06/08/11   Ben Admits It’s Bleak Out There

Editor’s Corner

Investor Heat Map: 6/8/11Ben Admits It’s Bleak Out There

Ron Rowland

Last week we discussed the unsurprising surprise of falling consumer confidence. Today a different report added some perspective. The Discover U.S. Spending Monitor (an index sponsored by the Discover credit card folks) revealed that a remarkable 42.4% of consumers will have no money left after they pay their bills this month. Or so they say, at least. We tend to believe them.

The interesting part is how responses varied by income level. For households making less than $40,000 a year, the share who spend every penny they make over hit a four-year high of 60.2%. This figure increased sharply even in the last month. Conversely, those with household income over $75,000 report being able to add to their savings at the second-highest level in four years. This seems to support our bifurcated-economy thesis. Prosperity and poverty are co-existing in new ways for the U.S.

Ben Bernanke, whom we are pretty sure is in Discover’s upper bracket, nevertheless didn’t sound very confident when he delivered a speech in Atlanta on Tuesday. “The economy is still producing at levels well below its potential,” he said to a room full of people well aware of that fact. His next clause was a little less expected, however: “Consequently, accommodative monetary policies are still needed.” In other words, the Fed will keep pumping money into the economy as long as they can get away with it.

Bernanke’s words put a halt to a rally attempt in the stock market. The S&P 500 and Dow are now back where they were in late January, having lost months of gains in only weeks. Ominously, declines in the last few days came on above-average and growing volume. Meanwhile the Treasury rally gained strength with the ten-year yield again again sporting a two-handle (below 3%). Gold moved mostly sideways, reflecting widespread confusion about inflation.

Friday’s BLS jobs report was not at all confusing: unemployment is very high and not getting any better. Among those without jobs, the mean duration of their unemployment soared to a record 39.7 weeks. If this is the case when the economy is “recovering,” we’re almost afraid to wonder what the next recession will look like.


Every sector in our chart lost momentum since our last report, pushing the average RSM score from 14 all the way down to -6. Health Care recaptured first place from Telecom, which slipped to third. Only four sectors show positive momentum now: the defensive trio plus Telecom. Most of the sectors that turned downward went straight to double-digit negative trends. The only exception was Consumer Discretionary, but at -9 it didn’t miss by much. Technology and Industrials swapped positions near the lower end of the list. The Financials, already in last place for momentum, worsened by other measures as well. In the last week this sector undercut its 200-day moving average, gave back all of its December-February gains, and fell to the same level it was a year ago.


Last week all eleven Style categories were positive. Now all are negative, and today’s action suggests they will stay pointed down at least a few more days. The rankings are very compressed with only 11 RSM points separating top from bottom. Even so, the relative category positions are largely unchanged. Mid Caps still own three of the top four spots and Mid Cap Growth is still on top. The bottom three mixed themselves up a bit, but the group still consists of Mega Cap, Micro Cap, and Small Cap Value. From a chart perspective, all eleven categories look much the same. All are below their 50-day moving averages, all are above their 200-day moving averages, and all made short-term peaks at the end of April. Recent action is starting to turn many of the year-to-date performance figures negative.


Closing at an 11-week low might not seem auspicious, but it was still enough to let Europe take first prize in our Global rankings. In fact, Europe jumped from #7 to #1 in just one week. This was accomplished not by making remarkable gains, but by holding steady while other markets sank. Europe’s flotation vest was the Euro currency. The U.K., because it does not use the Euro, lost ground and relinquished the top spot. At third place, the EAFE benchmark is moving neither up nor down. Emerging Markets climbed to fourth place simply by falling less than most other markets. The U.S. slid from #2 to #8 on both weakening stocks and a weakening greenback. Japan is still on the bottom, but gains in the Yen are providing a little bit of hope.


The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.

“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”

Ben Bernanke (6/7/11)


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