It is often the case that after Presidents Day, Independence Day and Thanksgiving, the market resumes with a “patriotic” rally.  Not so this time. The DJIA lost 156, the S&P500 lost 19 points and the FTSE lost 95.5 points. All points mentioned were on the September futures. Last week I mentioned that the FTSE was forming a support level at 4180, but this failed to hold on Monday.

You can see from the chart that the market is now back below the 200 day moving average (green line).  There was much rejoicing amongst the bulls a few weeks ago when the market rose above the 200 day moving average.

The S&P500 has also returned below the 200 day MA (just, by only 3 points)

For the first time since January the initial unemployed number came in below 600,000, but to counter that good news on Thursday, on Friday the Michigan Sentiment came in at 64 when the market was expecting 70.  What this is saying is that the “man” on the street is not as confident as he was last month when the figure was 70.8.

Meanwhile another bank has hit the wall making the total 53 for the year – here in Australia is it hard to comprehend that number of banks failing. Australia only has 4 banks and they are some of the only AAA rated banks in the world – explained by our very high fees. 

GM has come out of bankruptcy in record time, but I see more problems ahead for the slimmed down company.  For how long and how much will the 60% shareholder (the US government) keep pumping money into it to keep it afloat? Consumers are still not buying cars.  The savings rate is increasing rapidly which is not good for any retailer selling anything other than the necessities of life.

In California things are going from bad to worse. Arnie failed to get budget cuts through months ago, and now they have run out of money and are issuing IOU’s instead of cash. But what can you do with an IOU if nobody wants to give you cash for it?  Arnie saw the problem growing and wanted to do something about it.  They even had a referendum about the need for cuts and Arnie was defeated.  Now they are paying the price.  California is the 8th biggest economy in the world and it is in real trouble.  It can’t print it’s own money, but it is trying the next best thing, printing IOU’s.

And to close, John Mauldin’s letter this week added more doubts about there being a sustained recovery any time soon. He was pointing out that with the record number of countries running deficits and record deficits at that there is just not enough money in the world to fund them all, or even a substantial number of them. So where will the money come from?  Lets see what the reporting season brings this week.