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Economic Strength

February 9, 2011 – 6:00 pm

As Bernanke meets and is questioned by a House committee about the economy and his efforts to keep it going the market starts to recapture some of its small loss at this morning’s open. We are in a strong bull run which is now in its 7th month. Last July’s correction gave back 10 to 15% before this current move began. A breather in the strong rise in stock prices is overdue.

However, earnings are still very strong as they continue to show a very robust corporate recovery both in sales and the ability to have those sales filter to the bottom line in the form of profits. U.S. workers have become more efficient requiring less hiring. We see that in the unemployment rate. It also helps that the dollar is weak as 50%
of all earnings in the S&P 500 come from outside the U.S. and a weak dollar makes our manufactured goods look less expensive. At the same time the U.S. is looking more attractive to foreign companies to open new factories.
In many parts of the world an educated work force and a governmental system that is reliable and more or less honest is rare. In the U.S., near where a lot of customers are located, a strong rule of law and the ability to lay off or hire employees ‘at will’ is a persuasive argument to open new plants here. We still have high salaries but salary is not the only decisive factor.

Jobs will eventually come but at a glacial rate. Meanwhile a slow recovery in our economy is one that may well be sustainable. At some point government debt is going to have to be addressed but for the time being it is not an issue and addressing it too soon or too aggressively will hurt more than help the U.S. economy.

Good Trading
Steve Peasley

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