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Stock Market Speculative Advance Distinguishing Characteristic of Bear Market Rallies

Stock-Markets / Financial Markets 2009 Aug 28, 2009 - 06:57 PM GMT

By: Anthony_Cherniawski

Stock-Markets

Best Financial Markets Analysis ArticlePersonal income increased $3.8 billion, or less than 0.1 percent, and disposable personal income (DPI) decreased $4.6 billion, or less than 0.1 percent, in July, according to the Bureau of Economic Analysis.  Personal consumption expenditures (PCE) increased $25.0 billion, or 0.2 percent.  In June, personal income decreased $133.4 billion, or 1.1 percent, DPI decreased $119.9 billion, or 1.1 percent, and PCE increased $60.9 billion, or 0.6 percent, based on revised estimates.


Personal saving -- DPI less personal outlays – was $458.5 billion in July, compared with $486.8 billion in June.   Personal saving as a percentage of disposable personal income was 4.2 percent in July, compared with 4.5 percent in June.

Consumer spending in the U.S. rose in July as households took advantage of the government’s “cash for clunkers” program to buy new cars.  The 0.2 percent gain in purchases was in line with forecasts and followed a 0.6 percent increase in June, the Commerce Department said today in Washington. Incomes were unchanged, causing the savings rate to decrease.

Folks, “Its A Wonderful Life” is not playing here.

And so the guns come out blazing. The Clearing House Association, another name for all the banks that were bailed out over the past year with the generous contributions from all of you, dear taxpayers, are now threatening with another instance of complete systemic collapse if Bloomberg's lawsuit is allowed to proceed unchallenged, let alone if any of the "Audit The Fed" measures are actually implemented.  Read More

Aren’t consumers more confident after a rising market?

SPX.png --Confidence among U.S. consumers was little changed this month as reports indicated industries such as housing and manufacturing are stabilizing and the economy is on a path to recovery.

The Reuters/University of Michigan final index of consumer sentiment dipped to 65.7, better than forecast, from 66 in July. A preliminary reading for August was 63.2.

 

 

A contracting CPI may be good for bonds.

Bonds.png-- Treasuries rose this week after a government official spurred expectations among investors that inflation will remain in check. Projections for the consumer price index show a contraction of 0.7 percent this year, an increase of 1.4 percent next year and 1.5 percent in 2011.   Consumer spending increased in July at half the pace of the previous month, a sign the biggest part of the economy will be slow to rebound, economists said before the Commerce Department report today.

 

 

 

 Gold is threatening its support.

Gold.png--Gold climbed for a fourth day after the dollar fell on reduced demand for the relative safety of the currency as crude oil and equities rallied and optimism increased that a global economic recovery is underway.

 The burning question is, what will gold do in a stock pullback?   A break of the lower trendline support may bring some pain to gold investors…and how long will the recovery last?

 

 

The Nikkei rose on low volume.

Nikkei.png-- Japanese stocks rose on the last trading day before an election that newspaper polls suggest will result in the ruling party being ousted. Both of the country’s main indexes had their steepest weekly advance this month.

For the week, the Nikkei gained 2.9 percent, and the Topix rose 2.3 percent, the most since the five days ended July 31. The number of shares traded on the Tokyo Stock Exchange in the past week was the lowest this month.

 

Is China resuming its bear market?

Shanghai Index.png-- China’s  stocks fell, with the Shanghai Composite Index completing a fourth weekly decline, on concern government measures to curb lending and production in industries including steel and cement will slow economic growth.    The Shanghai index has fallen 18 percent since this year’s peak on Aug. 4 as banks reined in lending to avert asset bubbles and policy makers advised industries such as steel and cement to curb overcapacity.

 

 

 

The dollar may be building a big base.

US Dollar.png-- The vast majority of investors are bearish on the dollar.  In fact, there are presentations on the inevitable collapse of the dollar.  That may be so, but the dollar may not go down in a straight line.  In fact, as we can all attest in stocks, bear market rallies can be pretty powerful.  The dollar has built a month-long base from which it may launch a strong rally. 

 

 

 

The number of troubled banks rose 36% in Q2.

Housing Index.png--The Federal Deposit Insurance Corp. reported Thursday that the number of distressed banks rose to the highest level in 15 years as its insurance fund continued to shrink. More lenders ran into financial trouble during the second quarter with recession saddling banks with soured loans, according to the report. The FDIC said that the number of troubled banks rose to 416 at the end of June from 305 at the end of March. This is the largest number of banks on its "problem list" since June 30, 1994, when 434 banks were on the list, which isn't disclosed by the FDIC.

 

 

Will a weak hurricane season help gasoline prices?

Gasoline.pngThe Energy Information Administration Weekly Report suggests that, “Hurricane season officially started on June 1, and the Federal Government, led by the Department of Energy’s (DOE) Office of Electricity Delivery and Energy Reliability, is prepared to respond alongside the private sector should a hurricane affect the energy infrastructure of the United States. In early August, the National Oceanic and Atmospheric Administration revised its outlook for the 2009 Atlantic hurricane season, reducing the number of projected named storms and raising the probability of a “below normal” storm season.” 

 

 

Natural gas prices still modest.

Natural Gas.pngThe Energy Information Agency’s Natural Gas Weekly Update reports, “Natural gas spot prices posted declines at all market locations since Wednesday, August 19, as a result of relatively moderate temperatures in the lower 48 States and robust levels of natural gas in storage. Natural gas spot prices posted broad-based declines since last Wednesday, August 19, decreasing by as much as 39 cents per MMBtu, or 13 percent, this trading week.” 

 

 

 

Well, it's official: Some pigs can fly.

Or at least they can in that fantasy land known as Wall Street, where the laws of gravity and logic were suspended for the month of August.  The first to report on this was The Globe and Mail.

American International Group Inc., Fannie Mae and Freddie Mac – a trinity of corporate fecklessness, if there ever was one – each posted staggering advances this month) as investors appeared willing to gamble that even the shakiest pillars of the financial system were regaining a measure of strength.  That could prove a dangerous bet.

Speculative Fever

It's hardly earth-shattering news that the last six months have been a speculative period for the stock market.  Nor is that a big surprise: The initial thrusts upward of a brand new bull market are always speculative.

Even so, the speculative excesses seen since the market's low on March 9 would appear to be extraordinary. And that's a concern, since one of the distinguishing characteristics of bear-market rallies is their speculative nature.

Regards,

Tony

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As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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