Thursday, July 9, 2009

Why Debate? The Economy Stinks, So Do Stocks

It's becoming somewhat amusing to listen and read the various pundits, analysts and stock jockeys who are still buying the "green shoots" recovery mantra propagated so often by the feds and the media this past Spring. Amusing, and maybe a little sad, especially since the Obama administration has quietly wandered away from that framework, having more recently adopted the "going to get worse before it gets better" approach of tamping down expectations, or, a Joe Biden has opined, "we underestimated the recession."

There's hardly any debate worth considering except how best to get out of the way of falling stocks once the carnage of second quarter earnings results commences. Yesterday, Alcoa (AA) kicked off earnings season by announcing a loss, but one that was not as bad as analysts had expected. Now, while that may have worked with first quarter results, the logic is wearing thin. After Alcoa was pumped in after-hour trading on Wednesday, and opened higher Thursday, it ended the session down 23 cents.

Talk about separating a pigeon from his money! Anyone who bought in the brief euphoria period overnight and into the first hour of trading is now sitting on a pile of losses which will likely only deteriorate over the coming days and weeks.

The rally from March through June has topped out. In case those with a bullish bias haven't noticed, it's July, and time for stocks - and traders - to take a breather. Economic reports of late have been either benign or sorry, indicating that recovery, once thought to be just around the corner, has taken a detour into a dark alley and can't be located.

Topping off everything else are the state-by-state tales of woe and despair. Most of the comptrollers or treasurers who put together budgets were hoodwinked into thinking that tax receipts would somehow miraculously keep pace with those of the past three years. They were also bailed out largely by the federal government (taxpayers borrowing) and failed to make the most modest of adjustments in spending. California is passing out IOUs, New York will be next, likely followed by Pennsylvania, Florida, Nevada and Arizona. State budgets are so far outside the realm of reality one wonders how we evey survived so long.

While the economy erodes daily, the news media ponders the feds' next move, pointing toward another stimulus of some kind, instead of doing what has been needed all along, cutting spending, freezing hiring and slashing salaries. The one segment of the population that hasn't suffered layoffs is government, and while they remain insulated, the correct approach should be to cut workdays or pay rates. States, municipalities and the federal government would be doing themselves a favor by slicing salaries by 10-15% all around and renegotiating health care contracts. Such a move would position the politicians as egalitarian, and, despite the howls and yelps from the minions of government workers, those could be reminded that they still have jobs and should be happy for that.

It sounds like a great plan, but it will never happen. We're moving along the path of cradle-to-grave socialism, and unless there's a quick and radical shift in thinking in government circles, they'll simply print more worthless paper before taking real action on spending.

Dow 8,183.17, +4.76 (0.06%)
NASDAQ 1,752.55, +5.38 (0.31%)
S&P 500 882.68, +3.12 (0.35%)
NYSE Composite 5,667.37, +42.80 (0.76%)

Today's minute gains underscores the futility of trading in such an environment. There simply aren't many stocks that look good over any horizon, especially, short-to-medium term. On the day, advancing issues managed to beat out decliners, 3642-2698. New lows are beginning to persistently beat back new highs; today, they won again, 81-25. Volume, however, was the real story. There just wasn't much action to be had.

NYSE Volume 1,006,111,000
NASDAQ Volume 1,892,060,000

Commodities muddled through a session without much in the way of direction. Oil gained 11 cents, to $60.25. Gold reversed its recent downtrend, adding $6.90, to close at $916.20. Silver was up as well, picking up 8 cents, to $12.94.

All tolled, the day was unspectacular and probably more worrisome than it appeared. Investors - those still left standing and/or holding - seem to be on edge, awaiting the next round of dismal news. That could come any day, but probably not until next week, when a slew of big names will be reporting earnings and losses.

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