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Dallas, TX
January 12, 2010, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Europe's Small Businesses Face Big Problems
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What's Hot Today: |
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U.S. stock index futures are pointing to a lower opening
on Monday. Traders are a bit scared of earnings season given Alcoa's less
than rosy report and a negative preannouncement from video game kingpin
Electronic Arts.
Today's Economic Calendar:
- 4-Week Bill Announcement 11:00 AM ET
- CSC-Goldman Store Sales 7:45 AM ET
- International Trade 8:30 AM ET
- Redbook 8:55 AM ET
- 4-Week Bill Auction 11:30 AM ET
- 52-Week Bill Auction 11:30 AM ET
- 3-Yr Note Auction 1:00 PM ET
News For Thought
Iraq under partial lockdown. According to The Wall Street Journal: "Security
forces locked down parts of Baghdad and were searching neighborhoods for possible
car bombs, in what appeared to be a wide-ranging operation across the city."
States lower educational standards. In what seems to be an accelerating
trend states are once again lowering academic standards. According to The New
York Times: "On the way to creating a statewide exit test for graduation, many
states have softened standards, delayed the requirement or added alternative
paths to a high school diploma." The latest state in question is Pennsylvania.
According to the report the goal of the changes is to ensure "that students leaving
high school are prepared for college and the workplace. But critics say the requirement
has been so watered down that it is unlikely to have major impact."
The report added: "The situation in Pennsylvania mirrors what has happened in
many of the 26 states that have adopted high school exit exams. As deadlines
approached for schools to start making passage of the exams a requirement for
graduation, and practice tests indicated that large numbers of students would
fail, many states softened standards, delayed the requirement or added alternative
paths to a diploma."
The article goes on to say that states and cities are offering "alternative" paths
to graduation. There is no mention that there is any kind of activity ongoing
to actually teach students how to learn or to provide technical education opportunities
for students whose aptitude isn't geared toward computers or other science related
paths.
Some jobs may never return. According to The Wall Street Journal: "The
downturn that started in December 2007 delivered a body blow to U.S. workers.
In two years, the economy shed 7.2 million jobs, pushing the jobless rate from
5% to 10%, according to the Labor Department. The severity of the recession is
reshaping the labor market. Some lost jobs will come back. But some are gone
forever, going the way of typewriter repairmen and streetcar operators." Jobs
may never return in other housing boom releated industries, such as manufacturing
and finance.
There is a thread that connects the last two items, education and joblessness.
It's clear that the education system isn't doing its job, which is one reason
the economy is feeling the pain of the recession even worse. It's not just about
filling jobs that may open. It's about creating new jobs, new enterprises, and
innovation. There is a clearly a lack of spark coming out of this down turn as
fewer people are willing to take chances, or just don't know how to take chances.
This trend will only get worse as time passes.
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Europe's Small Businesses Face Big Problems
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Worse Trouble May Lie Ahead For European Economy
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As the U.S. Federal Reserve hints about looking to raise
interest rates at some point in the future, the European Central Bank is not
making such noises. That's because the European economy is in worse shape
than its U.S. counterpart. At the center of the problem is the rising trouble
in Europe's small businesses.
According to The Wall Street Journal, the lack of a small business bounce in
Europe "threaten to dent the Continent's recovery." That's because banks won't
lend small businesses money in Europe, more so than in the U.S., where there
is significant difficulty for smaller companies. The results of this trend are "widespread
insolvencies, job losses and a cloud over Europe's growth prospects in 2010."
The Journal reports: "Of the small and medium European firms that applied for
a bank loan in the first half of 2009, 43% reported a drop in the availability
of credit over the previous half-year, while just 10% cited an improvement, according
to the most recent figures from the European Central Bank." Meanwhile "A monthly
survey by the National Federation of Independent Business, a U.S. small-business
group, showed that of companies wanting to borrow money in November, a net 15%
reported more difficulty getting a loan than in their previous try."
Yet the problem may be acute in Europe as "Companies with fewer than 250 workers
account for 70% of the private-sector work force in the European Union, compared
with 49% in the U.S., according to EU figures. Business also relies more on banks
in Europe than in the U.S. where, at least for bigger firms, capital markets
are an important source of finance."
In fact, some business owners in Europe are tapping into their own personal fortunes
to keep things going. Some are selling their homes and tapping into personal
savings to keep the business going. The problem is that for those whose sales
aren't improving, their gamble isn't paying off and both their business and their
personal fortunes may be in trouble.
Still, the problems are not equally spread over Europe. Germany seems to be in
better shape than France, Italy, and Spain as German businesses didn't take on
as much debt. Yet, part of the problem with getting a loan is government regulation
and scrutiny. According to The Journal: "n Europe and the U.S., bankers say examiners
are scrutinizing loans closely. And many small businesses just aren't good risks
given the fragility of the economy."
More interesting is the fact that some of this has been developing over years.
According to The Journal: "The credit crunch has accelerated a downward trend
for Europe's small firms. Over the past decade, many have stayed in sectors,
such as textiles and shoemaking, in which they can no longer compete against
cheaper Chinese products. With the 1999 debut of the single European currency,
euro-member states lost their ability to devalue their currency to help manufacturers
compete on price. As the euro has risen against the dollar, small firms have
lacked the financial and marketing heft to seek new foreign markets."
Also: "Another problem: Many small and medium firms in Europe are still owned
by families that have resisted hiring professional managers or opening up to
outside investors. That's why economists say the shock of the credit crunch could
force a wave of consolidation."
Conclusion
Today's theme is adaptation and consequences. In our News for Thought section
we noted how the problems with the U.S. job market and the education system are
connected. Our main story develops the theme further as European firms that failed
to adapt to Chinese competition and failed to update management techniques are
suddenly in trouble.
In both cases those most affected failed to see what was coming and failed to
prepare for it. In the case of U.S. education, the lack of planning for a future
in which students need to learn how to think on their feet and live off their
wits is now coming to roost.
In Europe's case, the mom and pop economy didn't adapt to a future where Chinese
sweat shops would rule the day.
Trends aren't something that develop overnight. Only after something dramatic
happens do they become so evident that they are irrefutable. But, they've been
in place for years.
That means that tomorrow's woes are being hatched today, or were hatched 10 or
20 years ago and aren't widely evident yet. That's why we're always harping on
being careful, and monitoring portfolios and trades on a daily or weekly basis.
Perhaps the most telling point in today's column is that some of the jobs lost
in this recession aren't coming back. We'll extend that point to include many
of the things that we have become accustomed to aren't coming back. We'll let
you fill in the blanks.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Market Moves - Stock Of The Day
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Oil Service HOLDRS Trust (NYSE: OIH) May Have Seen Highs
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The Oil Service
HOLDRS Trust (NYSE: OIH) may be signaling some trouble
for energy markets.
Chart Courtesy of StockCharts.com
The recent cold spell pushed oil prices near $85. Yet,
a report on CNBC a couple of days ago makes you wonder
what's going on. The network, on its Asia overnight broadcast
noted that Saudi Arabia had agreed to sell oil to one Asian
customer for a discount on the previously agreed price.
So, you've got to wonder who the customer was? And then, you have to wonder why
the Saudis would sell the oil at a discount. The answers can't really be good
for anybody, though.
No matter who the customer was, if they were asking for a discount it means that
they didn't have the money, or that the Saudis are experiencing soft sales. Or
maybe something else was involved, like a weapons transfer or some kind of intelligence
was included as part of the deal.
The more questions you ask, though, the worse it gets. The bottom line is that
oil prices have run into tough resistance as have oil stocks.
As cold weather softens, we are likely to see some demand drop. That's normal.
What worries us, though, is that discount selling just doesn't make sense unless
there is something else going on that will eventually become known and torpedo
the markets.
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