Much has been written of late about how the world escaped a depression due to the actions of the governments of the western world, namely throwing money at the consumers to spend. We are now seeing that all that government spending did little good at all. It has been reported this week that one million homes will be foreclosed this year in the US, not a sign that the economy is recovering.

Yesterday the DJIA lost 261 points bringing the index down to 10098. A large part of this reversal can be put down to the Michigan Sentiment which came in at 66.5. Down from last months 76 and the expected level of 74. What this is telling us is that things are not improving for the average person. There are still 5 people for each job, which means wages are going down. Taxes are going up and there is talk of a GST or VAT (Goods and Services Tax or Value added tax) being applied. This will further reduce the standard of living and make family budgetting even more difficult as people struggle to pay their mortgages – or not pay as the case may be.

The big problem for many cities and states and the US as a whole is unfunded liabilities. These are promises made about retirement funding, health care for the future for which little or no money has been set aside. However you look at it the end result will not be good. What will be inevitable is that at some stage the city/state or government will not be able to meet their promises.

As an example, the State of New York, with its $9 billion budget hole is looking to borrow $6 billion for its state pension fund in order to make a $6 billion payment due to the same fund!  Unbelievable. In the end pensions will be reduced, the age limit raised until the books balance. More will be destitute and living in poverty, relying on their children to help out.

As people come to realise this they are starting to save for the future, reducing spending on things that are not really necessary. This of course is not good news for mall owners and retailers.

Now for a comment or two on the FTSE.

 In April I surmised that 5800 could be the top, that was when the Goldman Sachs saga hit the news. That did indeed start a corection and over the next three weeks saw an intraday low of 4800 being reached.  Since then the market has bounced around between 4800 (suport) and 5300 (resistance). Of note though is the 72 day moving average (red line) has crossed the 200 day moving average (green line). In technical terms this is a bad sign for the bulls. How long it will continue to move between these resistance and support levels is any bodies guess, but in the end I’m still putting money on it eventually breaking out through the bottom.