Friday, January 18, 2008

Leading Indicators Down; Why Rebates Won't Work

The stock market got the bump it so richly deserved after dropping 600 points on the Dow over the last three days, but it was very short-lived. Shortly after
the Conference Board's Index of Leading Economic Indicators fell another 0.2 in December, the markets retreated from their highs of the day and continued to slide into the red. By 11:30 am all of the major indices were in negative territory, where they would stay for the remainder of the session.

The markets got a boost from IBM, which raised its outlook for 2008, and General Electric (GE), which reported earnings 3 cents better than expectations. The pair of blue chippers were a few of the rare bright spots.

Dow 12,099.30 -59.91; Nasdaq 2,340.02 -6.88; S&P 500 1,325.19 -8.06; NYSE Composite 8,794.86 -24.09

President Bush made a brief appearance just prior to noon, outlining his proposals for tax rebates to middle and lower class Americans. The basic idea is for the government to issue checks of roughly $800 for individuals and $1600 for families to spend as they see fit.

Wall Street responded to the president's sketchy plan by selling off further, as the street believes relief for companies, not individuals, would be more appropriate. One can understand the position of the investment crowd, though everyone would surely be thankful for an extra paycheck or two this Spring.

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The problem with handouts is that they are one-time, short-term quick fixes and will do little to alleviate the core problems facing American business, which are lack of competitiveness, innovation and job creation. Certainly, more long-term good would come from either a jobs program, capital investment incentives, or, better yet, a combination of the two. But the president and congress are hell-bent on a quick fix prior to the elections. Too bad that this plan will fall flat on its face. It's like slapping a band-aid on a gunshot wound.

Also, there's nothing in what the president has proposed that gives a break to small business, which employs nearly 75% of the nation's workforce. Tax credits for new hires or capital spending would easily be more preferable to a one-time check that many people will simply waste on DVDs, plasma TVs or other consumables.

The plan, with which congress is in general agreement falls well short on creativeness and lasting effect. In total, even $140 billion worth of direct checks to Americans is not going to solve anything. Just in case anyone in Washington, DC is paying attention, something should be done about our aging infrastructure, too.

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Consumer-based capital boosting is about as politically-inspired as the numbskulls in DC can get. And you can bet your bottom dollar that it will be self-praised as being a non-partisan effort. It's an election year and everybody on Capitol Hill wants to take credit for something.

As the trading wound through the afternoon, stocks remained solidly in the red, with every small rally immediately expunged by a fresh round of selling, as has been the case since Christmas.

Internals were predominantly tilted to the downside. Decliners clobbered advancing issues, 4064-2343. New lows expanded again and widened the gap over new highs to 1190-48. Those numbers are correct. Only 48 new 52-week highs and about 1 in 5 stocks hit a new low. And some people are still asking what stocks are good buys. Amazing.

For the week, the indices were crushed:
Dow: -506
S&P 500: -76
NASDAQ: -100
NYSE Comp: -552

Only repeated money-pumping from the PPT kept the markets from complete collapse.

Good thing Monday is a holiday and markets are closed. It will give the manipulators more time to devise strategies to delay the inevitable total market meltdown.

Oil was up 44 cents to $90.57; gold priced up 60 cents to $880.50. Silver was higher by 19 cents at $16. 09.

Volume on the NYSE was the highest of the new year.

NYSE Volume 5,924,962,000
Nasdaq Volume 2,937,191,750

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