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Arnold Landy
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Arnold Landy is a registered investment advisor, managing clients' funds since January, 2006. His previous careers include: small business owner, analyst for "The Value line Investment Survey," urban planner/analyst for State of New Jersey, school teacher in Jersey City, carny at state... More
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    Recent employment data supports optimism regarding both stock prices and the economy.  While the U.S. shed over 400,000 jobs in June, job losses typically continue for several months after recessions end.  Job figures like employment and  the unemployment rate do describe current conditions, but tell us nothing about the future course of the economy. 

    For guidance on when the economy will turn up, we look to the Leading Economic Index (NYSEMKT:LEI).  This predictor of economic turning points is comprised of ten indicators, two of which are stock prices (we can see these every day) and initial claims for unemployment insurance (announced weekly at 8:30 every Thursday morning).  Here, we find our basis for optimism.  The LEI has risen sharply two months in a row.  And the major employment indicator within the LEI has also performed positively.  Initial claims for unemployment insurance (four-week moving average) peaked in early April at 660,000.  They have declined choppily since, and last week recorded a recent low at 615,000.  The other labor market indicator in the LEI, manufacturing hours worked, improved slightly in June, as well.

    So, here is the stock market/recession/employment  sequence:  1) stock prices rise, the LEI rises and intial claims for unemployment insurance decline,  2) the recession ends, then, a few months later... 3) employment starts to increase and the unemployment rate falls.  Stock prices likely will rise as unemployment claims continue to fall and the economy pulls out of recession.  When employment losses turn into gains and the unemployment rate begins to fall, the March low in the stock market and the end of the recession will be distant images in the economy's rear view mirror.

    Disclosure: Positions in DIA,DDM,SPY,QQQQ and QLD in client accounts.

    Jul 04 6:24 PM | Link | Comment!

    In the old days, Ford Motor Co. (F) faced  relatively minor threats to its profitability :  the UAW, legacy medical and pension costs, a crushing debt load, retooling costs to meet safety and environmental standards, rising gasoline prices and high quality foreign competition from titans Toyota and Honda.   But now, things are going to get REALLY tough.  After seeing its two American competitors go down the financial drain,  Ford now must compete with streamlined versions of GM and  Chrysler, which are having many of their contractual burdens (previous labor contract provisions, inefficient dealer networks, huge debt repayment obligations, etc.) swept away by the bankruptcy process.  This is all reminiscent of the challenges facing the  airline industry over the years.  As airline after airline declared bankruptcy (some more than once), rather than liquidating, most continued to function under  Chapter 11, then emerged leaner and meaner to compete with and weaken the survivors.  The result has been that airline stocks and bonds  have remained a wasteland for investors over the decades. 

    A similar scenario is now facing the  auto industry, but with one crucial factor that makes its situation potentially worse than that of the airline industry: the bankrupt auto companies have financial backing from the U.S. Treasury.  This is a problem going forward, not only for Ford, but also for Honda (HMC), Toyota (T M) and Nissan (NSANY), which sell widely in the U.S.   Indeed, the competitive problem is made worse by the fact that the U.S. Treasury is providing $12.5 billion of TARP funds plus additional TALF funds to  GMAC, which is now offering relatively easy low-cost  financing to buyers of GM and Chrysler vehicles. 

    If I owned a hardware store (as I used to), I would not want to have even the most incompetent government-owned competitor nearby if it had an unlimited source of funding.  We have no way to know whether our government will be able to successfully pull out of its financial involvement in the auto industry, as it intends.  But, until Treasury starts to dial back its involvement in GM, Chrysler and GMAC, investors would do well to turn their attention to other industries for investment opportunities.

    Disclosure Statement:  Neither I nor any of my clients hold securites of any company mentioned in this article.

    Jun 24 9:36 AM | Link | Comment!
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