ÿþ<html> <head> <meta http-equiv="content-type" content="text/html;charset=iso-8859-1"> <title>OnlineColumnist®.com: Duke's Damage Control</title> <meta name="generator" content="Adobe GoLive 4"> <style type="text/css"> .style1 { font-size: x-large; font-weight: bold; } </style> </head> <body bgcolor="white" vlink="black"> <center> <table cool width="624" height="2719" border="0" cellpadding="0" cellspacing="0" gridx="16" showgridx gridy="16" showgridy> <tr height="79"> <td width="116" height="118" rowspan="2" valign="top" align="left" xpos="0"> <a href="081609.html"><img height="110" width="62" src="images/discobolos.logo.transp.gif" border="0"></a></td> <td width="24" height="118" rowspan="2"></td> <td width="465" height="79" colspan="2" valign="top" align="left" xpos="140"><img height="75" width="450" src="images/banner.GIF"></td> <td width="18" height="118" rowspan="2"></td> <td width="1" height="79"><spacer type="block" width="1" height="79"></td> </tr> <tr height="39"> <td width="182" height="39"></td> <td width="283" height="39" valign="top" align="left" xpos="322"><a href="aboutdiscobolos.html"><img height="14" width="267" src="images/divisionofNEW.GIF" border="0"></a></td> <td width="1" height="39"><spacer type="block" width="1" height="39"></td> </tr> <tr height="26"> <td width="624" height="26" colspan="6" valign="top" align="left" xpos="0"> <table border="0" width="100%" bgcolor="black" cellspacing="0"> <tr> <td> <table border="0" width="100%" bgcolor="#99ffcc" cellspacing="0" cellpadding="4"> <tr> <td align="center"> <div align="left"> <a href="index.html"><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> HOME</strong></font></a><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> &#8226; <a href="articlesindex.html">ARTICLES</a> &#8226; <a href="books.html">BOOKS</a> &#8226; <a href="teflon.html"> THE </a><a href="teflon.html">TEFLON</a><a href="teflon.html"> REPORT</a> &#8226; <a href="mailto:letters@onlinecolumnist.com"> REACTIONS</a> &#8226; <a href="aboutdiscobolos.html">ABOUT DISCOBOLOS</a></strong></font></div> </td> </tr> </table> </td> </tr> </table> </td> </tr> <tr height="1"> <td width="116" height="2574" rowspan="2" valign="top" align="left" xpos="0"><img height="172" width="111" src="images/johninframe3.jpg"></td> <td width="489" height="1" colspan="3"></td> <td width="18" height="2574" rowspan="2"></td> <td width="1" height="1"><spacer type="block" width="1" height="1"></td> </tr> <tr height="2573"> <td width="489" height="2573" colspan="3" align="left" xpos="116" content valign="top" csheight="2573"> <font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="5"><b> <br /> <br /> Economic Reality</b></font><p><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b> by John M. Curtis<br> (310) 204-8700</b><br> </font></p> <p><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><i>Copyright Nov. 1, 2009<br> All Rights Reserved.</i></font></p> <p><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<span class="style1">&nbsp;</span></span><span class="style1">F</span>ollowing other global stock exchanges, the Dow Jones Industrial Average plummeted 2.5%, taking profits from an unprecedented run-up, driving world s most prestigious index from its March low of 6,500 to its October high of over 10,000.<span style="mso-spacerun: yes">&nbsp;&nbsp; </span>Oct. 29 s nearly 2% gain was eclipsed by Oct. 30 s 2.5% drop, signaling that market-makers wish to take profits before an expected year-end rally.<span style="mso-spacerun: yes">&nbsp; </span>While experts debate the health of the economy, Wall Street seizes the opportunity for a correction, pushing stock prices down to more affordable levels.<span style="mso-spacerun: yes">&nbsp; </span>No commodity whether tangible or intangible can escalate in price too much before it s priced out of the market.<span style="mso-spacerun: yes">&nbsp; </span>Stocks are no exception, where current valuations got ahead of the real Gross Domestic Product.<span style="mso-spacerun: yes">&nbsp; </span>Oct. 29 s Q-3 GDP of 3.5% triggered a one-day market rally, only to be brought down to reality by real economic growth.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count: 1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Consumer spending, believed to be 70% of real GDP, showed no pulse heading into what could be a disappointing holiday season.<span style="mso-spacerun: yes">&nbsp; </span>Most economists attribute Q-3 s 3.5 GDP number to President Barack Obama neo-Keynesian s economics, where artificial government spending drives the economy.<span style="mso-spacerun: yes">&nbsp; </span>White House officials credit Obama s $789 billion stimulus plan for temporarily juicing up the economy.<span style="mso-spacerun: yes">&nbsp; </span> With the Federal Reserve Board tapped out of printing cash and adding to a ballooning the national debt, economists believe it can no longer rely on government stimulus. <span style="mso-spacerun: yes">&nbsp;</span>Fearing less stimulus slows the economy, Wall Street took profits, driving share prices down to more affordable levels.<span style="mso-spacerun: yes">&nbsp; </span>Next week s jobs report also weighs on today s sell off, where expectations about growth remain weak.<span style="mso-spacerun: yes">&nbsp; </span>Ten-percent unemployment bodes poorly for consumer spending.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count: 1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Looking at the big picture, Wall Street can only do so much to stimulate the economy and put cash into the pockets of publicly-traded corporations.<span style="mso-spacerun: yes">&nbsp; </span>Publicly-traded companies must also have earnings based on selling real goods-and-services.<span style="mso-spacerun: yes">&nbsp; </span>Whether selling autos or iPods, companies can t sell without cash-rich consumers.<span style="mso-spacerun: yes">&nbsp; </span>White House officials acknowledged that economic stimulus plan saved about 650,000 jobs, far fewer that the 1-2 million originally promised.<span style="mso-spacerun: yes">&nbsp; </span> Reducing unemployment is no easy job when you consider that real earnings require consumer demand.<span style="mso-spacerun: yes">&nbsp; </span>Federal Reserve Chairman Ben S. Bernanke s monetary policy has already dropped interest rates to rock bottom, trying to juice the economy.<span style="mso-spacerun: yes">&nbsp; </span>Fed policies, both loosening credit and lowering interest rates, have devalued the U.S. dollar, hoping to encourage more exports and domestic spending on U.S. goods.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count: 1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Wall Street anticipates slower economic growth by selling off.<span style="mso-spacerun: yes">&nbsp; </span>Lower stock valuations enable the market to continue moving up to a certain technical inflection point, where shares can t sell.<span style="mso-spacerun: yes">&nbsp; </span>Bargain stock prices allow fund traders to buy-in, when they take positions for another eventual sell-off.<span style="mso-spacerun: yes">&nbsp; </span>While long-term investors stay put, the major funds work the market by buying-low-and-selling-high.<span style="mso-spacerun: yes">&nbsp; </span>When stocks get too pricey, they must sell-off before looking attracting again to new funds.<span style="mso-spacerun: yes">&nbsp; </span>Commodity prices are no different.<span style="mso-spacerun: yes">&nbsp; </span>Despite a devalued dollar driving up commodity prices, like stocks, can only rise so far before they re no longer sellable.<span style="mso-spacerun: yes">&nbsp; </span>When New York Mercantile Exchange traders drove oil prices to $147 a barrel July 12, 2008, U.S. pump prices peaked at nearly $5 a gallon.<span style="mso-spacerun: yes">&nbsp; </span>When consumers stopped driving and gasoline inventories swelled, the bottom fell out of oil prices.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count: 1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span><span style="mso-spacerun: yes">&nbsp; </span>No matter what the economic news, Wall Street takes profits and drives down stock prices when the market is over-bought.<span style="mso-spacerun: yes">&nbsp; </span>Given the weak state of consumer spending, the market couldn t sustain the Dow at 10,000.<span style="mso-spacerun: yes">&nbsp; </span>How much the market corrects is anyone s guess.<span style="mso-spacerun: yes">&nbsp; </span>Judging by other corrections, the market could roll back to 9,000.<span style="mso-spacerun: yes">&nbsp; </span>If it only sheds about 10% or 1,000 points, then it could exceed 10,000 by year s end, only to see another correction in early 2010.<span style="mso-spacerun: yes">&nbsp; </span> Billionaire investor George Soros warned about a dreaded double-dip recession, when Obama s stimulus works its way through the economy.<span style="mso-spacerun: yes">&nbsp; </span>Whether accepted or not, Barack s Keynesian approach can t replace an economy built on real supply-and-demand.<span style="mso-spacerun: yes">&nbsp; </span>PIMCO s CEO Mohamed El-Erian expects a downward Q-3 revision and more GDP problems in 2010, something echoed by Treasury Secretary Tim Geithner.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count: 1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Real GDP growth can t improve until publicly-traded and private corporations begin adding jobs.<span style="mso-spacerun: yes">&nbsp; </span> Looking ahead to the holiday season, consumers will sit on their wallets until unemployment finally begins to improve.<span style="mso-spacerun: yes">&nbsp; </span>While the University of Michigan Consumer Sentiment Index held at 73.7, it s expected to drop back into the 60s when the stimulus runs out.<span style="mso-spacerun: yes">&nbsp; </span>With the economic outlook uncertain, consumers can expect more choppy water in the stock market, the best barometer of future economic growth.<span style="mso-spacerun: yes">&nbsp; </span>Whatever happens to GDP and unemployment, investors can expect more buying on dips and selling on peaks.<span style="mso-spacerun: yes">&nbsp; </span>Regardless of the economy, Wall Street knows how to survive in tough economic times.<span style="mso-spacerun: yes">&nbsp; </span>Market corrections create new buying opportunities, signaling that overvalued stocks could come crashing down.<span style="mso-spacerun: yes">&nbsp; </span>Investors shouldn t get too spooked this close to Halloween.<span style="mso-spacerun: yes">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span> </p> <p><b>John M. Curtis</b> writes politically neutral commentary analyzing spin in national and global news.&nbsp; He's editor of OnlineColumnist.com and author of <a href="books.html">Dodging The Bullet </a>and <a href="books.html">Operation Charisma.</a></p> </td> <td width="1" height="2573"><spacer type="block" width="1" height="2573"></td> </tr> <tr height="1" cntrlrow> <td width="116" height="1"><spacer type="block" width="116" height="1"></td> <td width="24" height="1"><spacer type="block" width="24" height="1"></td> <td width="182" height="1"><spacer type="block" width="182" height="1"></td> <td width="283" height="1"><spacer type="block" width="283" height="1"></td> <td width="18" height="1"><spacer type="block" width="18" height="1"></td> <td width="1" height="1"></td> </tr> </table> <table border="0" cellpadding="0" cellspacing="2" width="597"> <tr> <td><font size="1" face="Arial,Geneva,Helvetica"> <hr noshade size="1"> </font><a href="index.html"><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> Homene.net" target="_blank">img height="30" width="138" src="images/cmelogoANIM.gif" border="0" align="absmiddle"></a></font></p> </div> <p><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">&copy;1999-2002 <a href="aboutdiscobolos.html">Discobolos Consulting Services, Inc.</a><br> (310) 204-8300<br> All Rights Reserved. </font></td> </tr> </table> </center> </body> </html>