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…but we don’t want to take our eyes off the ball. Even the top brass in China are having issues with the dramatic rise in the Shanghai Index. One of China’s most influential investors said that the market was “defying gravity,” highlighting the growing concern that the rapid rise in mainland share prices is unsustain-able. While officials are watching the stock market frenzy with concern, public appetite for risk is unabated. Who ever heard of manufactured hamburgers? Our government now wants to classify hamburger flipping as a manufacturing job. Counting jobs at McDonald's, Burger King and other fast-food enterprises alongside those at industrial companies like General Motors and Eastman Kodak might seem like a stretch, akin to classifying ketchup in school lunches as a vegetable, as was briefly the case in a 1981 federal regulatory proposal. But the presidential report points out that the current system for classifying jobs "is not straightforward." The White House drew a box around the section so it would stand out among the 417 pages of statistics. "When a fast-food restaurant sells a hamburger, for example, is it providing a 'service' or is it combining inputs to 'manufacture' a product?" the report asks. Folks, the fact is, manufacturing jobs as a percentage of the total labor force have fallen to an all-time low. Could it be that Washington wants to hide this embarrassment by lumping fast food with manufacturing in order that it won’t look so bad? The Japanese market still unstable.
Despite the rallies to new highs in virtually all other major markets, the Japanese stock markets have stagnated since the decline in February. Traders in Japan are taking some small consolation in the fact that the US markets rallied on Thursday after the Nikkei index posted a loss earlier in the week. But a lot of things can happen over this weekend that could pull the plug on the Nikkei index after its already weakened state. A new record? Or just an illusion.
The Dow’s new record seems to have investors mesmerized, but Wall Street has used up just about all its tricks in getting it there. With housing in a deeper slump than most would like to admit, there seems to be a frenzy to prove that investors are still making money. The fact is, the February 27th debacle did not seriously reduce the amount of margin debt in the New York Stock Exchange. So, here we go, cranking up the debt machine again so that the market looks better than it is. Michael Nystrom has an insightful article about the machinations of the market. It seems that everything we do is supported by debt. In reference to his comments about college students and debt, I have been encouraging my own college age children to avoid debt as much as possible. Will the bond rally hold?
Anything below a 2% growth rate in our economy potentially leaves us in recession territory. This is the weakest economic growth number since early 2003. But this time we are out of ammunition to jump-start the economy again. Inflation is too high to lower interest rates, leaving the bond rally suspect. Although there is talk about calling in more troops in the Middle East, the war option (to stimulate the economy) is also out of the question. We are between a rock and a hard place. Foreclosures coming to a neighborhood near you. The National Association of Realtors reported Tuesday that sales of existing homes fell by 8.4 percent in March, the sharpest drop since a 12.6 percent plunge in January 1989. The blame is being placed on troubles in the sub-prime mortgage market, where lenders are tightening up their lending standards. But even more ominous is the rising number of mortgage delinquencies and foreclosures that are dropping an ever-larger supply of homes on an already glutted market. Check out your zip code. It may surprise you. .The dollar is at an important inflection point. Is there anything that will help the ailing dollar? The view held virtually around the world is that the dollar is toast. But the other (minority) view is that the Federal Reserve doesn’t have the option of reducing interest rates in the face of rising inflation. A crossroads approaches. The gold rally may be history.
Traders are still talking about a rebound in the price of gold to levels above $700.00, but there are two possibilities that might mitigate against it. First, a completed five-wave move that suggests the rally is over for now. Second, this rally didn’t overtake last year’s high of $730.40 (cash market). In past cycles, a failure to exceed the prior year high led to lower prices. Ouch! Will someone stop the pain…
…in our wallets? Reuters reports, “While the threat of another summer of record U.S. gasoline prices has consumers grousing and the media buzzing, experts say high fuel prices have done little to curb consumption or hurt the wider economy in recent years. The mid-west could see gasoline prices rise above $3.25 a gallon at a station near you.
When will Spring finally arrive in Michigan? “Springlike temperatures finally arrived across most of the Lower 48 States this week after an unusually cool first few weeks of April. As weather-induced heating load eased, natural gas spot prices softened during the beginning of the report week…However, a return of colder weather increased prices in the last 2 days of trading, offsetting most of the declines at locations outside the Northeast and the Rockies. The Energy Information Agency still doesn’t have a bead on the outlook for natural gas. Will the “Sell in May” strategy work again this year? A Middle Eastern news service has this to say, “With global equity prices nicely higher in the first quarter, and all asset classes - except the Arabian stock markets - in positive territory, it must be tempting to lock away some gains. Besides selling in May is an old stock market mantra which has preserved a few fortunes in the past.”Whay isn’t our media doing the same? A year ago, Jeffrey Hirsch, author of the Stock Trader’s Almanac, was quoted, “The Dow Jones Industrial Average may tumble as much as 30 percent between May and October from the six-year high set last month, said Jeffrey Hirsch, president of the Hirsch Organization in Nyack, New York.” Could it be that the anticipated decline simply was delayed another year? Several experts still hold out for a “four-year low” which they maintain was simply delayed, similar to 1987. “Déjà vu” all over again? In March 2007, new strategies were added to the TPI menu of investments. Please make an appointment to discuss these strategies by calling me or Claire at (517) 324-8741, ext 19 or 20. Or e-mail us at tpi@thepracticalinvestor.com. Regards, Anthony
M. Cherniawski,
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