The Dog Days of Summer Are Ending

It seems the market is running out of steam for the rally of late. All the talk about 2012 highs, S&P 1400, technical resistance, the fiscal cliff, and the elections have tempered the recent positive appetite for risk. Just as well, as it is time for the market to consolidate. Just settle in and get comfortable, because the coming months will both test your mettle and require energy.

U.S. job openings rose to a four-year high in June, but a slowdown in hiring underscored recent weakness in the labor market that has been blamed on an uncertain economic outlook.

The above statistic goes along with what I wrote yesterday about the climb in both demand for credit and the increased lending from banks. Businesses borrowing and banks lending more easily is a leading indicator that the economy is setting up for a growth spurt.

The productivity of U.S. workers grew in April through June, reflecting a slow improvement in the overall economy, even as labor costs moved higher. Nonfarm business productivity, the output per hour of all workers, rose at a 1.6% annual rate in the second three months of 2012, the Labor Department said Wednesday. Unit labor costs were up 1.7% during the period.

The fact that productivity and wages are rising is another leading indicator the economy is setting up for a growth spurt. Increased productivity tells us work is coming in and increased wages tell us the workload per worker is increasing as well. The clear implication here is that more workers are needed for the rising workload.

Keep in mind the stats referenced are from the second quarter. We are now in the third quarter, hiring picked up in July, and the two biggest retail seasons of the year are coming, which makes the third and fourth quarters look potentially good. The question is though - will consumers take that extra money and spend it, or will they cower in fear from the constant drumbeat of negativity? As always, we will see ...

One problematic issue in life is the human ego. The ancient Greeks understood this deeply, as the concept of hubris (too much pride) resounded throughout their literature. We all know the saying, "Pride goeth before the fall." In politics, this plays out as well, except the ego issue is not per human; it is a collective pride, such as we see in Greece and Spain today. The Greek people have demonstrated they can let go of their collective pride in order to save the country (so far). Now it is time for the Spaniards to do the same, and it looks as if they will.

Rajoy inched closer on Friday to asking for a European Union bailout for his country, but said he needed first to know what conditions would be attached and what form the rescue would take.

Mario Draghi and Germany are right. The countries in fiscal need have to first demonstrate they can clean up their debt before getting serious financial aid. It is tough love, for sure, but it is also a political requirement. Germany has demanded this and Draghi has gone along because it is the only way to get the job done politically, and, in the longer term, it is the only way the Eurozone can become more fiscally and politically integrated, which is a necessity as well.

The dog days of summer are leaving us. Soon, the big money will come back from vacation, and when it does, its first day in the office might scream, "Get in now." As always, we will see ...

Trade in the day; Invest in your life ...

Trader Ed


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