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Commentary Topic from greenfaucet

Something’s Wrong

Something is just not right with this most recent market rally we've had.  We've rallied seven of the last nine trading days, yet we seem to be trading along the bottom.  We're still trading at the October 10^th lows that were considered so important to hold.  I use several lists of stocks and exchange traded & closed end funds on my computer that I review on a daily basis.  One of those lists I title "general interest."  The list currently has 80 company names and their ticker symbols.  At this moment nothing looks particularly attractive. 

When it is hard pressed to find leadership outside of Treasury Bonds and CD's, it is best to remain on the sidelines.  The markets still are in a downtrend.  If you have trouble discerning that from the S&P 500 ETF graph below, please give me a call.

Maybe we a forming a base here at the bottom, that would be good. However, I don't see anything compelling to buy in this downward sloping trading range right now.

Consumer spending fell 1% in October, which was almost a record. It was the fourth straight monthly decline, which is unprecedented. The savings rate is soaring; it increased to 2.4% from 1.0% in September.  This is a good for household balance sheets and actually necessary, as Americans had a negative savings rate in recent years. However since consumer spending accounts for 70% of the US GDP, the savings increase diminishes an already reduced spending rate, causing the economy to shrink even further.  From July to October, spending on discretionary items buckled at an annual rate of 18%. Even spending on groceries has declined 6%, toiletries are also off 6%, and utilities are down 3%, demonstrating that even some of the classic essential spending is being reduced.  One area that has seen amplified spending over this decline is mass transit, which has increased by 26%.  It's not hard to guess what that means.

Unfortunately the housing market appears to be nowhere close to bottoming out. New home sales dropped to the worst levels since the 1982 recession. Sales are now down 69% from the July 2005 bubble peak however the unsold inventory backlog of inventory rose to 11.1 months' supply, which is a warning sign that lower prices are ahead.

The commodity and agricultural sectors are falling off the map.  All those pundits who were under the premise that global demand was finally catching up to us all were wrong!  One day that concept will be true - but the sun will also set tonight too - it's a matter of how long we have to wait. In the meanwhile those sectors have given back 60% -75% in the last few months.  I did a video on greenfaucet on July 2^nd that accurately predicted the top for oil around $145 per barrel.

I have been mostly in cash money markets since August.  Many of the articles I have written have come to pass, several different times.  I would prefer the market go up in an extended bull market.  I don't want to be right for the sake of being right. I would rather make money in the markets.  For now patience is the plan.  It's not what you make, but rather what you keep.  There will be a time soon where I will recommend buying again.  I have never been a perma-bear, but something is not yet right in today's market environment.  Hold for now and wait for the right opportunity to invest.