Market Commentary – June 2011

As June wraps up it looks like the overall market is poised for a break from its recent decline that started in early May.  Granted it has really only been 2 days of strong upward movement, but the mood ahead of the upcoming 4th of July holiday gives the feeling of a market wanting to rally.  However I just can’t get behind this market rally.  Call me skeptical for the following reasons:

  1. Two (2) trading days of movement in the same direction don’t make a trend.  It takes at least 3 in my opinion.
  2. There is no guarantee the Greeks will vote for the reform plan or if they do, that they will stick with it in the long term.  What happens when the next Greek election cycle starts and a new group of politicians campaign on reversing the unpopular reform package?  How do the countries that supplied the bailout funds enforce the terms of the agreement?
  3. There are other countries (Italy, Ireland, and Portugal) with bigger fiscal problems in Europe than Greece’s.  What happens when it comes time to bailout these countries?  Who writes that check?
  4. We are slowly moving towards the July 4th holiday.  With the 4th falling on a Monday,  it is situated on the calendar to provide people with the maximum number of days.  My thoughts are people are taking off Thursday after work,  and heading back to the office on Tuesday. I am not planning on seeing full staff levels nationwide until Wednesday.  This brings the old trading saying of “when in doubt,  flatten out” into play.  The movement over the last 2 days could simply be a lot of short covering ahead of the 4th of July holiday schedule.
  5. It looks like the Democrats in the Senate are going to engage in the nation’s largest game of “chicken” over the U.S. debt ceiling.  I have absolutely no faith in this process.  We have a Democratically controlled Senate lead by Harry Reid who has proven to be extremely partisan and caustic with his policies, a President who has failed to demonstrate any leadership, and Republicans who appear to have finally learned the hard way that cutting deals with Reid & Co. usually results in their getting burned.  I have absolutely no idea how this issue is going to get resolved.  The President and the Democrats have failed to introduce a budget (the government is still operating on continuing resolutions) and their major negotiating strategy is to blame everything on the Republicans,  who appear to have gotten the message from voters that if they cut a deal with the Democrats then their own voters are going to turn against them.  The Democrat’s have been slowly making politics ever so more caustic ever since their attacks on Robert Boark.  Now it has become so acidic,  it seams like any deal by the Republicans will be a looser for them.  I don’t claim to know what they are thinking,  but personally if I am going to be blamed for or take grief over something, then I would rather be over something of my own choosing not something forced upon me!
  6. The economy is weak, and getting weaker.  I think we will see a double dip before the end of the year.  Where will unemployment and the deficit be then????  A second recession and I think we could see the Dow Jones Industrial Average below 10,000, or worse.
  7. President Obama and the Democrats appear hell bent on raising taxes and continuing to increase regulation on businesses.  Evidently,  they have no concept of who hires, signs paychecks, and fires!  Most small business owners are planning for the worst.
  8. At some point in time, inflation and interest rates are going to rise.  When that happens,  the interest payments on the national debt are going to sky rocket,  then are fiscal problems are going to be far worse.
  9. Bull markets are the result of advances in technology,  low taxes, and deregulation (not re-regulation or increasing regulation).  We are not seeing any of these.

Granted,  I could be wrong on some of the above,  but then again I do not see a vote of the Greek parliament solving all the world’s problems.

My gut is telling me that we are going to see our market trend higher ahead of the 4th of July holiday weekend, and then when everyone returns to work on about Wednesday the 6th we will see what the market really thinks; probably a move back to the downside.

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