Job creation ain't what it used to be!

With today's employment data release, I thought a trip down memory lane might be informative. My focus today is NAFTA, the North America Free Trade Act, and the Presidential run of Ross Perot in 1996. First, below is a chart posted by Chart of the Day which shows Non Farm Payroll job gains, by decade, from the 1940's. Here's the chart below:

What is significant from this chart is what has happened the past decade of the 2000's. Basically, no jobs were created. In fact jobs were lost during the Bush Presidency. Jobs have been created the past several years, but no where need the number required to sustain a good economy with low unemployment.



Now we bring in Ross Perot. If you remember when Ross Perot ran for President, he warned us all about NAFTA not being good for America. In fact, his famous quote from the Presidential campaign became, "If NAFTA passes you will hear a giant sucking sound of jobs leaving America. In 1994, NAFTA became law. I think Ross Perot has been proven to be correct after all!

The Stimulus plan. Did it really work to help unemployment?

Much of the argument regarding the Unemployment rate and whether the stimulus plan President Obama passed after his election, boils down to how many are interpreting the data. My readers know I do technical analysis of charts for the stock market. This skill can also be used to analyze any data as most engineers know. I learned much about charting as an engineer for IBM. So let me show you how I interpret the Unemployment rate chart below. First the chart and then the discussion.

In the chart above, I have an arrow showing when President Obama actually started his job as president. It was in late January 2009. It took a few months to pass the Stimulus plan and then additional months before the effect would be felt in the economy. You can see the trajectory before President Obama took office. The steep climb in the unemployment rate was astounding. It had built up momentum and this momentum was going to continue for an additional 6 months before even a passed stimulus package could be start to be spent. Then was the lag, as the plan got implemented which then we were at the peak unemployment rate. The argument that the stimulus did not work are just ludicrous.

The only way out of the problems we have with the debt and with unemployment is to get the economy growing again so more people can pay taxes and that government plays a role in doing that, along with the private sector. The private sector is uncertain about the near term future and frozen like a deer at night looking into the headlights of an oncoming car or truck. The Jobs Stimulus Plan President Obama offered up last week is the only game out there currently that can help. If Republicans, and specifically the Tea Party, can stimulate the economy another way, have at it. Propose something, but don't just say NO! I know your number one priority is to see that President Obama doesn't get re-elected. But you own the economy now too and you haven't passed anything to help. So get on the train or get out of the way!

Market comments for August 4th.

Weekly Initial Jobless Claims numbers were released this morning amidst an environment of a negative Futures market. Initial Jobless Claims for July 30th came in at exactly 400K and the previous week's data of 398K was revised to 401K. Continuing claims came in at 3.730 Million.

The Dow Futures was down about 120 before the data was released due to worldwide jitters on economies across Europe and an attempt to lower currencies to increase exports to the US. The US Dollar is rallying against all major currencies today.

Tomorrow we will get the Unemployment data for the month of July. Much of the data is already known, because we have had 4 weeks of 400K claims or more and the only factor in the Unemployment data will be the seasonal adjustments made to it by the government. WE also know about 4000 FAA employees are having to claim unemployment insurance due to Congress not passing legislation before recess to fund the agency. We also know about 70,000 Construction workers had to stop work at airports across the country because of lack of funding by Congress. So if anything is clear, there is a higher chance the unemployment number will go up instead of down or it will remain at least at 9.2%. If seasonal factors have a larger factor than expected, the Unemployment rate could rise to not just 9.3%, but 9.4%. Stay tuned for this important number tomorrow.

It is clear the markets have broken the 200 day MA's as well as broken through previous support levels. Therefore I believe we still have a way to go before a reversal to the upside happens. There just isn't any good news out there right now except higher earnings reported for the second quarter for many companies. But this is hollow news for the average person who is just trying to survive.

Yesterday I sold my TZA Call Options for Oct. (at a Strike price of $41) for $7.00 each. I paid $2.69 and $2.81 for these, just 2 weeks ago. TZA had risen to $44.95/share yesterday for a high, but then closed at $41.02 on very high volume.

The chart below shows the Dow for the past year and I have drawn a support line where I think the Dow must go before a significant bounce up. As you can see it is at 11,500. That will be the first support level which must be tested. So we still have about 350 points to drop on the Dow.

Market comments for June 30th

Today is the last trading day for June and the second quarter. The headline reads as follows, but is it a true reflection of the data? "Jobless Claims in U.S. Decline, Top Estimates"

More Americans than forecast filed applications for unemployment benefits last week, indicating little progress in the labor market. So is that saying that claims fell? a drop of only 1,000 is statistically indifferent from last weeks number and if they gave weight to the fact that Continuing Claims had increased too, it would have been more accurate.

It is true that Jobless claims fell by 1,000 to 428,000 in the week ended June 25, Labor Department figures showed today in Washington. And that the median forecast of economists in a Bloomberg News survey called for a drop to 420,000. So is 428K versus an expectation a big miss or not? Well it's a lot more than only a 1,000 drop is. These headlines are so misleading and manipulative, no wonder Consumer Confidence is at the lowest level in a non recession period since 1978. People just don't believe the media manipulation of the data anymore. The truth of this story is that we are still having over 400K Initial Jobless claims weekly and not below 400K weekly which we were for a stretch. As long as we continue to create so many unemployed, the economy is not going to get better and we are not going to be able to pay the debt off! That's a fact!

Oh, and on a separate note this: The Bloomberg Consumer Comfort Index rose to minus 43.9 from minus 44.9. So is this that much better? Think not as it is still minus and not plus.

Market comments for April 28th

Yesterday, Fed Chairman Bernanke had the first ever News Conference for the Federal Reserve, which was not covered by many cable stations like CNN, as they were consumed by the news the President released his long form birth certificate, but nevertheless Bernanke made some news to me. We have been told for a long time that the recovery is "Moderate, but Main St. doesn't believe it. It seems very slow to Main St. So during yesterday's news conference , several times Bernanke commented that the "recovery" was moderate and moments later called the "recovery" slow. So all this time over the past 6 months to a year, the Fed was using language to imply the economy was growing faster than we all knew was false, but more encouraging to those on Wall St. who wanted to believe it was faster than we all experienced on Main St. Today's release of the GDP numbers and the Initial Unemployment Claims verify that the Emperor has had no clothes on.

Initial Jobless Claims released today showed that 429K new claims were filled against an expectation of 390K Initial jobless Claims. That make now several weeks in a row where these claims have exceeded 400K. Last week the number came in at a revised 404K Initial Claims. And the week before, on April 14th that it was 412K. Not since April 2nd have the claims been below 400K, coming in at 390K.

GDP numbers released today for Q1 came in at only 1.8% versus the prior period reading of 3.1%, which shows the economy is in a very significant slowing. In order to have more jobs for the unemployed, we need about a 4% GDP. Also, having a low GDP number is bad for the debt we carry, because overall debt % is compared to % GDP to determine whether we can pay back our debt as promised.

Today's numbers were not good no matter all the hype you hear to the contrary. The Dow Futures are down this morning following the data release.

Cross Purpose: Creating Jobs or increasing profits?

This morning President Obama was in Schechdetty, NY at a GE facility talking jobs. President Obama has tapped General Electric Chief Executive Jeffrey Immelt to head a new White House panel tasked with finding a way to grow jobs.

In an article in December on CBS.com, they studied this issue and whether job growth is happening elsewhere. Here's the front of that article:


Corporate profits are up. Stock prices are up. So why isn't anyone hiring?

Actually, many American companies are just maybe not in your town. They're hiring overseas, where sales are surging and the pipeline of orders is fat.

More than half of the 15,000 people that Caterpillar Inc. has hired this year were outside the U.S. UPS is also hiring at a faster clip overseas. For both companies, sales in international markets are growing at least twice as fast as domestically.

The trend helps explain why unemployment remains high in the United States, edging up to 9.8 percent last month, even though companies are performing well: All but 4 percent of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.

But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9 percent, says Robert Scott, the institute's senior international economist.

"There's a huge difference between what is good for American companies versus what is good for the American economy," says Scott.

To read the entire article, click here.

I believe that when looking at this issue one must take into account the fact that the sole purpose of corporations is to build shareholder equity (cash & other assets) and it is not to hire people to lower the unemployment rate. There is no moral directive to improve society. It's all about profits. So I am not positively disposed to think Jeff Immelt and his Business Council will do anything but figure out how the government can either lower taxes to help their profitability, or deregulate their businesses. But remember the purpose is to increase profit, not jobs. If they create some jobs that will be a side benefit, not a priority goal for business. Why do I say that? Because business is currently sitting on Trillions of dollars of cash but they are not hiring people. They are saving their cash. Until part of their purpose is to create U.S jobs with U.S. workers, the unemployment rate will remain quite high.

IF THERE IS JOB GROWTH, MOST WILL HAPPEN OVERSEES, NOT HERE IN THE US. ANY JOB GROWTH IN THE US WIL BE ONLY WHEN ABSOLUTELY NECESSARY. That's the new reality!

Summary of Interview of David Tepper on CNBC today

This morning CNBC had David Tepper, founder of Appaloosa Management, as their guest. If you don't know who David Tepper is, and you follow the stock market, you should. I will give a little summary of his notoriety at the end of this post, but suffice to say, this morning he predicts headwinds ahead for the market and he said that we will not be back to previous employment levels for 15-20 years. He sees the new normal unemployment rate to be in the 6.5% to 7% range, that's even after we get things better.

There were a number of points made this morning and I will summarize what interested me from what he said:

1. There is a bit more downside than there was back in September.
2. Regarding the food bank, Tepper says "I'm obviously an optimist" but things aren't going to get better anytime soon in terms of the need for philanthropy.
3. He's kind of bearish on bonds and gold.

Tepper's Appaloosa Management is a $15 billion hedge fund. Tepper is famous for his positive commentary in 2010 after the US government stepped up the plate with large stimulus programs. Tepper believed that these actions nearly guaranteed the rise of the equities markets in 2010, and he was proven correct.

Tepper accurately predicted that the S&P 500 would close 2010 up 13%. His forecast came true. He predicts a much more difficult 2011, and this, understandably, has many investors worried.

Tepper's hedge fund made a killing during the crash by betting the government wouldn’t let the big banks fail and he was correct.

He said today that companies have become very "efficient" in the past year or two because top line growth has been slow. To me that means squeezing more profits without adding new hires, so that the business keeps making money. But that is not growth and our economy needs growth right now to fully recover. So there is no way we are going to solve these problems with our economy by better efficiency. This is not a good forecast for our country's future.

Market Outlook June 25th

GDP was revised downward for the first quarter, from 3.0% to 2.7%. Financial regulation was passed and the initial reaction was that Bank stocks rose about 1 to 2%. Is this tough reform? No, most will agree. But why not? Mainly because Republicans continue to filibuster everything proposed by the Obama Administration. They don't want Financial regulation and the industry has bought the Congress and the Senate. They have lobbied so much and got their way. this Bill does not have the teeth that would keep us from being vulnerable to shenanigans of Wall St. again. What will it take to stop Wall St.? Something they can't control, a market Crash and a Depression. That is where I believe we keep marching towards. We are destined to repeat history's lessons we seem not to have learned.

I have some friends on Wall St. and the rank and file employees say they want tough Financial regulations but their bosses are addicted to the obscene salaries they give themselves. It reenforces the saying, "power corrupts but absolute power corrupts absolutely!" I guess it is the negative part of being human.

Even though Futures had looked positive after the news was announced on Financial regulation being approved, the markets opened slightly up but then turned negative and is where they are now. We are headed lower and lower, each day like a trickle. Nothing alarming to cause a panic, but a steady erosion of prices, as despair creeps into the markets. The Republicans in the Senate are united and for 8 consecutive weeks don't seem to want to help extending the benefits of the Unemployed. They continue to Filibuster them getting an extension in unemployment benefits. That's well over 1 Million people will not get any money after June 30th. Watch them lose their homes and continue to increase this decline to an eventual Crash.

I had a personal experience growing up around this issue. My Dad worked as a Tailor in the garment business back in the 1940's. He made Men's suits and Top Coats. He worked very hard in the Spring and Summer in a sweat shop with temperatures reaching in the upper 90's and low 100's because of the Steam presses. That is the reason they called it sweat shops. Well when September came, my Dad would be laid off and he would have to go collect unemployment benefits as there was no work for a tailor. I used to go to the Unemployment office and stand in line with him. Thank God for those benefits as I don't know how we would have had money to pay the rent or buy food. It wasn't charity, as everyone had to pay part of their income for Insurance so there was money to pay them when they were laid off. So it was money earned and set aside for them when they were let go from their jobs.

So when I see Republicans not wanting to approve benefits for those unemployed, not because of anything they did, but what the wealthy cats on Wall St. created by gaming the financial system for their own benefit, I get real angry. And yet, these same Republican Senators are trying to get tax breaks for the top 100 wealthiest of us in this country. This is immoral. We deserve a Crash as it is the only way even they will get hurt. It levels the playing field, cleans the gene pool a bit, and teaches a lesson to those who have to understand the plight of those who not only don't have but have never had but crumbs. As Americans, we get the government we deserve, because we don't step up and insist on better leadership, no matter if they are Republicans or Democrats or Teabaggers or Independents. It's hard to just blame "them", when we vote for "them"!

Well the market had gone down 13 when I had started to write this and now is up 17 as I finish it. Remember the overall trend will be down with some spurts up but a steady decline when you look at the charts. First we will break below 10,000 on the Dow in the coming days and then below 9,800 in weeks and then below 9,500 and then the Fall we see us testing 9,000 or lower. Drip, drip, drip! We are in a Bear Market!

Here are some headlines which should give you pause. Click on each to go to the story:
States of Crisis for 46 Governments Facing Greek-Style Deficits

Banks ‘Dodged a Bullet’ as U.S. Congress Dilutes Trading Rules

Economy in U.S. Expands 2.7%, Less Than Forecast

Leaders differ on how to nurture a global recovery

U.S. Durable Goods Orders Crash With Aircraft


Now the Dow is down 22 points and forming a "W" pattern as the chart above shows. This means we are headed lower today. Come back for Updates during the day!

Update: 7:45am PST

I just learned that the Russell 2000 is going to be rebalanced today. Some stocks added and some taken out of the Index. What effect this will have on TZA will be negative as when they rebalance they are trying to improve the Index quality and this means that TZA will go down while the Russell goes up somewhat. That is why all the other major indexes are down but the Russell is up right now. It's not by a lot, but it explains the discrepancy. This rebalancing will create only a temporary rise of the index. Eventually all stocks and all Indexes will be going lower. It's just a matter of time, but time is what Options are all about, aren't they! I think October TZA Calls will be OK, but July ones may be affected negatively and not recover in time.

Update: 8:10am PST

We have formed 2 "W" patterns and both slant lower. Even if the market rally's somewhat from these levels to me there is a 90% chance the Dow will go lower today to complete this lower slant. Time will tell.

Update: 9:30am

We have not yet satisfied that 2nd red line "W" pattern yet, as shown in the chart above. In fact, we have formed a 3rd pattern and it is slanting up. I still believe we will go to a new low before the close today. This is not a certainty as about 10% of the times it does not follow what is expected. But I am going to stick my neck out here and say I think it wil go back to the low today, especially going into the weekend, where a storm is brewing in the Gulf and threatens Oil recovery efforts. The low of the day coincides closely with S1 for the Dow, which is at 10,088.

Update: 10:35am PST

The Dow has moved up now but the Russell 2000 is soaring because of Rebalancing and the window dressing the big boys are doing at the end of the Quarter and 6 months into the year. Also, TZA is going to have a reverse split next week. This is affecting the Russell and the price of TZA which is now below $7.00/share. I can't predict what this will do for the Options except it ads another level of uncertainty to things.

Complete market analysis from 6 months to 30 years

To help others see how trends are formed, I will use the same analysis method that I used yesterday on the Dow Intraday Charts. I used these charts to predict the trend to follow. Let's look back at various timeframes, from as little as 6 months, to as long as 30 years. This context should help others understand why I have been sounding the alarm to be cautious now, as we are about to witness a crisis of confidence unparalleled in our generation. But let's not get too much ahead of ourselves. I will start with a 6 month chart of the Dow as the Index for comparison. First the chart, then the discussion will follow each chart. Look for the "W" patterns underlined in Red and notice the slant of the red line and what trend followed immediately after the last leg of the "W" pattern.

As you can see above for each "W" pattern, a Red Line under the 2 bottom points identifies the "W". It shows the direction of the trend to follow. In this case for the 6 month chart, the last "W" pattern formed shows we are indeed going to go down much lower after the next leg goes up. This is based on the steepness of the last pattern. So now at least short term, we know we are going down lower after the next leg goes up. I will show you in a different chart that the next leg up should go to about Dow 10.500 to 10,600 max.

Above is a 1 year chart of the Dow, where I have drawn several red lines at the "W" patterns, showing the slant and following trend. You will notice that there was a slant down of the pattern in the February timeframe, followed by a small drop after that. Then the pattern reversed, and the Dow continued its uptrend until the beginning of May.

This 5 year chart of the Dow above, shows that the Dow had 2 "W" patterns pointing down, and that it was headed lower, which resulted in the lows of March 2009. However, after that, a reversal drove the market back up to the highs in April 2010. Not much you didn't know here, but it is revealing to see that the charts showed where we were headed in advance .

And last, but more importantly than all the rest of the charts, this Dow 30 year chart shows where we are headed, and it is lower! The second leg of the "W" pattern was at 6,440, if you remember those lows. It was a very scary time. This chart indicates we are headed lower than that. And if you have been reading my earlier posts, you know many indicators have been sounding alarm bells for a while. I refer specifically to the 30 year chart posted on May 7th (based upon Elliott Wave Theory and Fibonacci numbers), and to the previous warnings on April 10th and April 14th (using Put to Call ratio data and VIX (Volatility) Index data.) It was only in April that the crescendo got so loud that it would be foolish to ignore it .

I hope I have given you a sound basis for believing what is about to happen. The last thing in the world I want to say is "I told you so!" So please evaluate this and plan for the future. Most of you reading this work very hard to make money; you need to work just as hard to keep what those long hours have produced. One last word: The market is set to recover a bit in the following days and maybe weeks, as we go back up to 10,600 or so. This is about where the drop down should begin.

So you have more time to regain some of the losses these past few weeks, and to prepare yourself for surviving the crash. Cash is a real good place to keep your sales of stocks until things get better. I do not believe Gold is going to be the currency of choice. People aren't going to bring their Gold to the grocery store to buy milk and bread. Nor will they use Silver to do that.

Currency will still be around and even more precious, as many will have lost plenty of it, and will be selling whatever they can to raise cash. That is why prices will drop in everything, as they did in the last big housing drop. Cash will be King, as they said during the Great Depression. Those who had it survived. This world market drop will cause businesses to cut more costs, and that means people. So the unemployment rate will surely rise again. Here is one last chart to show the Global nature of this impending crash. I have a chart below of the Nikkei 225 Index. It shows their index is also heading below 7,000. The Nikkei closed on Friday below 10,000 to 9,774, down 246 points, and it hit an intraday low of 9696.

Good luck to all who read this. I love to hear from you, so if you have a comment, please leave it. Let me know if this is useful, interesting and/or educational. Oh, and don't forget to take my Mini Poll survey on the right side of this page. Thanks in advance!

It's the economy stupid! Boom, Bust or Stagnation?

Many are wondering when the economy will be coming back to pre recession levels anytime soon. I gave this some thought and when you look at the math, it looks dismal. Let’s take a look at it.

First, let’s begin with the Consumer. The Consumer has been responsible for 70% of the spending in the country. The other 30% comes from the Business community buying from each other. Since nominal GDP (Gross Domestic Product) of the United States was $14.2 Trillion dollars in 2009. Assuming the Consumer contribution, of 70%, that comes to $9.94 Trillion dollars. Ok, now let’s assume that even though the numbers I presented are for 2009, let’s assume there was no recession that year. (The reason I say that was because the nominal GDP for 2007 was $13.8 Trillion dollars, not far off from 2009.)

The Unemployment rate in 2007 was only 4.6%, while today it is 9.7%, and as high as 20%, if one counts those not collecting benefits and have given up looking for work. There are about 237 Million people in the Civilian non-institutional population and the Civilian Labor Force has about 153 Million people. The officially unemployed total about 15 million people.

In 2006, total discretionary income totaled $1.7 Trillion dollars in 2006. Nearly 78% of all discretionary income is held by households earning more than $100,000. “While the percentage of households with discretionary income has risen over the past several years, purchasing power remains concentrated in the wallets of the affluent,” said Lynn Franco, director of The Conference Board Consumer Research Center.

So, if you take approximately $10 Trillion spent by Consumers, and then figure in the unemployment rate of approximately 10%, you have about $1Trillion less dollars for Consumers to spend. Add in the fact that 78% of all discretionary spending is from households earning more than $100,000, and it is even a higher number than $1 Trillion. That doesn’t include the businesses that don’t have money to spend buying other’s equipment, which represents the 30% of spending done by business. There could be another $1 Trillion less spending by business. That’s a huge hit on the economy.

If you put the $2+ Trillion out of the economy and then add in the Governments $0.8 Trillion Stimulus package, you can see we still are a long way off to making up the difference. As long as we continue to have 9-10% Unemployment rate and higher real Unemployment, we will not come out of this mess anytime soon. This implies to me not to believe the stock market will continue to rise. As a matter of fact, when these inferences become more recognized as truth, we may have a double dip recession. We will know by September/October this year whether that plays out. Oh, and by the way, conveniently, this is just before the November mid term election, where the Republican Party hopes to make much gains and take over the Congress. It will be the time when Democrats are more vulnerable to losses. Stay tuned!

Miscellaneous tidbits

I wanted to update my Blog readers in the face of a very quiet news time right now. Yesterday I bout additional shares of the ETF Ultra Short on Silver, symbol ZSL. I got the shares for $4.07/share. When the speculation on Gold and Silver abates, and the prices in those metals drop, I want to make a nice profit. Since Silver usually drops much more than Silver, I figured that was the better play.

Over the next 30-45 days the market direction will become much clearer with the Earnings season for last quarter being reported for the history books. The real question to ask yourself is this. Will the improvements in earnings this year really be enough to justify these high prices for stocks or will a correction finally happen? Unemployment isn't really going to get better anytime soon so when the Unemployment rate for December is announced tomorrow don't be surprised.

This month is going to be cold for many of us, but we know that it too will eventually end and warmer days will be ahead. Stay warm!

Market outlook for Oct. 30, 2009: Up, but within a tight range. UPDATE

Today, the Dow surged up almost 200 points to close at 9962. With the Dow rise, the volume today was less than yesterday's volume, not exactly an impressive and convincing move. As you can see in the 3 year Dow chart above, we are actually still in that narrow wedge between the Red line and the Blue line. We could still be there in one month, which is about the time it could take to breakout either to the upside or the downside. Tomorrow is year end for the Hedge Funds and other funds as well and they want to show their customers they have made them a lot of money back this year. So it is possible again that we go back up over 10,000 tomorrow and stay there through the close. It isn't a big deal as the index is only 38 points below it now. But then next week we get the Unemployment numbers for October.

Speaking of unemployment, Shell Oil announced it was laying off 5,000 workers, US Airways announced they were laying of 1,000 more people. And there are a number of States where government workers are being let go from Wisconsin to Massachusetts to California. More and more cities, towns and Counties are having to lay off workers. many are already heralding the end of the recession, and yet, many feel it's a Depression, as they are out of work. The projected Unemployment doesn't peak according to experts until mid 2010 and it is expected we will then be at 10.5% Unemployment rate.

UPDATE: Pre-market Oct. 30th.
European markets are down in pre-market this morning and the DOW, SP500 and Nasdaq are also all down in pre-market. Oil is down to $79.32/barrel. Gold and Silver are also down slightly as well. The dollar has remained flat in pre-market and could go either way after markets open. But much data points to a lower opening this morning. In site of that, I believe the Dow will close over the 10,000 level, the S&P 500 will close over 1090 level and the Nasdaq will close over the 2100 level. I say this because many Funds use today as their year end. They will try and push the market selectively higher to get the numbers up near the close. It's all about manipulation to attract customers for these Funds and also payout bonuses. Bah, humbug!

Market summary for Oct. 26th: Validation of an earlier prediction

Well the data is in and Friday's prediction was correct. The Dow did drop to a lower level as predicted by the 2nd "W" pattern, as shown in the charts above. So, today we closed the Dow at 9867, breaking below the 9900 level. While it looks like the Dow may recover some tomorrow, it has started the correction. The only question is how low will this correction go. As I mentioned in the previous post, earnings are being announced as well as several key indicators. I believe Consumer Confidence is important this week but GDP and the Jobless Claims numbers will have the most effect on the market.

Stock market action for Oct. 8, 2009

It looks as though no determination has been made yet as to which direction the breakout will make on the Dow. Yesterday the Dow closed at 9725, down only 5 points. This was not enough to make a comment. Today the market is poised to go up because of upbeat earnings report from Alcoa. Retail Sales also came in down but not as bad as analysts said they expected. That surely will aid in the pop up today. And finally weekly jobless claims were down again as was Continuing claims, which was at 6.09 Million jobs. Now pay no attention that these numbers are in fact not true because those not filing claims as they give up looking or don't file as their benefits have run out, but the data shows a decline and that's all that counts. So the "W" pattern has not yet had a breakout either down or up. It may take until the end of next week for the answer as Options expiration for October occurs then.

The chart above shows I have added a second Blue line which depicts the tighter range we need first to break out of and then the second lower Blue line which will signal a correction. This is determined by the Dow closings above the resistance level of 10,000 or lower than the top Blue line and above the lower Blue line, we will have no determination of direction for the market unless we break below the bottom Blue line or above the Red line.

On a related topic about whether the stock market is reflecting where the economy is headed, I was at a town hall CITY COUNCIL Meeting last night where the topic was on housing requirements looking forward to 2014 and the town was projecting a certain number of new homes needed to be built for the expected growth the town calculated they would need. The conversation lasted about an hour before it was open to Public comments and one person got up and asked the question about the elephant in the room. It was this: "Has anyone looked recently at current predictions about economic growth or lack of it over the next 5 years? People are leaving California and businesses are closing. Do you really think in 5 years this is all going to be solved?" There was a hush in the room as many finally got it. The same is true about the economy and the stock market. No one is listening to the comments in those areas about the elephant in those rooms/

The lost decade: Would you believe I'm talking about the U.S.?

The official Unemployment rate shows us at nearly 10%, while the unofficial rate is close to 17%. But in fact since 1999, the U.S. has not created any additional jobs. When President Bush was President the creation of new jobs never kept pace with the rise in population. So while they did add jobs, it was never equal to, or greater than, the required number of jobs just to break even. That's a full 10 years, a decade, where the U.S. has not created new jobs. When many hear the term "the lost decade" they think Japan. The Lost Decade, according to Wikipedia, is the time after the Japanese asset price bubble's collapse, which occurred gradually rather than catastrophically.
The Lost Decade consists of the years 1991 to 2000 and was when economic expansion came to a total halt in Japan during the 1990s. The impact on everyday life was muted, however. Unemployment ran reasonably high, but not at crisis levels. This has combined with the traditional Japanese emphasis on frugality and saving (saving money is a cultural habit in Japan) to produce a quite limited impact on the average Japanese family.

But more and more we will remember that from 1999 to 2009 was the time we lost a decade for creating jobs. It is also a decade of lost momentum in creativity since creativity leads to new products which in turn leads to job growth. The U.S. has been stagnant these past 10 years. Most technology today was invented before 1999 and the first 5 years of this past decade was used to bring most of those products to market. But over the past 5 years we have not been fueling the engine of creativity, as we had in previous decades. One exception might be biotechnology, where medical advances have been relatively steady.

If we are to get out of the doldrums of a bad economy, we must invest more in Research and Development at a time when we don't have spare resources. Indeed the next 10 years are going to be difficult at best from the economic dislocations and imbalances we face today. There are too many variables to manage and our government has a lot of balls in the air right now. They are doing their best as they inherited this mess, lest we forget.

Retail sales down another month!

Latest data for July Retail Sales shows it down 0.6%, ex Autos. Overall Retail Sales were down 0.1% for July.The reason to take out the auto numbers is they were pumped up by gov't action from the "Cash for Clunkers" program. This is not good news going into the Back to School season. Import prices are down over 19.3% year over year and once again it shows us in a deflationary environment.The number of U.S. households on the verge of losing their homes rose 7 percent from June to July, as the escalating foreclosure crisis continued to outpace government efforts to limit the damage. Nevada led the nation in foreclosures for July. Foreclosure filings were up 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice.

Banks repossessed more than 87,000 homes in July, up from about 79,000 homes a month earlier.

Unemployment unexpectedly increased for the week. The 4 week moving average is up to 558,000 lost jobs.

The Consumer is not returning to the marketplace according to these numbers and unless they do, more are going to lose jobs and more foreclosures are on the horizon. You feeling optimistic now? It's back to school soon and the reality of the world as people return from vacation. Take a deep breath!

Don't forget to take my Mini Poll on the right margin as to how long you believe the recession will last.

The prognosis for the Economy and Unemployment

The Sunday news talk shows had Treasury Secretary Tim Geithner and Larry Summers as featured guests. What was most evident from both of their conversations was that we have a long time before a real recovery takes place. For example, Geithner said unemployment would "ease" in the second half of next year. Geithner also said that extending unemployment benefits again is something the administration and Congress are going to "look very carefully at as the end of this year approaches." Well, to me that means two things: First, unemployment will rise for a full year from today and with it so will unemployment benefits, not just for the additional 13 weeks being contemplated now. Currently the unemployed are eligible for a total of 79 weeks of unemployment. Add a minimum of 13 additional weeks and you get 92 weeks of paid absence from a job. My God, that is almost 2 years! And those without jobs have at least another year of looking for a job before things look better for them. Consider what these means for the possibility of even more foreclosures.

Everyone believes the Consumer is not spending today but has increased savings. This also says there is most likely systemic changes in the patterns of Consumers behaviors that may be generational in duration. I can imagine a smaller footprint spending form the Consumer and a larger footprint needed by Corporations or Government to pick up that slack to help increase GDP. I saw a formula for GDP this morning while pursuing the Blog articles which said that GDP=C+I+G+(Trade Surplus or Deficit) where C is Consumer spending, I is for investments and G is government spending. You can see from the equation that the biggest part of GDP is going to come from Government (or us) and we are borrowing from the future of our children, kids and grandchildren and dooming them to less of a life to pursue the American Dream than any other generation of the past except from the Great Depression years. How can we look ourselves in the mirror and allow this to happen, you ask? Easy, as this generation of "What's in it for me" Americans, we don't really look in the mirror much and do the self reflection thing very well. We are so focused on ourselves, we have lost morality and sold our souls to the average bidder. Boy, the last 8 plus years have surely screwed up this country so badly, we may never recover. So when you hear the "good news" on better GDP, remember it is the Government spending driving it, not business and not the Consumer for the next few years. Don't be fooled that things are looking better. Make sure you look at the Unemployment rate and keep looking at the number of Home Foreclosures and Business and personal bankruptcies.

The seeds of our destruction were sown many years ago and most likely back in the Reagan Administration, (See the chart below from ZFacts.com with a great article that goes along with the chart) where Federal Deficits had new meaning. Ever since then, we have been going out of control. Twenty out of the past 26 years since 1982 when Reagan was President, Republicans have been in control of the Presidency. You will notice on the chart below, it was Clinton who actually turned this trend around only to be reversed again by George W. Bush.

European market economic data update: They are hurting too!

According to news reports today, Unemployment rose to 9.4 percent in June, the highest since 1999. More than 3 million people have joined the euro region’s jobless rolls in the last year, and the Organization for Economic Cooperation and Development expects the unemployment rate to reach 12 percent in 2010. The highest rate was in Spain, which came in at an unbelievable 18.1% rate. Prices in the euro region dropped 0.6 percent from a year earlier, the most since the data were first compiled in 1996.

What does this mean for the U.S.? It means it will be difficult for Europe, a large trading partner for us, to purchase U.S. products, thus keeping our revenues pressured for U.S. Corporations and earnings going forward. We are counting now so much more on China than we ever have been, a dangerous move and a critical partner of our future economic stability, that we have increased our risk for recovery. And on that note, U.S. stock futures erased gains after the government said personal consumption slumped more than forecast last quarter.

Both short and long term stock market outlook: Successful retest of the lows and then a Bull market rally

As today closes the week of the stock market, I was influenced in posting what I did today by a commentary yesterday on CNBC by a technical analyst who had a chart of the World stock market Index which showed all markets had started to drop in the May and June timeframe. This drop was consistent across the world and was not particular to the U.S. stock market. He said it implied this drop is a world phenomena and therefore it will take the world to solve it.

I have been following the Nikkei 225 stock market Index for some time but have never posted it and the Dow as 2 separate charts on my site until now. The main thing to compare is how quickly the Nikkei showed the downturn coming before the Dow has but both charts are similar when looking at a 3 year history. Below, in the first chart, the Nikkei 225 shows they have had a double bottom which was down to about 6,500 and if we return they will have put in a triple bottom. Usually triple bottoms are solid enough of a support level foe the possible beginnings of a real Bull market rally. This is what I will be looking for as the months going into the Fall will tell if this plays out.


The Dow chart below shows we did not have a double bottom yet and that is part of the reason I am quite confident we will retest the low of 6440 on the Dow, by this Fall and certainly by October Options Expiration, which occurs on Friday, October 16th this year. This could signal the moment of an attempt of a return to the beginning of a Bull market rally, which would go above the previous high end of the range of 9,300 on the Dow. This time the S&P 500 could go back above 1000 and it will be the time when I am buying heavily at hopefully the market lows. Time will tell if this scenario plays out as much is unknown as to the outcome of the crisis in the economy. But it certainly would set the stage for 2010 and hopefully a more optimistic outlook as the peak of the unemployment should give hope things are going to turn around mid to end 2010.

Market outlook for the week ahead: June 29thth-July 3rd

I thought you might like to see the data that will be announced by day this coming week and have found the Bloomberg survey of leading indicators. On Tuesday, Options Expire for the Qtr. Here's the list to watch for:

Bloomberg Survey

================================================================
Release Period Prior Median
Indicator Date Value Forecast
================================================================
Case Shiller Monthly YO 6/30 April -18.7% -18.8%
Case Shiller Monthly In 6/30 April 140.0 n/a
Consumer Conf Index 6/30 June 54.9 55.2
ADP Payroll ,000’s 7/1 June -532 -390
Construct Spending MOM% 7/1 May 0.8% -0.6%
ISM Manu Index 7/1 June 42.8 44.5
ISM Prices Index 7/1 June 43.5 47.0
Pending Homes MOM% 7/1 May 6.7% 0.5%
Nonfarm Payrolls ,000’s 7/2 June -345 -350
Unemploy Rate % 7/2 June 9.4% 9.6%
Manu Payrolls ,000’s 7/2 June -156 -150
Hourly Earnings MOM% 7/2 June 0.1% 0.1%
Hourly Earnings YOY% 7/2 June 3.1% 2.9%
Avg Weekly Hours 7/2 June 33.1 33.1
Initial Claims ,000’s 7/2 27-Jun 627 615
Cont. Claims ,000’s 7/2 20-Jun 6738 6740
Factory Orders MOM% 7/2 May 0.7% 0.8%
=============================================================

At the close on Friday the Put to Call ratio closed at 0.81 and the VIX closed at 25.93, the lowest value since mid September last year when all the problems with the Sub Prime loans and Banks began.

The Dow continues to hug the downtrend line which started a year ago and was shown in my post last Thursday. I expect it to continue to go down and I expect the S&P 500 to do the same. I am still invested in my ETF Ultra shorts TZA and will hold on to this until we hit back at the lows of 7,300 on the Dow or if we go and retest the low of 6,440, which many believe eventually we will need to successfully retest, before a true Bull market Rally will begin.