The Grind to Dow 10,500

Ian Wyatt — Tue, 29 Sep 2009 17:07:00 GMT

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September 29, 2009

*****The Dow 10,500 Grind

*****Poor Getting Poorer

*****Oil and the U.S. Dollar

Fellow Investor,

Yesterday’s nice rally is backing off a bit today. That shouldn’t be much of a surprise. Traders will take profits, and I expect the move to Dow 10,500 will be much more of a grind than what we’ve seen lately.

Third Quarter earnings is right around the corner. Even though many commentators are nervous about 3Q earnings, I think there’s an upside surprise in store for investors.

*****The rich are getting richer, and the poor are getting poorer at least that’s how the say goes. Truth is, the rich are not getting richer, but the ranks of the poor are climbing. Median income in the U.S. fell from $52,163 to $50,303, the lowest since 1997. Not only did we lose a decade worth of stock market gains in the financial crisis, we also lost a decade worth of wage gains.

Income fell across all demographics, but the poor were hit hardest. The poverty rate has jumped to 13.2%. In Flint Michigan, 35% of the population uses food stamps. In Pharr, Texas, it’s 38%. Across the nation, 9.8 million households used food stamps. And the rise was concentrated in households with 2 or more workers.

This is serious. The data suggests that the financial crisis has hit the working class harder than any other income group. And with economic growth expected to be weak for a couple years while we work off the imbalances like housing inventory and manufacturing capacity, it’s hard to imagine what will help the working class get back on their feet.

*****But one has to wonder just how much the working class and two-worker households contribute to GDP. We might assume that this segment of the population that can slip so easily into the poverty range didn’t have much disposable income to begin with, and so wasn’t a significant driver of GDP growth.

Anecdotal evidence suggests that Americans are getting more comfortable with the apparent stability of the economy. And we know that once we feel good, we’ll start spending again.

*****Oil prices have been dropping. There is much debate as to whether oil prices respond more to the U.S. dollar or supply and demand issues. The U.S. Dollar Index has found support at 76, as you can see on the chart below…

You can also clearly see that the 76 level is not the ultimate support level for the dollar. Ultimate support may well be the 72 area on this chart. If so, we will see the dollar fall and another move higher for oil, gold and other commodities.

In fact, I’m getting ready to recommend a gold stock that operates in Brazil to my Top Stock Insights readers. I’ve been waiting for a bounce in the U.S. dollar to take gold prices down for $1,000 an ounce to recommend a gold stock. And now that move is happening; keep your eyes open for the imminent release of my new report.

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Until tomorrow,

Ian Wyatt

Editor

Daily Profit

Daily Profit : dollar, GDP, Dow

The Grind to Dow 10,500