Monday Market Update

Market Commentary:

What we need to understand by the market action over the last ten days is that the market is preparing to see confirmation that the second quarter GDP report will show a marked improvement for Q2.

The numbers we’ve seen this week in the earnings reports are still very poor, but I think we are likely to see a GDP report of about -1.8% to -1.5%, reflecting the government’s fiscal stimulus efforts this summer.

The stock market from March to present has now factored this improvement into it price.

The government has spent about $300 billion in stimulus efforts in this stage of the fiscal package and that will show up in the improved GDP report here at the end of next week.

The next round of government stimulus starts in another six months or so, when another shot in the arm will be given.

Now the stock market will begin to focus on the second half and this is where it gets tricky from several perspectives because it is very likely the first fiscal stimulus will begin to wear off by August.

Then there is this problem with a falling dollar and soaring crude oil prices, which has no relation anymore to supply but is a hedge against the dollar.

Every day the US consumes about 20 million barrels of oil. At $75 a barrel, this is about $45 billion a month. A 25% increase in oil prices is $11 billion drain per month. You can carry on the math and you can see how this can quickly offset any fiscal stimulus package if the Fed allows the dollar to fall and oil prices to ascend.

I don’t really have to sell you on this concept as we all saw what happened to the economy when the Fed allowed commodity hedge funds like Goldman to drive up oil prices to $140 a barrel.

I can’t comprehend the Fed would be so stupid as to allow this and honestly, I think oil prices will self adjust in the September/October time period, along with the stock market.

SEC INVESTGATES GOLDMAN

It appears the public is so upset about the issue of program trading known as “high frequency” trading at Goldman Sachs and the market manipulation this year, the SEC is now investigating Goldman Sachs.

http://zerohedge.blogspot.com/2009/07/so-it-begins-sec-commences.html

Some how after watching the following video by Glen Beck, you begin to really wonder if maybe Goldman Sachs might really have a man or two sitting on the board of the SEC.

STRATEGY

I want investors to just grin and bear this situation and remain on the sidelines for a bit more and not chase this market. This is still a traders market as volume is very7 low. This is about buying the rumor and selling the fact (GDP report) ahead of the unemployment report in the first week of August.

After that we’ll see what kind of picture we have.

Every investor needs to understand that we remain in a secular bear market, which began in 2000 and will continue as long as the US dollar is allowed to descend. We may experience cyclical bull markets that may last a few months or perhaps longer, but until core problems change the secular bear market remains in place and we all have to respect risk.