- Market Commentary -

June 23, 2010 (FinancialWire) (By Dr. Joe Duarte) (Go to http://www.financialwire.net/?s=cmmtry for all recent commentaries.) — “Market Rolls Over as Wheels Start to Come Off Around the Obama White House” — The S & P 500 SPDR ETF (SPY) and the Dow Jones Industrial Diamonds (DIA) ran into a wall of selling as the S & P 500 tried to close above its 50-day moving average on Tuesday.  But the real damage may have been done on Monday where a good looking rally rolled over lamely in the middle of the afternoon.

There is plenty to worry about in the economy, and most people are familiar with the laundry list.  But, it seems as if something new is happening as the news that the White House staff is starting to unravel, which leaked out on Monday, with a report of White House Chief of Staff Rham Emmanuel’s possible leaving at the end of the year took the wind out of the market’s sails.

Let’s look at the situation carefully.  News that budget director Peter Orszag is actually leaving and the debacle around General McCrystal’s comments to Rolling Stone magazine materialized nearly simultaneously, along with the reports earlier in the day that the White House’s foreclosure help program had more people leaving it than the number it has actually helped to stall foreclosure. The failure of the program was due to unrealistic expectations and guidelines issued by The White House, according to The Wall Street Journal. It seems that when banks actually received the information from those wishing to forestall foreclosure, few even qualified for the program, as their personal finances were at a level that no amount of help would allow them to make any mortgage payments, even lesser ones than the ones that they were already delinquent in making.

More interesting, especially from a timing standpoint, was the news that Verizon Communications Inc. Chief Executive Ivan Seidenberg, head of the influential Business Round Table is calling the Obama team’s polices toward business “hostile” and an impediment to “job creation” looks to be adding a new layer of concern to the whole situation, as it seems that the warnings of the opposition during the election are starting to come true. These guys don’t really understand how the real world works.

To be sure, Mr. Obama had a tough Tuesday. But there is more to this than just one day of bad news.  Today’s crises tend to be the results of events and developments that have been ongoing for much longer periods of time, sometimes months, years, or even longer.

Let’s look at this in a simple fashion, the world of a donut shop.  If you're going to run a donut shop, it's a good idea to learn how to make donuts. It's good to know where the best and least expensive materials are to be found, and which section of town actually needs a donut shop. It's good to secure loans and to have enough backing to let the business develop. And it helps if you make good donuts, and give good customer service.

No one at the current White House has ever run a donut shop. And if they have, they haven't exactly put the experience to work, at least not in any way that seems to have made its way to policy. When it comes to successful enterprises, there is no substitute for planning, adjusting, and paying attention to detail. And experience in the detail front is utmost in importance, which is why many people who want to own a donut shop look to Dunkin' Donuts as a potential franchise opportunity.

Dunkin' Donuts makes good donuts, and has the business experience and clout to give the franchisee an excellent opportunity for success.

What's our point? No one in the White House gets it beyond knowing that Dunkin' Donuts are good to eat. If they would spend some time at any donut shop for a few days, they may learn a few things about how the world really works.

And if they would replace some cabinet and staff members with a few Dunkin Donut franchisees or small donut shop owners, who knows what heights they might reach.

That message was clear on Monday, which may have played a role in the negative reversal seen in the stock market. Wall Street clearly loves a good donut, and has a better idea as to how donut shops work.

For the markets, the realization that there are no donut shop owners in The White House may have unnerved the bulls. And the overhang of sellers above the 50-day moving average in the S & P 500 may have seized the moment. The bottom line is that few traders want to own stocks if they believe that the White House is in crisis. Think of it this way. The White House has few friends left in the business community.  But suddenly, suspicions about incompetence in the government are starting to become an ugly reality, warts and all.

The more we (the people) see, the less we like what we see; higher taxes, less opportunity, and zero flexibility when it comes to moving away from ideology.  And the most startling of all aspects of the situation is the sudden rise in opposition throughout the land, in polls, on the punditry trail, and now at the highest echelons in business.  To be sure, this has been predicted to a great degree by polls of likely voters at Rasmussen Reports.com, where public opinion has been negative toward the White House for months.

Yes, over the last few weeks, we have been increasingly bullish. We noted the “W” bottom in the S & P 500. We pointed out the key resistance and support levels that were being taken out, before the mainstream media figured it out. And we have been steadily increasing the exposure to long positions in our stock rating lists at www.joe-duarte.com.  But to be honest, this lack of success at the 50-day moving average has come at a time that to us looks to be a bit too coincidental, as the dynamic in Washington is clearly changing from one of scattered opposition to one of opposition which is suddenly more organized and whose anger and purpose seems to be coming to a boil from multiple sources simultaneously.   In other words, this is starting to look pretty scary.

For us, it comes to this.  As yourself this question; Does it make sense to hold stocks for the next two and a half years if you suddenly found out that your worst fears about the guys running the country are about to be realized?

(Go to http://www.financialwire.net/?s=joe+duarte to see more commentaries by Dr. Joe Duarte.)

(Go to http://www.financialwire.net/2010/04/22/about-duarte/ for more about Dr. Duarte.)

(Go to http://www.financialwire.net/?s=cmmtry for all recent commentaries.)

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