What to Watch
Research for Online Investors

by John Dalt

7/07/11

ADP released their Non-Farm Employment Change this morning and surprised the market.  We expected an increase over last month’s 36,000 gain.  Economists projected a 60,000 gain; the report came in with 157,000 gain in employment last month!  Initial jobless claims and continuing claims were slightly better than expected.  Right at market open, Chain store sales numbers came out showing growth 1.5% greater than last month.  Is it any wonder the market was off to the races this morning?

Here is what we are watching. We read an interesting analysis yesterday by Sam Collins. I like to read Mr. Collins daily commentary. He notes that the Dow Transportation index has surpassed the April high. Here is the chart.

As a leading indicator, this is incredibly bullish for the market.  Transportation stocks move higher on an expected increase economic activity.  More commerce means more shipping!  The confirmation of this bullish indicator is the Dow Industrial Average.

Here is the problem.  The Dow has not passed its April high.  If it does, we have confirmation of the transportation numbers and the bull market is off to the races.  Mr. Collins interprets a failure of the Dow Industrial Average to confirm the transportation high as incredibly bearish.  The Dow needs to close above 12810 to confirm the bullish signal from the Transportation index.  We are watching.

Bad news hit the wires this morning, and no one noticed. Christine Lagarde, the new managing director of the International Monetary Fund (IMF) said that employment will be her ‘key focus, even more than fiscal deficits,’ according to CNN. This dual mandate has led to much of the problem with the U.S. Federal Reserve. How do you maintain the value of money when you are concerned about pumping money into a deflating economy to increase employment? We see more problems ahead for the IMF.

The IMF is like an ambulance crew that is called in to clean up the broken mess on the sovereign highway after dictators and socialists wreck havoc on a country’s economy.  Now rather than just cleaning up the dead, they want to start directing traffic to make everybody go back to work.

The outcome of the tug-of-war between the soft goal of working to improve employment and the harsh reality of financial rescue (without destroying the value of the country’s money) is predictable.  We only have to look at the value of the dollar after 98 years of Federal Reserve financial stewardship.  Today’s U.S. Dollar is worth about two cents in 1913 dollars!

Most of the damage has been done in later years.  A penny candy from the 19th century or a quarter candy bar from the 1960’s now costs a dollar.  Such is the cost imposed on society by world improvers that “just want to help people.”

The U.S. should have learned the tragedy of the Fed’s boom and bust policies after the Roaring ‘20’s and the resulting depression that followed in the 1930’s.  Those that don’t learn history, must repeat it.  But, how many times?

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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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