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Dallas, TX
June 17, 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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U.S. Recovery Fails To Follow Historical Precedence
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What's Hot Today: |  |
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U.S. stock index futures were close to even in early Thursday trading.
Asia pulled back and Europe was rallying modestly. The Euro is now
above 1.23.
News For Thought
More trouble ahead for Minerals Management Services. According
to The Wall Street JOurnal: "The U.S. agency in charge of regulating
offshore oil drilling lacks sufficient guidelines and inspectors to police
the industry's operations in the Gulf, the acting inspector general of
the U.S. Interior Department is expected to tell a congressional panel."
Many in Congress were short selling companies that they were overseeing
during financial crisis. According to The Wall Street Journal: "In 2009,
amid the federal government's most aggressive intervention in the U.S. economy
in decades, some members of key congressional committees placed bets with their
own money on the stocks of companies they helped oversee, according to a preliminary
analysis by The Wall Street Journal of public disclosure filings made public
Wednesday." The Journal added: "There isn't evidence that any of the 2009 trades
identified by the Journal involved nonpublic information or broke any laws. Members
of both parties and both chambers traded regularly, although in some cases the
trades were made by spouses rather than by the legislators themselves. Whereas
many government officials are prohibited from making certain types of investments
in which they might have a conflict of interest, members of Congress face relatively
few restrictions." And "Under the codes of ethics set by the House and Senate,
members are generally free to trade stocks or other securities—and to "sell short," or
bet that investments will fall in price—even in the case of companies whose fortunes
may be directly influenced by legislative actions."
But it just feels so wrong, doesn't it? They write the tax code and evade paying
their own taxes. They make bad laws and sell the companies that the laws affect
short. And then it's all perfectly legal, because, they, of course, make the
laws.
Just another reason to consider restructuring the government.
Five Republicans and three Democrats being probed for fundraiser timing
issues. According to The Washington Post: "The Office of Congressional
Ethics is investigating eight lawmakers who held fundraisers within 48 hours
of a major House vote on a Wall Street reform bill or received substantial donations
from business people with a financial stake in the bill, according to congressional
sources and letters." The Post added: "The probe is focused on whether the timing
of accepting the campaign checks created an unacceptable appearance of a conflict,
according to sources familiar with the investigation and letters sent by the
OCE to lobbyists requesting information. The OCE's spokesman declined to comment
for this article, citing the ongoing nature of the investigation." Several of
those investigations have made statements denying wrongdoing.
TARP Deadbeat banks on the rise. According to Reuters: "More than
90 U.S. banks and thrifts missed making a May 17 payment to the U.S. government
under its main bank bailout program, signaling a rising number of lenders are
struggling to meet their obligations." According to the report: "It was the first
missed payment for 23 of the banks; for the others, it was at least their second
miss. The number of banks missing their TARP payments rose for the third straight
quarter. In February, 74 banks deferred their payments; 55 deferred last November."
The end of free checking is near. According to The Wall Street
Journal: " Bank of America Corp. and other banks are preparing new fees on basic
banking services as they try to replace revenue lost to regulatory rules, in
a push that is expected to spell an end to free checking accounts for many Americans.
Free checking accounts, which have been widely available for more than a decade,
have been a boon to middle-class consumers and attracted low-income customers
to the banking system for the first time." The unintended consequences of Congressional
action will continue, and no one can stop them, until November. |
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U.S. Recovery Fails To Follow Historical Precedence
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Decline In China's Real Estate Sales May Be Sign Of Decline Ahead
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An interesting dynamic is emerging in the U.S. economy
as industrial production is starting to outpace housing as the engine of
growth in this post-recession period.
According to The Wall Street Journal: "Ground-breaking for new homes and applications
for building permits both plunged last month, as a popular set of tax breaks
designed to stimulate home buying expired" while "the U.S. industrial sector
is providing an unexpected degree of support to growth. Industrial production—the
output of factories, utilities and mines—rose 1.2% in May, compared with the
month before, the Federal Reserve said on Wednesday, as global demand for a wide
range of U.S. goods continued to grow."
Chart Courtesy of StockCharts.com
That may be the reason that the cyclical stocks (CYC) are outperforming the housing
sector (HGX), in the stock market.
Chart Courtesy of StockCharts.com
According to the Journal, businesses such as steel manufacturers and trucking
and transport firms are starting to see the benefit of this dynamic. Federal
Express cited a growing sense of recovery in its earnings report summary released
Wednesday. Still, as the Journal points out: "the troubled housing sector continues
to leave the U.S. economy vulnerable. Without the construction activity, the
related jobs and the sales of items like furniture and appliances, the economy
is growing far more slowly than it would normally after so deep a recession."
Data from the U.S. Commerce Department bears this out as "May construction starts
on single-family homes fell 17.2% to an annual rate of 468,000—the lowest level
in a year. The drop suggested that the housing market's dependence on government
home-buyer tax credits that expired at the end of April was even greater than
most economists had assumed." And the number of houses up for sale continues
to rise, all over the country. According to CNBC's Diana Olick, beach front property
in Pensacola is plentiful, with some condos in highly prized areas selling now
for close to what they sold originally, as price appreciation achieved during
the boom years has disappeared.
According to a growing view in the real estate market, the housing problem isn't
going to be resolved until the foreclosure problem gets resolved. And few know
when that is going to happen, although many are hoping that by 2012 things will
have improved.
The opposite is ongoing in Asia where governments are trying to dampen housing
bubbles aggresively. According to Bloomberg.com: "In China, home prices are surging
at a record pace even after authorities set price ceilings, demanded higher deposits,
and limited second-home purchases. In Hong Kong, where the government has pledged
to release more land to cool prices, a site auctioned on June 8 fetched the most
since the market peak of 1997. It’s a similar story in Singapore and Taiwan as
prices defy cooling measures."
What makes this whole situation in China puzzling is that there has yet to be
a significant crack in the stock markets. To be sure 15-20% declines have occurred,
which are not insignificant. Yet, you have yet to see the real crash scenario
emerge.
This, however, may not be too far away. According to Bloomberg.com: "While prices
have yet to drop, sales volumes have. Property sales in Beijing, Shanghai and
Shenzhen fell as much as 70 percent in May. China Vanke Co., the nation’s biggest
publicly traded property developer, said its sales fell 20 percent in May from
a year earlier. Guangzhou R&F Properties Co.’s contracted sales last month
shrank 48 percent." Yet, despite falling sales "Property prices rose 12.4 percent
in May, compared with a record 12.8 percent increase in April, from a year earlier,
indicating price declines are not keeping pace with the drop in transactions.
The value of sales last month slid 25 percent from April. The data series, covering
70 cities, began in 2005."
Conclusion
The U.S. was way ahead of the rest of the world in its decline after the subprime
mortgage crisis broke wide open. And the recovery, such as it is, may be a sign
of what could lie ahead for other countries, if they follow similar paths, assuming
a property price crash ensues.
More than anything, what the situation in China is providing now is a roadmap
to what may lie ahead. If the script follows normal tendencies, when prices start
to crack in China, the rest of the house of cards will come tumbling down.
If that moment ever comes, it will be interesting to see what happens in the
U.S. and Europe. If another credit freeze develops, all bets on any meaningful
recovery for a good while are off.
We'll be on Twitter
some time today before the market closes with some updated comments.
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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General Electric (NYSE: GE) Acts Like A Bank Stock
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Chart Courtesy of StockCharts.com
Despite the robust action in cyclical stocks, General Electric
does not seem to be in the mood for a rally. That's because
the market seems to be focusing on GE Capital, which is
essentially a bank. And banks are in the sights of Congress.
TARP, the subprime mortgage crisis, and the general slowing in the U.S. economy
put a crimp on GE Capital, from which it has yet to recover fully.
And the lack of a Jack Welch like leader at the helm, no offense to Mr. Immelt,
has left the company as more of a cash flow vehicle, rather than a profit and
growth machine.
Also knocking the shares are the focus on green energy and other venues that
may be being viewed by the market as trying to be politically correct, rather
than associated with attempts to make money.
The bottom line is that GE is mired in a boggy looking chart while the other,
more pure cyclical plays are acting better.
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