Friday, June 4, 2010

Weak Jobs Report Has a Larger Context

As the markets take on a nastier tone, relative strength has been telling the tale. The non-Wal-Mart discount retailing stocks are holding up fine. I suspect that all the good news is out for them, though. Price cuts at Wal-Mart, Target and elsewhere cannot be resisted. For example, our local Wal-Mart (very large though not a supercenter) is adjacent to a Dollar Tree (very small). How can DLTR sustain its high margins when WMT and TGT are in a price war?

Even more problematic are vendors of non-necessities. Consider Verizon (VZ). Yes, telephony is a near-necessity. But premium calling and texting plans and other elective services are not. And many people continue to have both wired and wireless service. The VZ stock chart stinks. The market is saying that its high yield is in jeapordy. As with so many other industries that were growth industries in their time, VZ is now a "value" play. But VZ has a market cap of $77 B and a tangible book value of negative $60 B.

All stocks are vulnerable, especially those of companies that are doing the same old-same old, unlike Apple or Intuitive Surgical that have breakthrough products. CAT looked a bit high when it more than doubled off its 2009 to $49. It is now off its highs but still in the high $50s. Deere (DE) has a yet weaker 2 year chart. Increasingly it appears that China's property market has peaked, though the headlines warn that such may occur.

Meanwhile gold is holding even today while silver and the platinum group metals are falling hard, and AAPL is up on the week while the general indices are down a couple of percent (so far).
In a liquidation phase, no prisoners are taken, but for today at least, the dour view of the economy that has been propounded here incessantly is in gear with the markets. The U. S. is continuing to live off the seed corn that grew out of the major 20th century world war victories (I, II and the Cold War) and thus for now is the tallest midget. Ultimately in what may be almost a Manichean showdown, the USD and gold may well enter the finals as the pretender/contender (currencies) of the occupied countries of Japan and Germany (for example) drop away.

The USD won over gold in the Volcker/Reagan era and the aftermath of the Cold War victory. Governmental corruption in league with financial interests is more blatant now, however, and markets are all about trust. Trust has been harmed for quite some time. Businesspeople and investors are well advised to take reasonable precautions for adverse scenarios that could both cause and go beyond new stock market lows.

Copyright (C) Long Lake LLC 2010

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