Replies to post #4012 on Your Economy (No Politics) (YE1)

[Gizmo]

Folks in financial difficulties are soon .................

BEING STREET SMART

By Sy Harding

THE MIDDLE CLASS GETS THE SHAFT - AGAIN! April 22, 2005 .

Folks in financial difficulties are soon going to find it much more difficult to declare bankruptcy. This week Congress passed the most severe revision of bankruptcy laws since 1978. It will go into effect in 180 days.

On the surface it seems like a good idea. We've all heard of the O.J. Simpsons, and corrupt corporate chieftains who manage to declare bankruptcy to shield themselves from judgments they could otherwise be forced to pay; those who hide assets or illegally transfer property to relatives before declaring bankruptcy; and even those who could probably eventually pay off the indebtedness if they sucked it up and got at it.

But we probably also know unfortunate souls who became hopelessly indebted through accidents, major family illnesses, or small business owners dumped into a dark hole when their businesses went under through no fault of their own (perhaps the arrival of a WalMart next door, or the re-routing of a highway).

Some members of the Congressional Rules Committee were upset because they could not even get an amendment that would exclude individuals whose debt can be proved to be tied to overwhelming medical expenses. However, the bill does apply a 'means test' that excludes those with less than the median income in the state in which they live, making it apply mostly to the middle class.

It disturbs me, but doesn't surprise me, that those pushing the bill were primarily finance and credit-card companies, and their lobbyists. (Opposing its passage were labor unions, women's groups, and consumer groups).

I'd feel a bit better about it if there was at least a companion bill making it illegal for finance and credit-card companies to indiscriminately stuff mailboxes with pre-approved loan applications and credit cards, many of which reach those who might be desperate.

I'd feel better about it if the timing was different, coming just as signs are piling up that, through no fault of their own, higher gasoline prices, rising interest rates, and rising inflation are taking money out of consumers' pockets, beginning to make it more difficult for many to meet their payments.

It bothers me some that they got themselves into this record debt under one set of bankruptcy laws, and now that the debt has been incurred the rules are changed.

But it bothers me most that consumers didn't get into excessive debt entirely through their own disregard of risk, or foolishness. I do remember 2001 very clearly.

The stock market was already in the second year of a serious bear market. Two or three trillion dollars of investors' savings and investments had already been wiped out in that market decline. Consumers were feeling the pinch and had begun to cut back on their spending, which had the economy slowing into recession. And then along came the calamity of the terrorist attacks on 9-11-2001 . It looked like that would push the economy into a much more serious decline. Airlines were grounded, but no one wanted to fly anyway. The travel and tourist industry fell into a dark hole. Consumers retrenched into their homes, leaving shopping malls empty. Car salesmen passed their time throwing darts and playing cribbage.

Washington 's immediate response was that Americans had to show Osama bin Laden that he could not bring our economy down, or destroy our will. The president himself said that the most important thing that Americans could do was to get out and spend, that in fact it was the patriotic thing to do, as it would get the economy back on its feet and show the terrorists that they could not destroy the spirit of the American people.

To help consumers do that, tax rebates were issued, and when Washington worried that people might just stick them in their savings accounts, we were told to get out and spend them to help the economy. Interest rates were lowered to make it easier. More tax cuts came along. Everyone got into the act of convincing Americans to spend, that even going in debt to do so was the patriotic thing to do. Banks and mortgage companies, particularly the now-troubled giant government-chartered mortgage company Fannie Mae, lowered their credit standards and minimum down-payments. Consumers were encouraged to refinance their mortgages and in the process take money out of the equity in their homes. Credit-card companies offered new cards with low introductory rates, and flooded mail boxes with them. Auto companies offered zero percent financing, and rebates that could be used as down-payments.

And Washington 's plan worked. Consumers came through with flying colors. They did in fact spend the economy out of trouble.

Washington had hoped that if consumers got the thing going, corporations would step in and pick up the ball with spending of their own. But they didn't, and consumers were left with the burden of doing it all. And they didn't shirk their duty, even though as they spent the economy out of trouble they spent themselves into potential trouble.

And that's what really bothers me about credit-card and finance companies pushing for, and Congress passing, severe revision of bankruptcy laws with this particular timing. As one critic put it, "It's a serious betrayal of the middle class, with serious consequences for hurting Americans in order to help the credit-card companies."

Yes, it excludes the poor. But unfortunately it was the middle class that responded to Washington 's assurances that they could, and should, save the economy, and ran with it. And for some of them who did the heaviest lifting, their reward is on the way.


http://www.decisionpoint.com/TAC/HARDING.html

[FinancialAdvisor]

Bullwinkle, I think going under 1500 is inevitable on the Nasdaq Composite based on the upsloping Head & Shoulders pattern I posted back on December 2nd which received much criticism... #msg-4716383 and again in #msg-4962012 I've seen this type of pattern work in the past so I'm sticking to it, being that the Nasdaq broke the "uptrending shoulder" around 1980 and I've given the breakdown target 500 points below the break, I'm looking for 1480... and it could happen in relatively quick fashion based on the current market sentiment, technicals, and most especially the VIX/VXN.

Peace.

[Ace Hanlon]

Bullwinkle:

Excellent analysis of what Bush's "Ownership Society" means for much of the middle class. And the irony is that many of those now getting screwed voted for Bush because of his "values."

[FinancialAdvisor]

Flashback to what Greenspan said 4 years ago, what a hoot!

#msg-5810004

"The head of the US central bank has reiterated his support of tax cuts in order to reduce budget surpluses, which he has said could weigh on the US economy." - May 10, 2001

[otraque]

This is so right-on from the article you posted, noting Greenspan and his fellows for their LOL!, skilled leadership.
<<Obviously the Fed is using a rear view mirror for guidance. Here we have conceivably the most powerful and influential man in the world who essentially has led the cavalry in a circle to the attack of their own campsite. It's mind-boggling-- When tough language was needed followed by absolute actions, he took no sensible action and did not tell the world or the powers that be what they needed to hear. Sound familiar? Instead he told everyone what they wanted to hear and cranked up the printing presses. This is leadership? Foresight? If any of us ran our businesses or households the way these guys run the country, we would all be living on the streets under an overpass. Here we are, the average American citizen with little in comparison to the tools and resources that these world-class thinkers have at their every disposal and they are just now realizing what many of us have known all along? To add insult to injury, we pay these guys for this.>>

[osprey]

Nice chart, BW. I have no doubt that the nasdaq is in a downtrend, those 300 points down from the top are a giveaway. The question is when does it bottom? The next real support is 1750 and below the support at 1900 that is definitely in play. If 1900 goes.........

I don't see a recession until 2006 if at all. The question now is soft landing or hard landing and that depends on too many variables, mostly how the captains Greenspan, fed, et al. handle it. Can't call it right now.

[osprey]

To break the nasdaq downtrend, 2024 needs to be taken decisively. Or at least that is my reading of your nice chart with the bear flags. Otherwise it is lower highs and lower lows until a base formation of some sort. Until that happens, I'm going to be very defensive in the markets. In a downtrend, preservation of capital=DON'T LOSE MONEY is more important than stretching for profits. FWIW, I've never had problems making money in the stock market. I've had problems keeping it though :>).

[renshen1]

What do you thibk of NXG? Lately, been screwin the pooch...

[Bullwinkle]

~:~:~Market Trend Update for the Week Ahead~:~:~



Overview:
It’s that time once again to review the past week and look into the next. As mentioned in the previous update with which this post replies; The range bound levels I am looking at going into next week +/-10 pts are COMP 1900-1970, SPX 1125-1160 and DJIA 10000-10350. We tested the lower ranges this past week with the COMP leading the way and breaking below the 1900 level to 1890 before recovering. The SPX found support at 1140 and the DJIA at 10050. The R2K is following the COMP’s lead and there appears to be a slight divergence between the DJIA and DJTA -- NYSE with both the transports and NY Exchange forming a small H&S or quite possibly a double bottom while the DJIA has yet to follow. As for CoT data, open interest is starting to climb, but equity fund data recorded negative net cash outflows for the first time since January of this year along with $13 Bln in Money Market outflows. Also of note, the Nasdaq recorded 3 straight days of over 200 new Lows with an average of ~10:1 new Lows to new Highs. I would say there was one hell of a prop in effect… Gold is still holding its own near $435 and somewhat surprising with the U$D moving back up above 84 and Oil printing sub $50bbl for the first time in 2 months. What a difference a week makes whereas Oil looked poised to test all-time highs of $58bbl, but a Saudi visit and some jaw boning seem to have worked there magic on black gold. The 30yrs T-Bond has been in a nice up trend tipping 114 and looking to test the highs of 117 with 30yrs Yields doing a mirror image move down to 45 and poised to test 43.50…



Economic #’s:
We received slightly mixed readings on the economy (as usual) with the majority of indicators showing very disappointing results...

Existing Homes Sales rose 1.0% to 6.89 Mln, the 3rd highest level on record and beating estimates of 6.80 Mln and higher than the previously reported 6.82 Mln.
New Homes Sales rose 12.1% to 1.431 Mln at a record rate beating estimates of 1.190 Mln and higher than the previously reported 1.275 Mln. The median number of months those homes have been for sale fell to 3.6 months in March, the lowest since August 2003, from 4.3.
MBA Mortgage Applications rose 5.9% on a seasonally adjusted basis in the week ended April 22 compared to the prior week. Applications for mortgages to purchase homes increased 3.3% on a week-to-week basis, while Refi’s jumped 9.8%. Compared to this time last year, however, refinancing activity is down 14.6%, although accounting for 39.3% of total applications, up from the prior week's 38.0%, while adjustable-rate mortgages slipped to 34.7% from 35.4%. Rates on 30- and 15-year fixed-rate mortgages stood last week at 5.75% and 5.33%, respectively, down from 5.83% and 5.40% in the previous week and 1-year ARMs saw their rates average 4.15% last week, down from 4.22% a week earlier.
ICSC-UBS Weekly Chain Store Sales fell 0.3% in the week ended April 23, compared with a 1.0% increase the previous week. Compared with the same week a year ago, sales held essentially steady at 4.0 after a 3.9% rise the preceding week.
Johnson Redbook Sales fell by 3.8% in the 3rd week of April while sales for major retailers increased 1.5% on a YoY basis for the week ending April 23rd.
Durable Orders fell 2.8%, the biggest drop since September 2002 as orders for aircraft fell sharply. Even excluding aircraft, items expected to last 3 years or more fell by 1.0%. A rise of 0.3% had been expected, 0.5% overall excluding transportation.
GDP came in at 3.1%, the lowest growth rate in 2 yrs. Expectations had been for 3.5% and well below the previously reported 3.8%.
Chain Deflator which is a component of GDP climbed to 3.2% following the previously reported 2.3% gain. Business spending on software and equipment rose at the slowest pace in 2 years.
Initial Jobless Claims rose 21K to 320K The increase in claims in the latest week comes after a sharp drop in the previous week, when claims plunged 33K to 299K. The insured unemployment rate fell to 2.0% in the week ending April 16th from 2.1% in the previous week. This is the lowest level in 4 years. The number of people receiving weekly benefit checks fell by 76K to 2.56 Mln in the week ending April 16th , this is also the lowest level since March 19.
Help Wanted Index slid by 2pts to 39 from a previously reported and expected 37 and the highest level in a year.
Employment Cost Index increased 0.7% in the 1st Qtr after a 0.8% gain in the 4th Qtr. The increase in the employment cost index was the smallest increase since the 1st Qtr of 1999 and was below market expectations of a 1.0% increase. Benefit costs rose 1.2% in the Qtr, the smallest increase since the 1st Qtr of 2002, while wages and salaries rose 0.6%
Personal Income & Spending both rose in March with Incomes up 0.5% and Spending up 0.6%, expectations were for both to rise 0.4%. The March personal savings rate fell to 0.4%, the lowest level since October 2001.
PCE (Personal Consumption Expenditure) rose 0.5% in March, but excluding food and energy costs the index rose 0.3%. This matched expectations while topping its 0.2% previously reported. Year over year, the price index for personal consumption was up 2.4% vs. 2.2% in February.
Consumer Confidence dropped to 97.7 or a 5 month low from the previously reported 103 marking the 3rd straight month of declines. Consumer's longer-term outlook fell as well. The expectations index dropped to 87.2, the lowest since July 2003, from 93.7. The present situation index dropped to 113.6 from 117.
Michigan Sentiment came in at 87.7 in late April from 88.7 earlier in the month. Expectations had been for the index to remain flat at 88.7. The index is below the 92.6 level of March. The index has fallen 4 months in a row. The current conditions index rose to 104.4 from 103.9 in early April. The index was 108 in March. The expectations index fell to 77.0 from 79 earlier in the month. The expectations index was 82.8 in March
Chicago PMI fell to 65.6% from 69.2% in March. Expectations had been for the index to fall to 62.3%. The new orders index fell to 71% from 76.7%, while the prices paid index fell to 66.1% from 68.2%
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE rose 5.5 Mln bbls, but according to API rose 4.7 Mln bbls. Gasoline according to DoE fell 300K bbls, but according to API fell 1.1 Mln bbls. Distillates according to DoE fell 1.4 Mln bbls, but according to API rose 2.9 Mln bbls.
WLI (Weekly Leading Index slipped to 134.8 in the week ended April 22 from a downwardly revised 135.2 in the prior week. The index's annualized growth rate, which smoothes out weekly fluctuations, edged down to 3.2% from 3.4% the week before.
Next week we will get Construction Spending, Factory Orders, Auto/Truck Sales, FOMC meeting, ISM/ISM Services, Initial Claims, Productivity, Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate and Consumer Credit.


The markets these days are living day-to-day and minute-by-minute, the best way to describe it would be schizophrenic. There has been a lot of 2nd guessing made on baseless claims and speculation. Anything goes and like ducklings falling in line to follow their mother, so do the masses. The way I see it, analysts, talking heads and the like have most everyone doing a rendition of the game “Twister”. It is quite amusing if you are sitting on the sidelines or have longer term aspirations. What is one to do in a market like we have today? Turn off the noise, that’s what. It is all a bunch of static, NOTHING has changed. Do not let the media or anyone else reprogram you into believing it is different this time. It isn’t… For instance, one day we will hear how the Fed may change their stance based on any one days data or events, the next day is a different story based on another set of data points or events. The bottom line is you know what the Fed is going to do, they are going to raise rates! With rates still being way too low and some semblance of equilibrium needing to be restored, rates will continue to rise indefinitely for more reasons than I care to mention. They must go up and they will, whether it is ¼ pts or ½ pts rises is of no consequence. It is the fact that they will continue to go up is all you need to know. Oil, oil, oil… Ever heard the one about the boy who cried wolf? I give you crude oil. While peak oil is for real, it is not a problem we need to contend with for decades. Of course the sooner we move away from fossil fuels, the better, but we’ll save that for another discussion. I have contended for some time now that there is plenty of oil and that refining capacity is the real issue. Low and behold the Saudi Prince visits Crawford, TX and publicly states that oil supply is not the issue. It only took 2 years for the markets to finally realize it. I even heard the “G” word used this week. We went from under supply to a glut in one day. The talking heads and market players do not really “get it” though. If you can’t bring oil to the markets it has the same effect as if there were an oil shortage. Increasing output by 5Mln bbls a day won’t help and neither would oil priced at $10bbl. A bottleneck has the same effect as a shortage and regardless of what happens, you and I will still pay out the nose at the pump. Then there’s the issue of $375 an Oz. Gold or so it has been said that this is where the price is going. I would like to know on what basis this prognostication was made and by whom. Granted, manipulation exists, but where in the markets does it not? I am still waiting and actually would like to see $375 or lower so I can load the truck, but I won’t be holding my breath. Gold is in a strong position and will continue its bull run unless deflation should take hold. Not to be forgotten is the new case for U$D strength based China revaluing the Yuan. Nobody will be pushing China into doing anything, they will do as they see fit for them, not us. If they do drop the peg, inflation will soar in the USA. Then we have countries holding extraordinary amounts of US debt and while they may not be net sellers, I doubt they will be buying either. Most likely they will diversify assets into a basket of other currencies and bonds. Throw in deficits, trade imbalances and a plethora of other disturbing financial realities that we know exists and this spells trouble for the U$D. Unfortunate but true, so be prepared. The CRB is another of those coming under attack lately. I have seen the CRB in correlation to Gold, the U$D, the DJIA and who knows what else. These ratios do not really matter though, commodities and natural resources are and will remain in high demand. Much like oil, they are being used up quicker than they can be produced. The voracious appetite for these items cannot be printed away. These are just some of the glaring examples of what is taking place. What I am getting at here is the story we have come to know has NOT changed and most likely will not change any time soon. The real story remains the same and the noise you hear are those looking to fulfill their own agendas by filling your head with recycled hyperbole.

What can we expect now?:
I expect this week to continue with the same range bound volatility that we have come to know and love. Being as we are near the bottom of these ranges that I outlined earlier, I believe we may see some movement towards the top of the ranges. So far COMP 1970 hasn’t been tested with 1962 being the number to beat. On the SPX 1163 has stifled the index and the DJIA upper range of 10350 has yet to be tested with 10290 being the number to beat. If these numbers are exceeded I expect them to remain within the ranges of +/-10 pts for COMP 1900-1970, SPX 1125-1170 (edit from 1160) and DJIA 10000-10350. While we could just as easily go into a further decline from here, that would be too easy. Program trades and PPT are propping this thing big time at the crucial levels of COMP 1900, SPX 1140 and DJIA 10000. With Nonfarm Payrolls being the biggie this week, I believe we lollygag around for most of the week. After this number is released, it may create the catalyst to justify a move below these lines in the sand. We will just have to wait and see…

On a technical note, Bullish Advisors are at 44.0% with Bearish Advisors at 29.7% and slowly but surely sentiment is changing. The VIX/VXN trends are still moving together with both putting up bullish flag like chart patterns. A new range appears to be getting established whereas VIX was stuck between 11-14, now in the 14-18 range. VXN 14-18 is now in the 18-22 range. CBOE Equity P/C Ratio is at .738 with a 21DMA of .695. When looking at an EPC chart one can see that this too has been range bound for a better part of the year with ~.500 to .800 being the range on a print basis. The RSI 5-Days and RSI 5-Wks are Neutral across the board with the exception of of the RSI 5-Wks on the COMP being Oversold. The $NASI Daily (Summation), The $NAMO Daily (McClellan), The $NAHL Daily (Highs/Lows), The $NAAD Daily (Advance/Decline) are all in downward trends where the 50DMA has clearly crossed under the 200DMA for all the indicators including BP%’s for NDX and the COMP, although SPX and NYA are not quite there yet. Another interesting crossover to watch is that on the VIX and VXN indicators as the 50DMA is now moving up towards the 200DMA. One last note is the 50/200DMA on the Equity and Total P/C ratios where the 50DMA on the Total P/C crossed the 200DMA some time ago, but the 50DMA is just crossing the 200DMA on the Equity P/C.

Charts for all of these indicators are posted below for your viewing pleasure plus an annotated chart of the COMP. I will be posting some charts of Gold and Oil a little later on the Your Economy board, some interesting stuff to share…
















NOTE:
I continue to hold a USPIX position which I will flip long when the time is right.

CORE:
Funds; HSGFX, PCRDX, PRPFX, QRAAX, RSNRX ,TAVIX. Individual Stocks; ANO, BHP, SWWC

SWING: GSS, NXG – Added BGO this week

Disclaimer:
This disclosure is not a recommendation to buy or sell or to do as I do. It is only to give my thoughts on current market conditions and share the positions that I am holding for tracking purposes only. I am not a day trader and only attempt to identify up/down trends and play the swings.