2011Jun6 Did We Miss the Rapture?

Stock Market:

Looking at Wall Street, you could certainly think so. Negatives now match March 2009 levels. Did you see all of these headlines?

"Stocks tumble on weaker than expected jobs report"

"Fed says 'significant headwinds to sta­bility remain"

"Retail sales unexpectedly fell in May"

"Ten-Year Treasury drops to lowest lev­els in a year"

"Obama says headwinds remain on the road to recovery"

"Greece cut at Moody's on risks"

"Euro debt woes rattle markets."

All of these headlines are from May and June of last year. With the market down 4% from its 52 week high on April 29^th, one might think the announced rapture on May 21^st actually occurred! The current problems and headlines are basically unchanged in a year. Data from Bespoke Investment Group shows the average decline since 3/9/09 is 6.75%.

In this environment we have raised some cash when technical scores have fallen below our thresholds. However, long-term trends for the market remain positive. May's ISM and the Chicago PMI manufacturing reports have been decidedly negative. While this may be an ill wind for the economy, negatives such as these since 1948 have usually led to strong equities markets in the following 12 month periods.

Of twenty one economic reports this week, fifteen were below expectations. This is likely due to the global impact of the Japanese earthquake and tsunami. Manufacturing data and Jobless Claims are eerily similar to post-1995 Kobe earthquake which temporarily slowed economies.

The number of stocks above their 50-day moving average has declined. Additional decline will present very attractive prices add money strong current or new positions.

Bonds:

We are constantly reminded to look at charts with the name of the stock covered up. Is the chart positive or negative without the bias of knowing the company? When examining the Barclay's 20-Yr Treasury chart, it could easily be mistaken for last month's chart of Silver. (The Silver ETF has declined more than 24% in a month). If yields begin to rise, bond prices will decline and, may then lead us into a double dip recession.

The over-riding question is who will step into the market to replace the Fed as the world's primary buyer of Treasuries? The Fed has been buying 85% of the new issues. Reasonably, foreign buyers, increasingly concerned about the Euro and the Yen should continue accepting the US Dollar and Treasuries as their preferred haven of safety. Will they accept the 0.25% rate like the Fed did? If not, rates will rise and Treasuries will likely be a good short position.

Europe:

Martin Wolf at the Financial Times recently wrote critique on the improbability of the European Union's survivability. Worries about the EU can certainly be justified. He summed it up as:

"The Eurozone confronts a choice between two intolerable options: either default and partial dissolution or open-ended official support. The existence of this choice proves that an enduring union will at the very least need deeper financial integration and greater fiscal support than was originally envisaged. How will the politics of these choices now play out? I truly have no idea. I wonder whether anybody does."

Real Estate & Unexpected Consequences:

California is one of the most highly foreclosed home states in the country. Out of their homes and lacking yards, shelters have been swamped with abandoned pets. Topping the list is the Chihuahua which was popularized in recent movies like Legally Blonde and Beverly Hills Chihuahua.

The rate of abandonment is so great that California pounds have no space and ship the dogs as far away as Toronto for care and, hopefully, a new devotee. With the current glut, the price should be attractive. If the Case-Shiller forecast is correct, many more will likely find their way to various animal shelters this year.