Hold Onto Your Handbag, Honey

Hold onto your handbag, Honey- the stock market looks like it’s gonna take us for a ride.  Fluctuations are one thing; you can expect those.  Wild gyrations say something was not accounted for.  And just limping along shows absolutely no direction.

Remember back when the expression was “The Summer Rally”, the inevitable, reliable, always consistent Summer Rally in the stock market.  Those were the days.  You had confidence in picking up a so-called bargain at the beginning of the summer and locking-in a profit by the end of the summer.  That was the season for buying cold drink stocks in the hot weather.  Seasonal stocks that did well in warm weather.  Air conditioning stocks did well, as did companies that manufactured fans.  Certain shoe stocks.  Companies that make outdoor grills.  Suntan lotion.  Sun hats.  But this summer is DIFFERENT.

Unemployment is currently at 9.5%; highest its been since the early 1980’s, and apparently headed higher.  Foreclosures are extremely high; mortgage brokers “stretched” buyers to go a little further and borrow a little more in buying a bigger house, and of course Fannie Mae and Freddie Mac, those temporary quasi-government agencies, went way beyond their charters.  The people who headed up Fannie and Freddie walked away with huge sums, but the mortgagee can’t sell a declining asset which got whacked in the cross-currents once the housing bubble broke.  That’s right, temporary.  Fannie Mae and Freddie Mac were created to help lower-income people become first-time home buyers; a small little home for the family, lift us up economically and make proud home owners out of those who thought that that particular asset was beyond their hopes and dreams.  Fannie Mae, the Federal National Mortgage Association, was created in 1938 recognizing that the entire nation had seen the housing market collapse.  Freddie Mac, the Federal Home Loan Mortgage Corporation which is supposed to give stability, affordability and liquidity to the housing market was created in 1970.  It must be profitable to somebody who doesn’t want to see these temporary, quasi-government agencies disappear.  If they are temporary and they do cease to exist, then there is no more profit for the people who have found them profitable up to this point.  And there is something way wrong with the timing, because back in 1938 we were looking to come OUT of the depression.  It seems as though having Fannie and Freddie today puts us way deep INTO a housing crisis.

The government is saying that inflation is not a problem.  They probably don’t go to the supermarket to buy food.  Last time I checked, the price of gasoline for the car was pretty darn high.  Then you have the electric and gas companies telling you that if you use your air conditioner you’re going to find out the rates you are being charged are higher.  But that’s not inflation, according to the experts who are telling us it’s not inflation.  The newest expense was everybody had to go out and get a new TV.  Your old one is no good.  You had to be up-to-date and modern through circumstances beyond your control, which you had no part in, but you had to obey what was being instituted and modernized; otherwise known as the newest, the latest and the greatest.  I just listen to the radio, I don’t have the new TV.

The big one that caught everybody was put on our credit cards.  People put it on their credit card and look out below – interest rates were adjusted upward.  The Federal Reserve had looked to bring down interest rates on everything else that we turn to; savings rates, CD rates, even mortgage rates.  Investment and savings interest rates are down.  Even if you want to invest in a guaranteed investment, the interest rate that is guaranteed is down.  People have used their credit cards to what now must be called excess.

This is a rough economy.

So what is going to cause the stock market to rally over this summer?  Something positive has to grip the entire investment public in order to have the masses putting funds into the market and driving it upward.  I don’t see it.

The first big summer rally came in 1932.  The beginning of July, 7/8/1932 the Dow Jones Industrial Average stood at 41.22.  By August 9th, 1932 it was up to 67.08; and by August 29th, 1932 it was at 75.22.  September 7th, 1932 – 79.93.  Now it’s not quite exact, but going from 41.22 to 79.93 is practically doubling.  In just one summertime, 2 months, the market doubles.  What happened in that space of time?  Positive Direction: The Democrats nominated Franklin D. Roosevelt.  The electorate KNEW that Hoover was going to lose in the upcoming election and that Franklin D. Roosevelt was going to WIN.  CERTAINLY prevailed.  The market knew where it was headed; it knew the outcome of the next election.

Looking at the numbers for the following summer; July 18th, 1933 – 108.67. August 31st, 1933 – 102.41.  More improvement.  The markets were happy.  Happy Days Are Here Again.  But the markets then had to face reality, and the economic depression was very difficult to get out of.

In recent times we really haven’t seen a summer rally.

6/30/2000     10,447.89
9/1/2000       11,238.70     + 7.57%  Maybe the market was looking forward to a change in the White House.  Going from Democrat to Republican.  This is the biggest percentage number I find in the calculations.

6/29/2001      10,502.40
8/31/2001        9,949.75    – 5.26%  Then of course we had 9/11 in 2001.  The economy was hit very hard and the numbers then tumbled down.  When would we be lifted up from that?

6/28/2002        9,243.26
8/30/2002        8,663.50     -6.27%  Economically we were hurting in 2002.

6/30/2003        8,985.44
8/29/2003        9,415.82     + 4.79  Things are turning up.

6/30/2004       10,435.48
9/1/2004         10,168.46     – 2.56%  We are back up to 10,000 but the summer is slow.

6/30/2005        10,274.97
9/1/2005          10,459.63    + 1.8%  Bush’s economic policies are doing good; but the summer is lacking strong momentum.  It’s still positive; but mostly still.

6/30/2006        11,150.22
9/1/2006          11,464.15     + 2.8%  Market it positive; but not quite dynamic.

6/29/2007        13,408.62
8/31/2007        13,357.74      – 0.4%  Nothing very much.  Hardly worth mentioning.  Maybe a little reaction to the New Congress; the new Speaker of the House.

6/30/2008        11,350.01
8/29/2008        11,543.55      + 1.7%  The big election is coming up for the New President.  But there is no big sense of positive direction.  The market had already hit 14,000 in October of 2007.

And here we are in the hazy, lazy days of summer of 2009.  We began the year at 9,034.69 (1/2/09).  Inauguration Day, 1/20/09, we were at 7,949.09.  That’s a drop.  The beginning of summer, 6/18/09 we were at 8,555.60

AND as we speak, today is 7/9/09, we closed at 8,183.17.

That’s drifting.  If you study the chart Year-To-Date on the Dow Jones Industrial Average and insert the 50-day moving average and the 200-day moving average, you will see that the two moving averages come closer and closer to each other and meet up with one another in June.  Then everything moves sideways.  There is no positive direction.  And the economic figures don’t look good.

Hold Onto Your Handbag, Honey
A rough ride ahead.

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