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Sunday, August 01, 2004
Good evening friends,
Market Recap
On Friday the Dow was up +10 points, the NASDAQ advanced +6 points, and the S&P gained +1 point. This market continues to be dull with the same lackluster trading we have seen for many weeks. As we enter August we may see more of the same. From a historical stand point, August is normally the lowest volume trading months of the year. I do not anticipate this year to be any different, and with all three major indices below their respective 200 SMAs, the volume should remain light.
Watch List
Our short watch list continues to grow with more stocks added today. Last year in the middle of a mini bull market, there were times when we had nearly 50 stocks in our long watch list. This will happen in bull markets.
Now we are seeing our short watch list nearing 50 stocks. This is a strong indicator that the bear market is upon us. As the markets become bullish, our short list will shrink. Although I would rather see the number of stocks on the short list shrink, right now our short list is growing. We can trade in either direction, but I would much rather trade on the long side. I wish I had better news, but if all the market will give us are gains on the short side then that is what we must take.
Election Impact
As the election moves closer our commentaries will have topics on how the election will affect the stock market. The intent is not to favor either candidate, the intent is to discuss the impact the outcome of the election will most likely have on stocks.
With the election coming up in November, we need to be prepared for what impact it will have on stocks and our trading. Depending on which party wins, we will see some sectors rally and others fall. We will get into an in-depth look at the sectors which we feel will be impacted the most by the election results in some upcoming commentaries. For now, let's focus on the issues of the election and how they will affect our trading.
I will discuss what is being promised in order to fully understand the impact of some of these decisions. In no way is this intended to spark a political debate. I am simply addressing these issues because they have a real financial impact on our economy, the stock market, and because I feel they are often misunderstood.
The challenger has been saying that if elected, he plans to cut taxes for the middle and lower class, while repealing tax cuts on the wealthy (that is, those making $200,000 or more a year). He is also talking about lowering health care costs.
First of all, we all know that every campaign promise will not become a reality. When someone gets up and talks about raising the minimum wage, it is a very easy statement to make. But the President's hands are tied by Congress. The Congress and the House of Representatives put bills together that are voted on, and if passed, they are sent to the President to sign into law. If either Congress or the House fails to take an initiative on a bill, or if they vote a bill down that the President sends to them, there is no chance for it to become law. This is why many campaign promises never get fulfilled. This happens when there is gridlock (a democratic president with a republican congress or vice versa).
Wall Street has already expressed some concern over the proposed tax rollback on the wealthiest of individuals. By repealing the tax cuts on the wealthiest of individuals, there could be an issue on longer term growth in the markets. Wealthier individuals tend to invest, and if they have less money to invest, they will be buying fewer stocks. Repealing a tax on the wealthy will ultimately pull money out of the markets. When big money leaves the market, stocks go down and the selling hurts the small investor. That in turn becomes a downward spiral since the wealthy make money through investments on which they pay taxes. Reduced investments by the wealthy means less taxes will be paid on capital gains. So what the government anticipates gaining in taxes is off set by less tax paid on less capital gains. That could begin a more significant downtrend in the general economy.
Minimum Wage
A New York Times column mentioned last weekend that the minimum wage is not keeping up with inflation. Inflation is calculated in part by using the CPI (Consumer Price Index). That index moved up from 1.5% to 1.6% recently. The Federal minimum wage is currently $5.15. However the average hourly earnings for June came in at $15.65. The minimum wage number is just that, it is a fixed number. Even with this horrific job market, there are not that many jobs paying the minimum wage. The only people making the minimum are 16 year old workers at fast-food type jobs. Any adult with a job working 40 hours a week is most likely making more than the minimum wage, most people make significantly more. That is how the average earnings number is over $15.
Living Wage
The living wage is the minimum amount of money required to support a family of four, living at the poverty level. The living wage is currently determined to be $8.80 per hour. That is significantly lower than the currently reported average earnings.
What many people never hear about, or fail to understand about a living wage is its impact on the general economy. If McDonald's or Burger King were suddenly required to pay $8.80 an hour across the board, imagine how much you would pay for a Big Mac? A minimum wage increase would send the consumer price index through the roof. If wage numbers increase by over 40%, the consumer is going to absorb that increase because it will drive up the cost of goods. Those industries already paying well above the $8.80 level would have to raise their prices just to compensate for the increase in wages. Inflation would rise and that living wage would have to rise again because the current living wage would not be enough to live on. The impact of such a decision would have profound ramifications on our economy, businesses, and the stock market. There is a reason why the minimum wage is kept down. If the minimum wage is raised, it has a snowball affect on the rest of our economy and maybe the igniter for the start of inflation.
OTC BB Watch List
- EGSR
- AANI
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