- Market Commentary -

July 7, 2010 (FinancialWire) (By Dr. Joe Duarte) (Go to http://www.financialwire.net/?s=cmmtry for all recent commentaries.) — The S&P 500 SPDRS ETF (NYSE: SPY) rallied yesterday, but despite its positive close the market seems stuck in the mud. That suggests there are significant doubts on both the bullish and bearish side at the moment, and that there may be more to the “new normal” than meets the eye.

Watching the market gyrate as each new technical support and/or resistance level is reached suggests that this is no market for the novice investor.  In fact, the flat returns by many hedge funds in the past few months attest to that. But beyond the obvious, it’s plausible that a new state of being, a new consciousness is starting to take hold. And much of that now rotates around the so-called “new normal,” a term coined by the big boys at Pimco, the bond kings.

Here’s what we’re thinking.

First, here’s an interesting question. Are we looking at a new normal or are we just going back to the old normal, where people who had jobs, and prospects of actually making enough money to pay for their expenses are likely to make it?

We're not being crass. This is an important point. The economic blastoff of the dot-com bubble in the 1990s was followed by a second blastoff from the housing bubble. During that period of time the rules that had applied in past economic cycles got thrown out the door and irrational exuberance was the norm. In fact the big hair era of the 1980s gave way to the big bubble era of the next 20 years, which is why we are now in the era of the big hangover.

During the dot-com bubble it became acceptable to buy the stock of companies who had no real products and no real earnings. They had a concept and that was good enough to make the price of the stock go higher. If you held on to the stock long enough for the price to rise significantly and cashed out in time, you were rich, or at least better off than you were before.

Some of that wealth moved into real estate during the housing bubble. During that period it became "normal" to lend money to people based on their home equity, or on the number of houses that they owned, as eventually those homes would be sold for a profit. The expectation was that home prices would never fall, thus, even those people with no jobs, and no prospects of ever actually earning enough to pay their outragous mortgages were "fair" credit risks for banks and other lenders.

The same logic extended to credit cards, as home equity would foot the bill for the entire party.

In other words, what became normal during the last twenty years was not normal at all. It was ridiculous. And institutions and individuals paid the price for living in a world of fantasy where companies with good concepts fetched larger multiples in their stock price than companies with a century of products behind them and where a lawyer who quit his job to flip houses could command seven figures worth of credit lines from any bank.

Our contention is that aside from the pain and suffering that is being felt by thousands without jobs, part of the current retrenchment is a return to the old normal, where if you could pay your loan back you were more likely to actually get a loan, and where more people than not made more an attempt to live within their means.

To us, it looks as if it's unreasonable to expect that 20 years of madness is going to return to "good times" any time soon.  And that means that the “new normal” isn’t new at all, but just the long slog that follows a wild and woolly economic period such as what we saw over the last two and a half decades.

(Go to http://www.financialwire.net/?s=drtjby to see more commentaries by Dr. Joe Duarte; and go to http://www.financialwire.net/2010/04/22/about-duarte/ for more about Dr. Duarte.)

The FirstAlert(tm) “Money Index” is an indicator of the depth of market direction or indirection. While not always including the same stocks, the NYSE/NASDAQ/AMEX 25 Most Actives and NYSE/NASDAQ/AMEX greatest Percentage Losers and Percentage Winners (weighted against pure monetary loss/gain) indicate the direction in which the mass of money is flowing, as well as the general focus of the market. Last session’s most actives showed 18 advancers versus 7 decliners. Volume Leaders were led by Citigroup, Inc. (NYSE: C) (streaming research for Citigroup available at http://investrend.stocksmart.com/ri/toc?tid=7921), the SPDRS S&P 500 Trust ETF (AMEX: SPY) (streaming research for SPY available at http://investrend.stocksmart.com/ri/toc?tid=34430), the Financial Select Sector SPDRS ETF (AMEX: XLF) (streaming research for XLF available at http://investrend.stocksmart.com/ri/toc?tid=1026233), the PowerShares QQQ Trust ETF (NASDAQ: QQQQ) (streaming research for QQQQ available at http://investrend.stocksmart.com/ri/toc?tid=1044870) and Microsoft Corp. (NASDAQ: MSFT) (streaming research for MSFT available at http://investrend.stocksmart.com/ri/toc?tid=4652).

The FirstAlert(tm) Economics Calendar lists Weekly Chain Store Sales at 8:55 am ET.

The FirstAlert(tm) Earnings Calendar showcases AEON Co.’s Q1 2011 Earnings Release; AEON HOKKAIDO CORP’s Q1 2011 Earnings Release; ARRIYADH DEVELOPMENT CO’s Q2 2010 Earnings Release; and BOSIDENG INTL HOLDINGS LTD’s Preliminary 2009 Earnings Release.

Quote of the Day: "White folks needs what black folks got just as much as black folks needs what white folks got, and we's all got to stay here mongst each other and git along, that's what." –Margaret Walker (07/07/1915 – 11/30/1998), US writer.

Word of the Day: hunky dory \HUHNG-kee-DOHR-ee\, adjective: About as well as one could wish or expect; satisfactory; fine; OK.

In context: “In Greensboro we are continuing along as if everything is hunky dory and, according to the proposed budget, Greensboro will be taking on $70 million in new debt in the next two years.” — John Hammer, "City Budget Designed To Generate Outcry", Greensboro Rhino Times

(Hunky dory is an American coinage from the late 1800s. The source is posited to be an adaptation of New York City slang or perhaps a reference to a street in Japan named Honcho dori, known as a destination for sailors on shore leave.)

Today is: Chocolate Day

The FirstAlert(tm) Website of the Day: http://www.candyusa.com/

Happy Birthday: 1913 – Pinetop Perkins, American blues pianist; 1927 – Doc Severinsen, American composer and jazz trumpeter; 1940 – Ringo Starr, English drummer and singer (The Beatles); 1952 – Mando Guerrero, Mexican professional wrestler; 1960 – Kevin A. Ford, American astronaut; 1969 – Sylke Otto, German luger; 1973 – Natsuki Takaya, Japanese manga-ka; 1987 – Lena Ma, Canadian beauty pageant contestant (Miss World 4th runner-up).

Today in History: 1456 – A retrial verdict acquits Joan of Arc of heresy 25 years after her death; 1863 – United States begins its first military draft; exemptions cost $300; 1928 – Sliced bread is sold for the first time by the Chillicothe Baking Company of Chillicothe, Missouri. It is described as “the greatest forward step in the baking industry since bread was wrapped"; 1947 – Alleged and disputed Roswell UFO incident; 1974 – West Germany win the FIFA World Cup, beating Netherlands  2-1 in the Final; 2005 – Influenced by Live 8, the G8 leaders pledge to double 2004 levels of aid to Africa  from US$25 to US$50 billion by the year 2010.

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