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Fleck Rap


Dow Theory Says Bear Market Is Back

Procter & Gamble's Ramble on the Green

The overnight markets were quiet, but Procter & Gamble(PG:NYSE) made waves here by announcing better results and a stock split. Given the present environment, I'm not sure which matters more, but in any case, the early going saw that stock up $4. Minus a brief little swoon in the S&P and Dow, the tape was attempting to stabilize. But those indices leaked a couple hours into the day, even as the Nasdaq was up 1%. Likewise, Sox stocks were pretty firm, as were housing stocks, up 1% to 2% overall.

The early-morning attempt at strength basically fizzled by midday, and then we commenced a slow slide that picked up speed as the afternoon progressed. The all-encompassing damage turned housing red, pressured tech and financials, and even penetrated precious-metal-stock land.

Reflecting on a Requiem for a Rally

It's quite remarkable to think that despite all the money pouring into stock funds thus far this year, the Nasdaq and Dow are now down on the year, and the S&P is barely positive. With today's break in the Dow and Dow Transports, we have a confirmed Dow Theory sell signal. I myself am not an expert on this, the domain of Richard Russell. In any case, if one believes in the Dow Theory, that means the bull market rally we've had is over, and the bear market is resuming.

The first serious break in a year is under way. The S&P appears to be breaking off the top, whereas the Nasdaq has had a failed rally. My firm conviction is that the top is in for the year-long contra-trend rally, though I am not so certain that stocks are necessarily going to go down that well. My guess is that some damage will now be done on the downside, and then the S&P and Dow, somewhere in the next couple months, will have a failing rally like the Nasdaq has recently experienced. But for the most part, I think the money on the upside has been made, and if so, that will have very serious ramifications for the economy, and the elections this fall.

Hand-Wringing Out of Wellington

Away from stocks, the euro was down almost 1%, as it continued yesterday's late-afternoon cliff dive. Along with it, the Aussie dollar was tagged for 1.5%, while the yen bucked the trend, closing slightly higher. Until now, I have been quite vocal about supporting the central banks of Australia and New Zealand, compared to the central bank running the printing press full throttle here. But today, a couple of big sticks from New Zealand were on the tape suggesting that a strong currency was hurting them. Finance Minister Michael Cullen cited the potential damage to his nation's exports. So, the race to debase has now apparently infected some of the heretofore stronger currencies.

Of course, this will ultimately be quite bullish for gold and silver, which do not report to central-bank spokesmen. Speaking of which, the metals closed mixed, with silver flat and gold down 1% on the weakness engendered by dollar strength.

NBER Plays Hardball with a Lowball NUMBER

To follow up on last Friday's ugly employment report, a reader was kind enough to forward data from the National Bureau of Economic Research that reveals even more decay beneath the surface headline number. If you take the seasonally adjusted total unemployment rate of 5.6% and add to it "discouraged" workers, the rate grows to 5.9%. Factoring in "other marginally attached" workers, the rate becomes 6.7%. Further, including "total employed part-time for economic reasons" workers, the number ratchets to 9.9%. And, for the sake of comprehensiveness, if you use non-seasonally adjusted numbers, that rate would swell to 10.9%. So, those are the data, from which readers can draw their own conclusions. The inescapable conclusion, in my view: Unemployment in this country is not 5.6% but something a fair bit higher.

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