Dallas, TX
November 12, 2009, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Intelligence, Market Timing, And Trading Strategy For Traders and Investors

The New Normal: No Demand
What's Hot Today:
U.S. stock index futures were lower on Thursday morning. Global markets were mostly lower overnight. A fairly busy calendar may move the markets.

Today's Economic Calendar:
  • MBA Purchase Applications 7:00 AM ET

  • Jobless Claims8:30 AM ET

  • RBC CASH Index 9:00 AM ET

  • EIA Petroleum Status Report 11:00 AM ET

  • 3-Month Bill Announcement 11:00 AM ET

  • 6-Month Bill Announcement 11:00 AM ET

  • 52-Week Bill Announcement 11:00 AM ET

  • 30-Yr Bond Auction 1:00 PM ET

  • Treasury Budget 2:00 PM ET

  • Fed Balance Sheet 4:30 PM ET

  • Money Supply 4:30 PM ET
News For Thought

Rising oil prices could stifle economic recovery, says the IEA. The IEA, which according to reports is concerned about peak oil but has not officially commented on the subject, is concerned about the steady rise in the price of oil lately. According to the Journal: "The International Energy Agency Thursday revised it 2010 world oil demand forecast slightly higher, but warned that rising crude prices, if sustained, risk smothering the fragile economic recovery underway. The Paris-based agency said it expects global oil demand to rise to 86.2 million barrels a day next year, representing an upward revision of 140,000 barrels a day from its previous monthly oil market report in October. It said world crude consumption was on track to grow in the fourth quarter for the first time since mid-2008, mainly due to increasing emerging market demand."

Anything but..please According to Rasmussen Reports.com: "Only 17% of U.S. voters want their child to grow up to be a politician, according to a new Rasmussen Reports national telephone survey. Sixty-three percent (63%) say, No way." Rasmussen added: "Democrats are more enthusiastic about having a politician in the family than Republicans are. Twenty-two percent (22%) of Democrats want their child to grow up to be a politician, compared to 14% of both Republicans and voters not affiliated with either party. Liberals are more than twice-as-likely as conservatives to like their child to be in politics." And talk about rock bottom; according to Rasmussen: "Members of Congress have now surpassed corporate CEOs to hold the least favorably regarded profession in the country among nine major jobs that Rasmussen Reports periodically asks adults about."

Overseas shipping remains weak. According to The Wall Street Journal: "A.P. Moller Maersk A/S said global shipping markets remain weak and uncertain despite tentative signs of a pickup in container shipping demand in the third quarter, and reiterated that it expects to post a loss of $1 billion this year. The world's biggest container shipping company said the global economic crisis is still having a "severe negative impact" on the market for container shipping, leading to lower rates and idled ships."

The New Normal: No Demand
The Decline In Credit Demand Signals Very Deep Problem For The Economy
The credit markets have eased. But demand is slacking, setting up a scenario where everyone is pushing on a string and job creation goes by the wayside.

In essence companies are paralyzed. They don't want to borrow money as they fear that debt may endanger their long term survival if the economy worsens. This is especially true since many large businesses are still making money after having cut jobs and increased productivity.

Small businesses are facing a different problem. As William Dunkelberg, chief economist at the National Federation of Independent Business, which represents small companies told Reuters: "What small business needs is customers."

And the situation seems to be the worst it's been during modern times. According to Reuters: "Dunkelberg's group released a monthly survey of small businesses on Tuesday that found few companies planned to increase capital spending or hiring, and only 4 percent listed getting financing as their biggest problem. In the early 1980s, the last time the jobless rate was this high, some 37 percent of those polled listed financing as their top concern." But they're not alone as "The Federal Reserve's quarterly survey of senior loan officers, released on Monday, showed larger companies were also reluctant to borrow. Demand for credit weakened since the Fed's July report, albeit at a slower pace."

What's most interesting is where the money that is being borrowed is actually going. Reuters reported: "Even among companies that are tapping credit markets, there is evidence the money is going to shore up balance sheets rather than to pay for hiring, investment or expansion."

The problem is that customers have pulled back as high unemployment has raised uncertainty about the future. The presence of fewer customers has left businesses in a position where few want to take risks. And when you add political uncertainty, such as the perception that health care reform will raise taxes and overall costs, the net effect is that businesses are paralyzed. As NIFB's Dunkelberg puts it "business owners have no reason to borrow as long as sales are weak and confidence low."

The White House may be starting to make more aggressive moves. Reuters reported: President Obama "considering increased spending on roads and bridges, business tax cuts, refitting buildings to make them more energy efficient, easing the flow of credit to small businesses and boosting U.S. exports. But those efforts, aimed largely at creating jobs, may still fall short if most consumers remain wary about spending."

There is another side to this. Wells Fargo Chief Economist John Silvia thinks that "there is just too much stuff -- houses, furniture, clothing, televisions, whatever -- and not enough people willing or able to buy," a situation that public policy may be worsening.

And that could mean that more pain could lie ahead.

Conclusion

Things have changed. There is money to borrow, and perhaps more willingness to lend, at least to credit worthy businesses.

But there are are fewer customers, which means that businesses that do borrow are only doing so in order to have money in reserve.

That suggests that the U.S. is now in a situation that is similar to where Japan was after its 1989 real estate crash.

During the ensuing twenty years, life has gone on in Tokyo. It just hasn't been as good as it was for a lot of people before the crash.

And as time passes, and things don't change, the new way of things can get ingrained into the system. People adjust their tastes and their needs to the prevailing conditions. Businesses that don't adjust, or that weren't sound in the first place fade away, and so on.

What is becoming evident is that the new normal, as the current buzzword that is being bandied about characterizes, is a much slower version of the old normal. And unless something very dramatic happens, and in the magnitude of the Internet bubble, we're going to be plodding along at this much slower and painful pace for a long time.

For workers, life will be difficult. And at some point, if the polls are correct, there are going to be a whole lot of new faces in Washington and in many state capitals.

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Market Moves - Stock Of The Day
Goldman Sachs (NYSE: GS) Recovers But Lags Market
Goldman Sachs (NYSE: GS) has recovered after its recent tumble, but the shares are lagging the overall market.



Chart Courtesy of StockCharts.com


When Goldman Sachs shares aren't near the top of the leader board you have to ask questions. After all this is the biggest player on Wall Street and in many ways the world.

Goldman's prominence expanded during the private equity boom that preceded the subprime mortgage market crisis. The stock recovered and became a market leader, rising over 150% since bottoming out in December of 2008, a move that preceded, and thus predicted the market's bottom in March 2009.

The shares topped out in early October and sold off in response to an excellent earnings report that had been factored into the price of the stock.

Recently, the stock pulled back to its 20 and 50-day moving averages and is trying to recover. But, it's still some 5% off of its peak, as the Dow Jones has made new highs for the move.

That means that Goldman is now a follower, not a leader. And that's a much different story than what we saw a year ago, when Goldman's rally led the market's rally by three months.

What this does is raise the possibility that the smart money is starting to lose interest in the current rally. So, if Goldman starts to struggle, and eventually fails to move well above 190, it could be a sign that the bull market is starting to get very tired.

Assuming that things are symmetrical, for the purpose of illustrating a point, a top in Goldman could precede a top in the market. In a perfect world, where there is simmetry, that would mean that we may see a significant top in the market by January.

We are neither recommeding the sale or the purchase of GS. The purpose of this article is to educate subscribers as to the presence of an interesting trend in the market. Dr. Duarte does not own or short shares of GS.

Technical Look at the Market
S & P Still Fails To Close Above 1100 Despite Intraday Move
The S & P 500 again closed just below 1100 on 11-10. This despite the fact that the index touched 1105 on an intraday basis.

For now this is another example of how tough the 1100 resistance area is for traders. If and when this area is breached, we would expect a short term move of some magnitude to develop.

Sector selection is important, but remains fleeting. Investors who are nimble with individual stocks are likely to fare better than indexers in the next few weeks as the rally becomes more narrow.




Chart Courtesy of StockCharts.com





Chart Courtesy of StockCharts.com

 

 


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