Recession Signs Mount

It Just Keeps Piling On

Investors were hopeful last week, but like a boxer in the first round of a fight with a young Mike Tyson, they simply could not withstand the barrage of dire economic data.

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Recession Signs Mount

For a good part of the last trading session, stocks stubbornly withstood Greek wisdom. You'll recall that the Oracle of Chios, now headquartered on the Upper East Side of Manhattan, has been quite vocal regarding the likelihood of a renewed economic recession. Given that scenario, we have been warning regularly that stocks also seem prone to punishment. Through Thursday though, the Dow refused to let go.

Finishing the week down 1%, activity in the Dow Jones Industrials Index was misleading, with most of the losses incurred on Friday's 2.5% drop. Instead, stocks looked toward Intel's (Nasdaq: INTC) strong earnings report on Tuesday after the close of trading for reason to climb. Our analysis of the report, however, turned up some insight not otherwise seen across the popular press. We warned investors not to look toward Intel's solid semiconductor sales and fine forecasts as a barometer for general economic activity.

We noted that, after all, corporations have not made IT upgrades in some 4 to 5 years due to tight budgetary constraints. Now that the economic environment and inventory levels have stabilized, some businesses are moving capital toward the replacement of old technology hardware. So we said pent-up demand and freed capital could not be counted on as convincing evidence toward sustainable economic revival. Also, Intel makes more than half its sales in Europe and Asia, and European demand at least seems likely to falter. Indeed, Intel's CEO Paul Otellini reported on the issue, though he stated that European activity (or was it all international sales) had stabilized and moved higher before the close of the quarter. That said, we see little reason to be enthused about European consumption moving forward, given the degree of austerity being imposed on its citizens - yet another recession sign.

Before the week had closed, investors were reminded of the themes we've been holding over their heads these recent months. The most important clue investors are still getting is about critical consumer spending. Friday produced the latest reading of Consumer Sentiment by the University of Michigan in conjunction with Reuters. Consumer confidence plunged nearly 10 points, to 66.5 in the mid-July reading. The news served like an overdo slap to the face of a drunken, crooked off-Wall Street Research Director. Suddenly the fool realized his whereabouts. Without domestic consumption, after all, the US economy is doomed (at least in today's world). Without adequate employment, if any, the 16% or so of America that remains underemployed is not about to spend money at the mall. That seems simple enough to comprehend, we know, but sometimes the off-the-Wall Street miniature kings get lost in the soap operas of their own little worlds and forget about how the rest of you live (recall the cause of financial crisis).

Friday's data only added to the signs of recession just discovered by Mr. Clean on Thursday. We noted our prescient forecast for manufacturing's demise played out to no surprise; however, economists missed the readings on the New York and Philadelphia area manufacturing surveys by far. Manufacturing, including the auto industry, had been a key component of nascent economic growth. Strategists now faced the reality that this newly reliable cog might fail. That fact shook the markets, but investors kept hope in earnings season. And then Google (Nasdaq: GOOG), General Electric (NYSE: GE) and several banks reported disappointing results, pulling that last bastion of hope like a rug from under their feet.



Friday's biggest losers included Strats Tr for Ambac Financial (NYSE: GJW), Bank of America (NYSE: BAC), Skilled Healthcare (NYSE: SKH), Radian Group (NYSE: RDN), Flagstar Bancorp (NYSE: FBC), Live Nation Entertainment (NYSE: LYV), PMI Group (NYSE: PMI), Gannett Co. (NYSE: GCI), Brunswick (NYSE: BC), First Industrial Realty Trust (NYSE: FR), LIN TV Corp. (NYSE: TVL), Kid Brands (NYSE: KID), Build-A-Bear Workshop (NYSE: BBW), Xerium Technologies (NYSE: XRM), MarineMax (NYSE: HZO), Goldcorp (NYSE: GG), PNC Bank (NYSE: PNC), VIVUS Inc. (Nasdaq: VVUS), Zion Oil & Gas (Nasdaq: ZNWAW), Tongxin International (Nasdaq: TXICW), Jinpan Int'l (Nasdaq: JST), AmeriServ Fin'l (Nasdaq: ASRV), Iridium Communications (Nasdaq: IRDMZ), Primoris Services (Nasdaq: PRIMW), Intervest Bancshares (Nasdaq: IBCA), Anthera Pharmaceuticals (Nasdaq: ANTH), Celsius Holdings (Nasdaq: CELH), Park-Ohio Holdings (Nasdaq: PKOH), Westwood One (Nasdaq: WWON), Blue Dolphin Energy (Nasdaq: BDCOD), Radio One (Nasdaq: ROIA), LaPorte Bancorp (Nasdaq: LPSB), Pixelworks (Nasdaq: PXLW), Subaye (Nasdaq: SBAY), Beasley Broadcast Group (Nasdaq: BBGI), EnteroMedics (Nasdaq: ETRMD), Overstock.com (Nasdaq: OSTK), First Capital Bancorp (Nasdaq: FCVA), On Assignment (Nasdaq: ASGN), Comm Bancorp (Nasdaq: CCBP) and Exact Sciences (Nasdaq: EXAS).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.