"The Buck Stops Here…” - September 2, 2009

The market lived up to history yesterday as it convincingly stumbled into September…which is typically a rough month in the stock market anyway.

This time, though, the plunge has more to do with the conviction that the market has raced ahead of the economic recovery…than pure calendar prophecy. Momentum based on speculation lasts only so long…and can’t make up for the lack of convincing evidence that the economic recovery is really here.

What the market needs at times like this are some points of certainty. One piece of speculation being talked about a lot that we can put to bed is that the dollar will not be replaced as the world currency any time in the near future.

Many world leaders are calling for the dollar to be replaced by a basket of world currencies…because what Wall Street caused in US financial markets had such a quick and colossal impact on economies around the world.

Despite the frustrations, though, and the fact that the dollar has lost some glitter, it won’t be removed from center stage:

· It would take an immense toll on many world economies that are closely tied to the dollar;
· It would devalue China’s immense dollar holdings; and
· It would raise US borrowing costs when the world cannot afford the implications.

Besides, it has been the currency of greatest political stability for 150 years. If you hold a note printed in 1934 or 1864, it’s still legal tender. That can’t be said even for the British pound. When in doubt, the world flocks to the dollar

The world will not pass the buck. The buck will stop here…and it will stay here as the world currency in the near future. No speculation!

“A Tale of Two Economies…” - September 1, 2009

The market yesterday and for the last several days is sending out a clear signal: it’s not convinced a recovery is here…In fact, it’s confused. And for good reason – we’re experiencing a Tale of Two Economies.

Consider the following:

· On the credit front, there is a gulf between those that can borrow and those that cannot. Big banks and big companies have easy access to credit. Small companies are finding it difficult to borrow…and face stiff terms to do so.

· On Main Street, there are those consumers with rock–solid jobs, but also an army of debt-strapped families struggling to make ends meet.

· Manufacturing is now growing…but more workers are still losing their jobs.

· Some consumers are buying…but only with incentives…like cash for clunkers, dollars for dishwashers or first-time homebuyer tax credits.

· The stock market rally of the past four months has been based on corporate cost cutting, not new revenue.

· The unemployment rate is still in the 9 ½% range – but the number of unemployed and underemployed is almost double, and many have already run out of benefits.

If there is about to be a party thrown to celebrate the end of the current economic crisis, someone forgot to invite two guests – U.S. workers and consumers. If a recovery is not balanced, it’s not sustainable.

Granted, at turning points, economic data can be mixed…but not muddled. If it’s confusing, it’s not convincing. And if it’s not convincing, then there is no confusion – there’s no broad-based recovery in sight. Convinced?