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Housing, Cotton, and Americans’ Paychecks

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While the market waits for the world to right itself, opportunity does not. If you believe the world is falling apart, that is one path to opportunity. If you believe, as I do, that it is not, that is another path to opportunity. Along the former path, you can short everything from oil to housing. Along the latter path, you can get in the flow and trade or invest in those things that are improving along with the economy, things such as housing.

U.S. homebuilder shares are appreciating at a record rate this year, reflecting confidence the housing rebound from a six-year slump can accelerate with new-home sales still 50 percent below the 40-year average. The Standard & Poor's Supercomposite Homebuilder Index of 11 companies has climbed 53 percent this year through Aug. 10.

Housing construction is a staple of the US economy. The last four years have been rough on the sector, but, like the US economy, US housing construction is subject to cyclical movement. In this sector, it is wise to remember that what goes down, will come up.

Single-family starts hit a 50-year high of 1.8 million in January 2006 as home prices rose, then sank to a 50-year low by March 2009. After unsteady growth since then, starts have risen in four consecutive months for the first time since 2010.

As to the market's wait for the world to right itself, one focal point of the wait is China. Recently, I have given statistics and information that point to a shift in the Chinese economy, a shift engineered by the planners of the world's best planned economy, but, sometimes, just one simple sentence clearly says what investors and traders need to understand ...

So you can either stress out about the next economic report from Beijing, or you can embrace the likelihood that we are going to see a vigorous [government] response, and stay long.

When it comes to the reality of economic cycles, cycles dependent on consumer spending in particular, one simple sentence can say what investors and traders need to understand ...

Americans' paychecks in the first half of 2012 grew at the fastest pace in five years, pointing to an improvement in purchasing power that may help propel the economic expansion.

In some cases, though, more than a few words and two sentences can lead investors and traders to opportunity, even in a market that is uncertain and waiting for clues.

In past US droughts, cotton crops were damaged by the hot and dry weather alongside grain crops. While the entire US has been affected by well-above-normal temperatures recently, cotton crops have largely been spared the worst of the devastating drought that has slashed estimates for what was expected to be a blockbuster corn crop and a very decent-size soybean crop.

All of the above are pointers to moneymaking opportunity, yet on the horizon, the market sees potential economic crushers, such as the looming fiscal cliff and the massive US debt. Many point to these fiscal problems and suggest they will ultimately overwhelm the positive economic indicators, the indicators such as housing construction and Americans' rising incomes. What if, for example, the massive US debt were to begin showing signs of improvement ...

The monthly U.S. budget deficit shrank to $69.6 billion in July from $129.4 billion in the same month a year ago, reflecting a rise in government receipts and a drop in spending.

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

Trader Ed

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About the Author

Hello, I am Trader Ed.  No, not Mister Ed, although at times I feel a bit like a talking horse.  You see, my job is to educate folks about the market, which means talking about (or writing in this case) anything and everything that affects the market.  This means the world is my oyster.  Every day, I read for about an hour or so about the happenings in the world.  Every day, I look for leading indicators that will help me “see the future.”  No, I am not an oracle, nor do I pretend to be, but I do look for macro trends that point in a direction, and I am more than happy to share my “vision” with you.  Keep in mind, though, my vision derives from analyzing the fundamentals of the global economy, as well as looking at current movement in the market.  I shun the doomsayers and I embrace the realists.  I look to the positive without denying the negative.  In short, I paint as realistic a picture of the market as I can.  So, if you have a question in this realm, feel free to ask me.  I will answer you in this column and I will do that to the best of my ability.

Hoping to hear from you.

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