June's slide into July

Waiting for the next round of US consumer banks to report a rise in credit card and other loan defaults, may take the market months; news of the entire market in derivatives seizing up like so many smaller markets have failed over the past year is interesting. This is cut throat, and people want to survive. The degree to which a U.S. "consumer" is struggling will dictate advertising, investment, production purchases, raises and expansion. With consumer sentiment at now a 16 year low, and CNN reporting the worst June since the great depression - whatever that means - the chances of a major selloff are mounting with the market skirting bear territory. Goldman Sachs has made their first embarassing move, revaluing U.S. stocks lower just weeks after issuing market performs, admitting they made a mistake: now Goldman reports that bank losses will mount into 2009, as a second batch of resetting mortgages move to higher rates in July, pushing a new set into bankrupcy, and undermining a new set of interest bearing securities held in the billions by mostly banks and a some other large investors. It is de ja vu all over again from what happened last year.

The financial headlines make inflation and energy out to be the number one issues. Food comes close behind. Gas and milk is over $4 a gallon. U.S. federal bank rate cuts are seen by the street as impossible and a weak economy may induce conservative investors into selling for this reason alone. Citigroup is now indicating it may have further losses (of course, as they still are not solvent), so it is a third quarter of losses? Securities insurer MBIA announced over $7 billion in insurance payments this month on failed insured derivatives. Another round of payments for MBIA might be coming. Housing is sending mixed signals, prices plateau and then sink again, and there are indicators foreclosures are creating supply overloads, so as buying picks up price may still decline more.

China who sells 16% of its exports to the US, has announced it will increase fuel prices 16%, which, if it doesn't slow all consumption, may push inflation even higher. India having already announced cutbacks in fuel subsidies to accomplish similar ends, sees dilutory debt pressures on its currency deflating its stockmarket and fueling inflation, making some wonder if India will play the game France once did of inflating its currency to repay creditors. Europe assumes it will raise interest rates, and the Fed and the US Treasury are discussing the matter of a fall raising which must worry markets. Along with five months of declines in U.S. employment and rising delinquencies in all types of "loans", the jittery Olympics are here in a month, and may well see the market crossing the nadir I've waited for. Wallets ready.

The US economy cannot quickly recover, but if it is true the supply and demand have been met in the purchases of homes, then a significant indicator now has visibility which will reach a second climax in fear going into the fall when July mortgage resets hit the market in the form of nonpayment and foreclosure. So long as we continue to see the bottom of mortgage and consumer wealth deflation, a bottom riding price lets us plan for the future, and by october it is indeed time to buy. Of course we should but before the headlines reveal AMD cut jobs for a reason. Already in the news, semiconductor shipments are down. When the Olympics come, will no one stage an event?

There may be the opportunity to cheaply buy companies poised to profit from medium-term BRIC growth and their own business ability in a stable economy. Now everything is unsure, but profits will maintain through the sheer momentum of building project alone in many of these nations. India has no notable infrastructure plans, but China definitely does. KLAC ($35 buy), who has a price going down is very well positioned for the up-cycle in chip development that may be out as far as 2010 now, and GS ($178) who has just bought a $7 billion SIV from Cheyenne who was also not diluted like the other banks but can benefit from the low rates. On the domestic front I like the long term dividend of depressed WellsFargo, WFC ($19 buy) who is buying banks and investing again - i see this as a bet on the competitiveness of the american business model. WAG ($34) is another long term drug dispensary now out of favor. Even with the ongoing downturn in the economy, customers cannot stop taking their medications. Which brings us to medical...

Obama is said to be receiving large amounts from Wallstreet, as well as in the future's market. If Hillary or Obama reignite the health care debate, there could be further fall-off and ample opportunity to purchase UNH,WLP, or HUM, which have already fallen significantly due to healthcare uncertainty; Warren Buffet's purchase of UNH and WLP shows confidence in the long term growth of this medical service industry, which is a concern. Defense stocks are dangerous with Obama likely winning the presidency (how long has it been since a democrat could write that), and an interesting medical stock to consider is hip and knee replacement... And finally, midterm, new energy stocks would politically and popularlly possibly rally, like ACPW ($1.3).