on balance probably better than expected. This trend of poor but slightly improving economic news will likely continue. Earnings as reported so far are not that good, but on balance they are better than anticipated. Three reports in particular from J.P Morgan/Chase, Wells Fargo and Citigroup had surprising earnings considering they are in the banking industry and everyone expects the worst from that sector. Certainly there were companies with worse than expected numbers and some with better, but the banking industry is supposed to be flat on its back.
On the economic front, retail sales reported this week fell 11% from February to March, Industrial production fell to 69.3% down 1% from February, and new construction fell 10%. All bad news, so why didn’t the market fall this week? Obviously, this kind of news was expected. Fear is subsiding. We saw good news this week in the earnings reports for the banks, in inflation which is dead, in mortgage applications for homes which are up 45% for the week compared to a year ago and in mortgage interest rates which are down to 4.8% for a 30 year fixed.
The numbers are still very ugly but the stock market has been so beaten up that it is reacting to news that shows some hints that the worst is over. The stock market is still down for the year even with the strong up move in the last month. There was a stronger move downward for the first two months of the year and so far all the market has done is return to early February levels. Except for the NASDAQ.
The NASDAQ index, which is full of large tech companies, is flat for the year. Past bull markets have been led by tech and this one is no different. Banking stocks are coming off severe bottoms and no bull market in history has occurred without a rally in banking stocks. It appears that though the economy is still in a severe slump that the stock market, which is itself a leading economic indicator, is telling us that the fix is in. That ‘fix’ may be some months away as we deal with backward looking statistics but it certainly seems that the mood has changed.
As we at KPP Financial have been heavy in cash. We did not pick the bottom of this stock market, nor did anyone else. Because we were heavy in cash we did not go down with the market in January, February and the first part of March. What that means is that we are late in catching the rally as well. As our clients have seen we have been moving into the market for the last six weeks. We are now heavily invested but with some cash on the sidelines that we plan to put to work on any weakness in the market. This is a bear market rally so far, albeit a sharp one, forming a ‘V’ bottom which was unexpected. Any pullback will be an opportunity to buy.
Finally, history tells us that this is the first leg of a rally. If the ultimate bottom is in, which we have stated in previous newsletters that we think it is, then the rally should continue. It should rise at least 50% from the bottom. After the 1973-74 recession, which so far looks very similar to the current recession, the S&P 500 rallied 73% and the DOW 75.7% over 19 months. This kind of rally from a recession low is normal. Don’t think that this is uncommon. Therefore, missing part of the first leg because you were protecting your nest egg, as we were doing, is not a bad thing.
However, it is now time to invest. Do it carefully and in fact hope for some weakness so that you can take advantage of lower prices. Do not fear any correction. Fear is hovering over everything. To the degree it is keeping people out of the market it is a good thing. Stock market rallies climb a wall of worry. Be cautious but be buying.
We will continue to buy slowly. The plan is to take advantage of any weakness to buy more. That doesn’t mean we won’t sell if something is not working but overall we are on the buy side of the market not the sell side. That time is over.
Good Trading,
Steve Peasley
Posted in Current News, Industry Analysis, depression, mutual funds, recession, stimulus package, stock market | No Comments »
Wednesday, April 8th, 2009
The market appears to be giving back some of the recent gains but with reluctance. Most traders and investors expect a pullback from the recent steep rise and because they expect it they will likely make it happen.
However, earnings season is starting in earnest and it is getting in the way. Built in to stock prices is an expectation of very poor earnings so any outlook of future earnings that are reported as less draconian might push the market higher. On the flip side any reports that point to worse numbers may or may not affect the market because expectations are very low. This is going to be a confusing time.
This morning there was a very large merger in the home building industry and Alcoa reported bad numbers for the first quarter but the stock is up on expectations of better times ahead. The market was up this morning but weakly after being down strongly yesterday on the fear of bad earnings.
As I said, this earnings season is going to be confusing.
Good Trading
Steve Peasley
Posted in depression, event, recession, stimulus package, stock market | No Comments »
