Morning in Arizona

Morning in Arizona
Rainbows over Canyonlands - Dave Stoker

The Headline Animator

Monday, August 31, 2009

The Week Ahead: The End of Summer

As our friends and neighbors to the west of us in California, fight the yet uncontrolled, Angeles National Forest wildfire, a 42,000-acre, slow moving monster, our thoughts, and prayers are with you. Two firefighters, so far, tragically lost their lives battling this blaze. At this point, the 12,500 homes being threaten is a distant second to the potential loss of life.

In Arizona, we are still fighting a different crisis; namely the minor depression of 2008/2009. Last Thursday, the S&P/Case-Schiller home Price Index provided some encouraging news, reporting that homes prices increased 1.1 per cent, from the 1st quarter to the 2nd quarter, in 2009. However, prices still were down 31.6 per cent, from a year ago.

This morning, US markets point to a lower opening as Asian and European markets sold off overnight. The Shanghai Composite Index lost 6.7 per cent while Nikkei 225 Stock Average fell .4%. After 50 years ruling the Japanese government, the Liberal Democratic Party (LDP) felt defeat, election after election, losing 308 of 480 lower-house seats to the Democratic Party of Japan (DPJ). Later, the Yen rallied, which is bad for their manufacturers of exported goods. Europe stock exchanges fell this morning thinking that the six-month global stock market party may be ending soon. The London Exchange is closed today for a holiday.

This week may be an excellent time to take some profits from local Arizona stocks trading near their 52-week highs, such as ON Semiconductor Corp (ONNN), or Southern Copper Corp. (PCU), or Pinnacle West Capital Corp. (PNW). The bull market that started in March, with the S&P 500 Index testing 666 is showing signs of exhaustion, closing Friday at 1028.93. After the near-death experience of global markets from last September through March, including a 2008 negative return of 37 per cent for the S&P, taking profits will not be the worst decision one could make, at this time.

There are other headwinds facing the market to consider this week, as well. A slew of economic reports will hit the market; today the Chicago PMI, on Tuesday, ISM Mfg Index, and Construction Spending. On Wednesday, ADP Employment Report and Factory Orders; Thursday, Jobless Claims, Chain Store Sales, five different Treasury Auction announcements, and on Friday, the Bureau of Labor Statistics will announce the new unemployment figures, with the consensus predicting a loss of another 200,000 jobs and the unemployment rate rising from 9.4 per cent up to 9.6 per cent.

Elliott Wave’s Robert Prechter and market guru is calling a market top forming at these levels based on the latest wave count described in his August financial newsletter. Prechter’s forecasting record for the past year is quite strong. When he is in the zone, you must give credence to his outlook.

Many investors agree that the market has gotten ahead of itself in anticipation of a strengthening economy in the fourth quarter of 2009. After all, the government has only released 20 per cent of the $780 billion dollars, authorized in the stimulus bill to kick-start spending, with 80 per cent more waiting in the wings to juice the economy. Nevertheless, the larger question is this: will consumers come back into stores and spend like before? Or, has one too many close calls, in the past ten years with the bust, residential real estate bust, and stock market bust, plus retirement fast approaching baby boomers, permanently changed their spending and savings habit?

The savings rate in the US has gone from a negative number to over six per cent, in the last three years. If the consumer keeps their hands in their pockets, recovery from this downturn will be longer and more painful than currently advertised by Washington DC and Wall Street.

After the last 12 months, I cannot rule out anything that may or may not development in the stock markets. We are far from having a healthy economy, banking system, or fundamentally sound, earnings environment. Still, since March, markets have turned in a history-making performance to the upside. Just like the history-making performance to the downside, in 2008.

Thank God, we have a three-day weekend to rest.

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