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Tuesday, September 28, 2010

Stock Market Growth Despite of Weak Consumer Confidence

The economy is more solid and progressing than the media is telling us.

Tuesday September 28, 2010.

This morning, the consumer confidence index was reported at 48.5 in September from a downwardly revised 53.2 in August. Economists had expected the index to edge down to 53.0 from the 53.5 originally reported for the previous month. But over the course of the day the markets quickly recovered and finished positive. Why is that?

Consumer confidence is no more an issue the economy take serious. Corporations make solid earnings while unemployment is in the mind of the consumer, even so they have a job. The cash that is generated by US corporations is used for M&A activities that happen either outside the United States or lead to consolidation, where more jobs get eliminated than produced. (Please see our market report form yesterday). If you check out prior reports we often stated that Europe is already used to a good economy that is not producing jobs since 30 years.

Before the start of trading, Standard & Poor's released a separate report showing that its S&P/Case-Shiller 20-City Composite Home Price Index increased at an annual rate of 3.2 percent in July compared to a 4.2 percent increase in June. The index had been expected to increase at an annual rate of about 3.3 percent. Meanwhile, S&P said that the 20-City Composite Home Price Index rose 0.6 percent on a monthly basis in July, reflecting month-over-month increases in twelve out of the twenty metropolitan areas. Surely we know that the real estate market is by far not anywhere where it was, but it is up to last year and we are progressing. The media sure tell you different, but if you like just check companies performance of key builders like HOV, PHM or building machine producers CAT and you might see the difference to what the media is telling you.

To fuel the idea of solid corporate earnings: Walgreen (WAG), posted a strong gain after reporting fourth quarter earnings of $0.49 per share on revenues of $16.9 billion. Analysts had expected the company to earn $0.44 per share on revenues of $16.84 billion.

Skeptical people always come up with bad news like: did you see Research in Motion (RIMM) who are currently down by 3.6 Percent. We answer yes, but did you see the AAPL share progressing by 50% with the launch of iPhones and the iPad. In respect to that, a 3.6% revenue drop of a key competitor is nothing and RIMM even has a copy of the iPad to be launched, which will help to develop the small tablet PC market to the next stage.

A weaker Dollar and a potential buy back of bonds by the Fed will lead to a higher amount of floating dollars which we assume that we continue to see rising stock markets, commodities and bonds/notes.

Why do bonds and notes increase in value, do they not usually go down when the stock markets go up? Usually they do, but not in a case where there is an artificial demand by the Fed which will keep prices higher for a while.

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