Yesterday's Commerce Department report showed businesses' inventories of unsold goods were flat in May as sales registered the biggest increase in more than a year. The data is a sign IMO that businesses are finally beginning to deflate excess capacity, something that must occur for growth to occur again.
Moreover, this summer, consumers will be the beneficiary of two tax cuts. The rebate checks will soon be in the mail, and now consumers are paying less for energy, which acts like a tax cut.
Throughout the past 3-5 years, billions of dollars
from Junk Bonds, Initial Public Offerings (IPO's) and Bank Loans was directed toward the Dot-com, Hi-Tech and Telecom sectors. The entire economy and stock market has been negatively impacted as these three sectors continue to emerge in deep recession. Consumer spending has underpinned the economy. To date, the economy has avoided a severe recession because of this. The dramatic decrease
in interest rates this year has resulted in the average consumer remaining liquid, thus offsetting the major recession in the hi-tech and telecom sectors. What is needed IMO is another 1% decrease in interest rates to enhance consumer spending and thus enhance corporate revenues and profits.
Although technology, as a group, still appears to be relatively expensive here, I expect this coming Fall to offer a unique buying opportunity.
As for the Gold Stocks, I think we got a preview in April/May that they will rally strongly during the next Market Advance. But first I'd like to see sentiment turn wildly bearish and get a final washout in the broad market.
PS A retest of the April Lows are coming IMO. The only question is whether it will hold. I doubt it will. |
