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Thursday, August 5, 2010

Stock Markets: Are We Getting Into A Downtrend?

We are facing a time of an growing economy and continues high unemployment rates. There are many indicators speaking for a longer term growth with sharp market corrections. See our arguments.

Before the start of trading this morning, the Labor Department reported that initial jobless claims rose to 479,000 in the week ended July 31st from the previous week's revised figured of 460,000.

Is that really a surprise?

As often reported prior, the US for the first time is faced with a continues high unemployment level, as most European countries are used to since 30 years.

The market sure reacted negative and all kind of little explanations for a big structural problem were found: GM shutdowns (as if they were not there last year)

Our interpretation: We will have consumers who can spend, because they have a job and others who cannot, because they do not have a job.

Look at the retail reports from morning: A number of key chain stores reporting comparable July store sales. BJ's Wholesale (BJ) reported that its July comps rose by 6 percent, Nordstrom (JWN) said its sales increased by 7.6 percent, Kohl's (KOHL) sales advanced by 7.1 percent and sales by Macy's (M) jumped by 11 percent.

Now a key economic indicator: Freight & Transportation and Logistics Services company Con-way Inc. (CNW) posted second-quarter net income that was nearly 24 percent higher compared to the same period last year but still missed projections.

Let us puzzle it together:

“We are facing a period of economic growth where unemployment continues as an unresolved issue: American Companies got used to work with less people and will not rehire proportionate, even though they grow.”

Some more economic facts:

Yesterday, ISM revealed that its non-manufacturing index rose to 54.3 in July from 53.8 in June, with a reading above 50 indicating continued growth in the service sector. Economists had been expecting the index to edge down to a reading of 53.0.

In earnings news, PulteGroup Inc. (PHM) reported second-quarter net income of $0.20 per share, while analysts expected the company to report a loss of $0.01 per share. Total revenues for the quarter surged up to $1.31 billion from $678.58 million in the prior year quarter.

Media and entertainment giant Time Warner Inc. (TWX) said its second-quarter earnings rose to $0.49 per share, topping forecasts for $0.45 per share for the period. Revenues for the quarter grew 8 percent to $6.4 billion, while analysts expected revenues of $6.20 billion.

Additionally, Japanese automaker Toyota Motor Corp. (TM) said it swung to a profit in the first quarter compared to a loss in t he same period last year, helped by 27 percent revenue growth on the strength of Asian sales and demand-stimulus programs in Japan.

So what will all this mean for the Stock Market Investor:

We assume that we continue on a bullish sentiment with sharp negative pullbacks. Our outlook even goes for the next 5-10 years. Why? It will take that long for the government to deal with the restructuring of the taxation system to cope with long term unemployment, health care and social benefits for people who cannot find a job. Each time such news will hit the market it will take away quick from the levels that will be build by continues rising corporate earnings and growth.

For the investor it means to learn how to trade the market in all directions and how to hedge assets besides using a stop loss. teaches small groups up to 15 how to build and secure a long term portfolio of 401(k), IRA, Personal, Custodian accounts. One of their quotes: “People think that they cannot hedge (secure) their 401(k) investment because they have to stick to the investment vehicles of the plan provider. The plan is sure what the plan is and we will not change it, but add additional instruments that will make your investments long term grow and protect against sharp declines.”

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