Charts: The S&P 500 closed at 975, down .5%. 975 is a support level, so if it is violated there will probably be some further downside. We’ve been fixated on the weak US financial sector via XLF and CIT Group, hoping they don’t drag the index down. We must also look at the strong global leader, the Shanghai market. It dropped over 5% last night. Keep an eye on it through ticker symbol CAF. We don’t have a breakdown in leadership yet by any means but we must remember that all technicals and fundamentals converge with China. Overall technicals are still strong.
Fundamentals: New orders for durable goods fell 2.5% in June, reversing gains from the previous two months and shocking analysts. Transportation gear is usually broken out since it is volatile. Ex-transports the numbers didn’t look so bad, increasing 1.1%. I’m a little uncomfortable saying that weak orders for cars, airplanes, and trucks “don’t count.” The price of oil plunged again as crude inventories rose sharply, pretty unusual in the middle of the summer driving season and a sign that our economy really is undergoing structural changes. While cheap oil is good for the consumer it brings up another issue… The US economy is like a supertanker and a structural change is like a supertanker executing a turn. The turn takes a long time to execute and the supertanker slows down while it is turning. The weak durable goods orders should have helped the mammoth treasury auction today, but it only went so-so with yield on the 10-year note inching up a smidge. It is unnerving that the stock market has to compete with these gargantuan government debt sales. Another way of looking at it is that the private sector has to compete with the government for investor dollars from here on out. Filling the capital needs of both public and private sectors is going to require some stout GDP growth in the months and years ahead. If big growth doesn’t occur the government’s ravenous appetite will gobble everything else.
Geopolitics: The Nigerian Army battled the Taliban group Boko Haram Wednesday with tanks and armored cars, killing 43 people. The Nigerian government says most of the dead were bad guys. The fighting is in northern Nigeria and the Army, known for its ruthlessness wasn’t shy about blowing away mosques and other symbols of Islam. The government is run by Christians and religious tensions between Muslims and Christians is pandemic in Nigeria. This is a major new front in the Long War. Hopefully it dies down but with Nigeria’s huge population and key oil resources this flare-up is not good news.
Wednesday, July 29, 2009
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