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Also out this morning was the ADP employment report that comes out every month a few days before the official report. It is a gauge of private sector jobs. It showed a fall of 10,000 jobs. The market did not react to that news but on Friday the reaction with the official report will be interesting.

The expectations for the U.S. PMI in August was 52.8 for manufacturing but the actual number out this morning was 56.3, much better than expected and
higher than last month. Construction spending for July was expected to fall .5% but actually fell 1%. No one cared this morning about construction spending.

The jobs report out on Friday will be very interesting both in the reaction by the stock market and showing the soft patch in the recovery. Jobs are a lagging indicator and though everyone focuses on it the stock market is looking at hints of a continued recovery and they are finding it, just not necessarily in the U.S. As a reminder, over 50% of the earnings of the S&P 500 come from overseas. That indicates to me how important world growth is while at the same time not ignoring the need for U.S. growth.

Good Trading
Steve Peasley

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The week will be full of economic statistics as the last of July’s reports and the first of August’s reports begin to pile up. The most important will be July’s jobs report out on Friday with the experts calling for a loss of 100,000 jobs with a tick up to 9.6% in the unemployment rate.

Also, this morning we had merger and buy back activity that has been heating up the last few weeks. HP announced a $10 billion stock buyback, Intel is buying another company Infineon for $1.4 billion after buying McAfee for $7 billion a week ago and Genzyme tells Sanofi-Aventus that its bid of $69 is too low. Those were the top deals talked about this morning but there were others that were smaller.

As we end August and enter September the traders will be returning from summer vacations and that will give us a pick up in volume. Trading volume has fallen sharply. Will that increase in volume be up or down? When will
people get tired of the low yield on the safe Treasuries? When will safe give way to actually earning something in a more risky investment? Will that ever happen? Will any of the massive cash sitting on the sidelines move into the stock market? Fear is very high, can it get higher? Right now bonds are where the money is going, at some point that will end, then where will money go?

I wish I knew all the answers although one answer I do have is that stocks are very cheap and dividend yields are much higher than bond yields.

Good trading,
Steve Peasley

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The most dramatic part of the revision was the import/export numbers. Exports rose in the quarter by 9.1% but imports spiked 32.4%. More imports versus
exports subtracts from the GDP. It represents a drag of 4.45%. That is a very strong impact. In fact, imports were at the highest level since the May through June quarter of 1993.

Taking a broader scope, where did all those imports go? There was little inventory build that went from an initial read of growth in inventory of 1.1% to .6% in today’s revision. Consumers had to absorb much of those exports and it was not in oil where most of our inventory growth comes from. These were mostly consumer goods. At the same time, consumers were saving more in the quarter as the rate rose to 6.1%, the highest in some time.

The consumer is suffering, of that there is no doubt. The fear is all about the possibility of a double dip recession. Without the consumer spending some of their trillions of dollars in money market and low yielding treasuries and corporations not spending their trillions our economy is going to suffer. The double
dip is a possibility just not a probability at this point, but that possibility is increasing. We have only had one double dip recession in our history and that was at a time when inflation was a problem and the Fed began to raise rates. We have no inflation, but what about deflation?

To me it feels like fear is in control and if that is so it is time to get into the market.

Good Trading
Steve Peasley

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