Market Dips, Closes Higher
Research for Online Investors

by John Dalt

7/06/09

The market dropped today to 888 on the S & P 500, traded sideways most of the session until the last hour, when optimism became infectious and closed up for the day.  If it were this easy, the bull market would carry us to green pastures.  It is not this easy, earnings season starts this week, oil and other commodities appear soft, out of concern that the economy is not recovering as fast as hoped.

GM got approval from the bankruptcy court to sell their ‘good’ assets to the New General Motors, clearing the way for the company to exit bankruptcy and turn their attention to building and marketing vehicles rather than dealing with lawyers and the government.  That is probably wishful thinking.

Oh! Bama traveled to Russia to sign a commitment to negotiate a treaty to reduce nuclear warheads and missiles by up to one-third.  Russia gets a pass on this, as they are reducing their nuclear arms anyway, due to neglect and lack of funds.  Putin is capitalizing on the Democratic wish for reduced nuclear arms and comes out looking like a democrat, interested in world peace.  The important point, Moscow is cutting nuclear arms even if we do not.

Maybe we do not “need” 2150 nuclear warheads, but it seems strange that we would be reducing ours when N. Korea and perhaps Iran are building stockpiles.  If Iran is confirmed to have nuclear weapons, it will set off a race in the Middle East, as the fear of a nuclear Iran will force Saudi Arabia and others to gain equilibrium.  Japan is on the hot seat, as N. Korea can reach them with medium range missiles.

Russia also gave permission for the U.S. to transport military supplies through Russian airspace for the war in Afghanistan.  This gives our military an option other than Pakistan, as that ground route has come under increasing attack by the Taliban.  There is scant information on this agreement in the press, but it is potentially the biggest news of the day, concerning our efforts in this region.  Air supply is not as good as ground transport, but better than no option.

The FDIC closed seven banks this weekend, with six in Illinois.  That brings the total this year to 52.

According to the Wall Street Journal, our lawmakers and assistants are traveling like never before on the taxpayer dime(s).  Overseas congressional travel is up ten-fold since 1995, has tripled since 2001, and doubled since 2005.  The cost has increased 70% since 2005, when new regulations curtailed spending by lobbyists.

The White House appears ready to ask for another stimulus package from congress.  Vice-President Biden admitted this weekend that they had “misread” the economy.

The democratic ideal of government spending is doomed to fail, as the government does not create wealth.  The prospect of mid-term elections makes it more likely that congress will institute tax cuts to spur small business.  Democratic Congressmen will face a tough election with unemployment over ten percent.

Tax credits on capital purchases, shelving health care reform and dropping carbon legislation would open the playing field for businesses.  Business people need to see an economy recovering and a business climate where they are not the ‘bad guy.’

Thursday, the Labor Department reported that nonfarm payrolls (jobs) decreased by 467,000 in June. The stock market declined sharply on the news. Today's chart puts that decline into perspective by comparing job losses during the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1954-2006 (dashed blue line). As today's chart illustrates, the current job market has suffered losses that are nearly three times as much as the average. In fact, if this were an average recession/job loss cycle, the number of jobs would have begun to increase three months ago.

Hey OH! Bama, your stimulus is not working!
We warned you it would not.

The problem is not the severity of the recession, it is the government spending money and going in debt.  Cut government, give incentives to business to buy capital goods and hire salesmen.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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