Quietly this past Friday, with very little mention in the popular financial news sites or newspapers, the Dow Jones Industrial Average turned positive again for 2010.
Friday was the seventh time this year that the stock market has turned positive for the year. Each of the past six times the market turned positive for 2010, we got a good rally going in stocks and the market moved higher, but the rally fizzled, as we went back down below 10,428.05, the opening mark for the Dow Jones Industrial Average for 2010.
Only in the stock market rally that started in March of this year did the Dow Jones rally past 11,000 (as I had predicted) to a 2010 high of 11,258. Maybe this time will be different. Maybe the seventh attempt to break decisively above where the market started 2010 will see the bear market rally (which I have been saying has been in force since March of 2009) give the market a meaningful breakout on the upside.
I have been writing in these pages about how I feared too many investors were flocking to U.S. Treasuries. According to “The Wall Street Journal,” in the 10 days ended this Friday, September 10, 10-year Treasuries have lost 2.5% of their value, wiping out the meager returns the Treasuries pay.
For the first time in years, American investors own more U.S. T-bills than foreigners. And where the flock runs, the losses usually follow. Or should I say the herd mentality always backfires.
My guess is that money is slowly leaving U.S. Treasuries and moving into stocks now. U.S. economic news keeps getting better, the fear of a depression is subsiding, and we are slowly accepting the fact that the high U.S. unemployment rate is a structural problem. As a company that employs many people, I can tell you firsthand that we have a very difficult time filling skilled jobs and a very easy time filling non-skilled jobs.
Of special note, money has been flowing into the stocks of the gold miners and producers. The Dow Jones U.S. Gold Mining Index is up about 10.4% since the end of July, gold bullion is up only 8.3% over the same time period, and the Dow Jones Industrial Average has been flat since the end of July.
Money is gradually starting to leave U.S. Treasuries, slowly moving back into stocks, especially gold mining stocks. Maybe it will be lucky number seven this time around for stocks.
Michael’s Personal Notes:
Many people I have been speaking to in the travel industry say that business is picking-up. Look at flights for the coming U.S. Thanksgiving weekend and you’ll see that prices are rising, as seats are being taken. Most of the “hot” spots for Christmas, like Atlantis in the Bahamas, are almost sold out. South Florida restaurants are looking for their best season since the start of the recession. Same for California. But Arizona and Vegas are still hurting.
As the U.S. dollar continues under pressure against other world currencies, Americans are traveling where U.S. dollars are accepted. This places pressure on the travel industries in countries like Canada, New Zealand, and Australia, where their dollars have been rallying against the greenback.
In Europe, and despite the soft euro, Americans still aren’t traveling like they used to prior to the Great Recession. Some great deals on travel are still going on in Europe.
Where the Market’s Headed:
There’s not much I can say about the stock market that I haven’t already said in today’s opening story. The Dow Jones Industrial Average starts this week slightly above where it started 2010.
Retail investors have missed most of the bear market rally that started in March of last year. Time heals all wounds, especially when dealing with investors’ fear and greed. If this latest attempt to bring the market solidly positive for 2010 sticks, investors might just decide that the worst for the economy is behind us, giving the bear market rally that started on March 9, 2009, some new life.
What He Said:
“Interest rates at a 40-year low: The Fed has made borrowing as easy as possible, resulting in a huge appetite for loans and mortgages. We are nearing a debt crisis.” Michael Lombardi in PROFIT CONFIDENTIAL, April 8, 2004. “We will wish Greenspan never brought rates down so low as to entice so many consumers to have such big mortgages.” Michael Lombardi in PROFIT CONFIDENTIAL, April 27, 2004. Michael first started warning about the negative repercussions of Greenspan’s low-interest-rate policy when the Fed dropped interest rates to one percent in 2004.