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Jim wrote....
<Auto sales were very strong for quite some time. Maybe there is some
sector rotation here. Re retail sales, perhaps there is a change in
spending patterns from traditional retail to more tech-centric purchase,
as the less technically literate seek to catch up at the expense of other
purchases (wild speculation on my part).>
Auto sales have been strong basically because of the rebate programs and
leasing deals. Have you noticed that Chrysler just expanded and increased
its rebate offers. And with the large number of cars coming off two year
leases, this will impact new car sales for the non-lease buyer. In essence,
why buy new!
Tech-centric purchase....that is wild speculation! In particular if you are
referring to computers, etc. Did you see Gateway's announcement that they
have an inventory buildup. Have you noticed the severe price cutting going
on in this industry. Somebody earlier asked for opinions about Intel as an
investment. Look at the competition jumping up in their face lately. Two
companies have merged just for the purpose of taking on Intel. And their
chips are cheaper than Intel's and apparently almost as good.
<What mechanism would make the availability of credit lessen the demand
for goods? I would think it would make the interest rate of existing debt
cheaper, leading to additional capital for expenditures>
Generally speaking, the consumer has debt today that is very high by
historical standards. The economy cannot keep growing at its current rate if
the consumer has his credit reduced or cut off. The marginal lenders have
really been the big suppliers of credit recently. But these lenders are
having problems because the marginal borrowers are becoming more delinquent.
With less credit there is less demand and less demand leads to lower interest
rates. While consumer is confidence is high right now, it is still credit
that has the biggest impact on the consumers willingness to spend. Thus, you
are now seeing weakening spending patterns develop. All this builds
deflationary pressures in the economy which could prompt a Fed easing later
this year.
<My guess is that 3Q earnings concerns will drive a downward spiral, while
inflation fears may drive gold up somewhat. I advised my parents to hedge
their positions with puts while the market decides on a future direction.
They have had a particularly good run with MSFT, SUNW, KO, GLX. I am out
for now, having finally learned patience (I hope :-)>
I see you have 3rd quarter earnings concerns also. If they develop perhaps
it will lead to a market correction. But I would never advise anybody to get
out of the market completely. Always stay invested while keeping some powder
dry (cash) to take advantage of pullbacks. What I said with my earlier
posting is avoid precious metals while looking at financial stocks.
It will be interesting to see what finally develops with the economy. In the
meantime, beware of corporate earnings disappointments.
Jerry
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