FOMC Statement

http://www.federalreserve.gov/newsevents/press/monetary/20090128a.htm

Highlights:

• Global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant
• The Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

Analysis:
A prediction for a lack of inflation both challenges and contradiction my call for being long on gold. However, the policy taken by the U.S. to save the banks will not be healthy for the U.S. bonds or the U.S. dollar in the long run. Still, in the short run, the U.S. dollar will out-perform other currencies.

Mass Layoffs Summary (U.S.) for 2008

http://www.bls.gov/news.release/mmls.nr0.htm

Keep your Eye on the Ball - All Three

One - Jobs

Company - Job Cut for January 26

Caterpillar Inc. - 20,000 jobs,
Sprint Nextel Corp.- 8,000 jobs
Home Depot Inc. - 7,000 jobs
Texas Instruments - 3,400
Pfizer - 8000 jobs (total will be 20,000)

Total: 207,120 jobs lost in the U.S.
2008 Unemployment total: ~ 2.6 Million (7.2% unemployment rate)
U.S. Unemployment projection is 10% by late-2009 or 2010.

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Two - Home Prices
Case-Shiller Housing Prices for November 2008 (U.S.):

The most important figures to review are the Composite-10 and the Composite-20. The Composite-10 illustrates the price change for 10 Metropolitan areas in the U.S. Likewise for the Composite-20, but for 20 areas.

Significance?

The -10 and -20 are down the most year-over-year since the housing bubble burst. Both are down about 25% from the peak.

November     November/October  October/September   1-Year
Metropolitan      2008           Change             Change        Change
Area             Level           (%)                (%)           (%)
------------   ---------     ----------------  -----------------  -------
Atlanta          116.57          -2.7%              -2.4%         -11.2%
Boston           155.03          -2.6%              -1.1%          -7.4%
Charlotte        125.61          -1.9%              -1.8%          -5.3%
Chicago          141.44          -2.8%              -1.6%         -12.5%
Cleveland        107.43          -1.2%              -1.0%          -5.2%
Dallas           118.34          -1.9%              -1.2%          -3.3%
Denver           127.65          -1.1%              -1.5%          -4.3%
Detroit           83.42          -3.1%              -4.5%         -20.7%
Las Vegas        138.04          -3.3%              -2.8%         -31.6%
Los Angeles      175.85          -2.2%              -2.6%         -26.9%
Miami            169.62          -2.2%              -3.0%         -28.7%
Minneapolis      133.22          -2.1%              -3.3%         -16.3%
New York         186.81          -1.6%              -1.0%          -8.6%
Phoenix          130.54          -3.4%              -3.3%         -32.9%
Portland         162.62          -2.3%              -1.9%         -11.5%
San Diego        155.47          -2.3%              -3.0%         -25.8%
San Francisco    135.28          -3.0%              -4.2%         -30.8%
Seattle          166.23          -2.5%              -1.4%         -11.2%
Tampa            160.86          -2.8%              -3.4%         -20.9%
Washington       180.50          -2.4%              -2.7%         -19.4%
Composite-10     166.05          -2.2%              -2.1%         -19.1%
Composite-20     154.59          -2.2%              -2.2%         -18.2%

Source: Standard & Poor's and Fiserv
Data through November 2008

This current blog entry by Chris Lau was sponsored by ProfessionalStockTraderLive.com. ProfessionalStockTraderLive.com is your source for learning how to become a better and successful trader and for following trades in real time.

Three - Consumer Confidence

• 37.7 in December 2008 (versus a revised 38.6)

Analysis:
These figures obviously add to the doom and the gloom. It is for this reason that the governments are acting on creating aggressive stimulus packages (see the two previous blog entries). Investors need to be cautious on the consumer discretionary sector. There has been speculation that many malls will close, and many retail companies will be bankrupt this year.

Still, I am optimistic on the companies that thrive in this environment. This includes Family Department Stores (dollar stores) and McDonalds ($1 burgers, value menu).
The other sector to therefore avoid is the commercial real estate sector, and especially the companies that rent out retail space.

Dow Jones Industrial Average (DJIA) 6000?

I include technical analysis in my analysis of market indexes and stocks. One big name in this area of analysis was Ralph Nelson Elliot, a person who had great skills in mathematics. Admittedly, my understanding of his description of wave direction for stock charts still elude me. This type of analysis is not used in my analysis. That said, below are selected Sections from Matt Blackman's Trade Systems Guru. The conclusions are startling.

< ... >

Few in the technical analysis world would argue with the contention that Ralph Nelson Elliott was a genius who lived long before his time, even if they don’t adhere to his teachings. The wave analysis principles he developed would have been amazing had they been developed with the help of computers but they did not exist his Elliott’s day.

Born in 1871, he became an accountant with a rather illustrious career cut short by an amoebic illness picked up while working in Central America. This developed into a debilitating case of pernicious anemia leaving him bedridden at the age of 58. With nothing else to do and an actively mathematically-wired brain, he turned his attention to the markets just as stocks hit their peak in 1929.

< ... >

Targets:

When the current corrective phase is over (and we could see a 2000 or more point bear rally in the meantime), the next five wave impulse pattern should register a similar price decline that unless something goes seriously wrong, puts the target on the Dow well below 7000.

This target gets even more interesting if you plot long-term trendline on the Dow (or S&P500) from the late 1970s and 1980s to present day. It also puts trendline support for the Dow back well below 7000. Finally, Dr. Robert Shiller’s long-term Price/Earnings research shows that in every serious bear market bottom back 120 years, annual trailing-ten year PEs dropped below 10 before a sustainable recovery could occur. That implies a price drop on the S&P500 below 600 or 28% below Friday’s close. And that translates to a Dow below 6000.

Source: http://www.tradesystemguru.com