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Strategies & Market Trends : IPO and Other Stock Plays -- Ignore unavailable to you. Want to Upgrade?

To: david777 who wrote (12369)	5/10/2005 9:17:55 PM
From: david777	Read Replies (1) \| Respond to of 13331

THE ECONOMY: Sentiment softens, matching the market. Some private sentiment polls showed flagging consumer sentiment is not over. Gasoline prices are starting to soften marginally, but it is not yet filling consumers with delight. Another 20 cents may start to help, but a couple of pennies just ain't making it. Accordingly, sentiment continues to fall. The small business optimism poll fell once more, showing a trend lower the past three months. It is still, however, above its long term trend, having slowed to a still healthy pace. The IBD/TIPP poll also shows sentiment declining. It hit a new low for the poll's existence (47.2, -0.4%). 50 is the break point; above it, optimism, below it, pessimism. Gasoline prices are cited as the main reason for the index slipping negative as consumers did not like the six month outlook, their personal finances outlook, or the government's policies. We act as if this is something amazingly new, a breakthrough in understanding the human psyche. Yes, before now it was unknown that people paying more for goods and services but receiving the same or less money to do so would be a little disappointed. And who would have thought they would blame the government? Heck, even before Will Rogers criticizing the government was a US pastime. It would be un-American not to criticize. Somehow the far right and the far left seem to have forgotten this. What has been lost is the manner of doing it; Will Rogers was a master, making his point with humor, but nonetheless poignant. The sentiment levels still are not at levels that threaten the economy. The trend is not positive and a continued slide into summer would be bad news. The key is gasoline as that is the most visible; it is the lightening rod because just about everyone has to fill up once a week or more and watch the dollars fly from the wallet. As long as gasoline trends higher or holds steady, consumers will lose confidence because they are not making more money to make up the difference. For now confidence is okay, but if that status quo remains, it is going to continue to slide. UK retail sales tank. It is not just the US that is showing some problems, though by comparison to much of the world we are cruising. Last month it was Germany revealing weak investment and confidence. Tuesday it was the UK announcing that retail sales posted their largest drop in 10 years. Sales dropped 4.7% year over year. That goes along with lower March factory production, rising jobless claims, and housing prices rising at the slowest pace in three years. The Bank of England has raised its interest rates 5 times to 4.75%. Back in February it predicted its economy would expand 2.7% in 2005. No current figures were given for expected growth, but you have to believe they are substantially lower. Imagine, raising rates when you think your economy is going to rise less than 3%. Seems insane, but in Europe the primary focus is on inflation, and it will do anything to avoid inflation, including sinking the economy. Burn it to save it is their motto. Now, however, there is talk about the need to lower rates. No kidding. US bonds rise on a strong treasury auction. $22B in three year notes were sold Tuesday, a record since the government resumed sales of the treasury in 2003. There are three auctions this week totaling $51B, and this lead-off really got things going well. Wednesday is the 5 year and Thursday the 10 year will be auctioned. For every dollar sold there were $2.38 worth of bids, topping the $2.01 from the last auction in February. The success was helped by the rumors regarding hedge fund troubles, and that sent investors in the oft mentioned 'flight to quality' the US treasuries offer. Foreign central banks purchased 40.3% of the securities compared to 44% in February. That is still above the average of 38.3% (the range is from 18.7% to 53.6%). That shows the foreign investors continue to cycle their trading surpluses back into US financial assets. In other words they still eagerly seek to support the relationship where they produce the goods and the US consumes them. For now that works for everyone. In the future when the Baby Boomers start to age and we don't consume as much this relationship is going to change. With the US not putting our resources to work as we should, it is not going to be as pleasant a transition as it could be. As discussed last night, we gave away our technological lead when Greenspan and friends purposefully stalled the economy in 2000. We are currently shooting ourselves in the foot as well. One of the things that is being totally missed in the social security debate is how the transfer payments of the current system fail to put those assets to use to build fixed assets we will need in the future to generate real wealth. The SS system takes assets out of the economy, but by simply passing them on to be consumed there is no reinvestment into the economy. Much like a tax the government imposes and then spends on services that don't create assets, that money is a drain off of the economy. What Greenspan and others have said (and what our elected officials who are addicted to spending our money are not hearing) is that these assets need to be invested back into the economy to generate the growth to raise our standard of living or at least support our current standard of living. Instead they are being basically thrown to the winds in a figurative sense. I am not saying the payments are not important; to the contrary they are very important and thus in order to keep them viable into the future we need to invest them in the economy via personal accounts so the dollars can be used to fund the economic and asset base growth needed to provide promised benefits in the future. Passing a dollar around the room does not do that. The key is to keep the money out of the government's hands so it is not spent with nothing more than an IOU left in its place. As Ronal Reagan said, we have to stop feeding the fat man before he is going to be able to lose any weight.