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Monday, July 19, 2010

Market Update - July 15th, 2010 - Investor X

July 15th, 2010 
Investor X 

Yesterday I ended the Market Update with the following statement: 

“If aluminum is a proxy for the overall health of the economy going foreword, what is the real message being broadcast here? In my opinion, it is showing weakness in the overall economy and that will become apparent by other numbers and statistics as they are reported. Stay tuned; we may be watching a whip saw unfolding here.” 

Today some of those conflicting numbers were reported, which are indicating deflation and a slowing economy ahead: 

NEW YORK (Dow Jones)--U.S. stocks skidded Thursday after a barrage of largely negative economic data stunted enthusiasm over the recent spate of strong corporate earnings. 

NEW YORK (MarketWatch) -- U.S. stocks dropped sharply on Thursday after another economic report, this one on manufacturing in the Philadelphia region, dimmed views of the recovery.... 

Producer prices fell for a third straight month in June...U.S. stock markets headed lower Thursday morning after the Labor Department said producer prices fell 0.5 percent June, signaling a slow economy. 

BEIJING (Dow Jones)--Steel product prices in China are falling close to cost price for producers and only some of the biggest domestic steelmakers will be able to squeeze out a profit on their goods, a senior Chinese steel official said Thursday. 

The above news indicates deflation and a double dip (depression). Lowering estimates before companies report bad earnings is an old trick that has been used by Wall Street for years. It works quite well in a growing economy and a bull market. However, we are in a shrinking economy and a bear market and so my expectation is that these old tricks will not work in this environment, because there are too many statistical tracks that must be covered in order for it to work. We will see – stay tuned for more economic data in the coming weeks. 


Investor X

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