Russell 2000 Shaves Nearly 3% in Monday Trading

Stocks traded downward today with fresh worries about the economy. Stocks put in their steepest decline in six weeks with nearly all industries getting pulled down on investor concerns of consumer reluctance to spend. Indeed, American consumers have closed their wallets so tightly that the personal savings rate, as released by the Bureau of Economic Analysis, was over 5% at the end of Q2 2009. This contrasts to 1% at the beginning of the economic downturn.

The Dow closed down 186 to finish at 9,136 with Alcoa (NYSE:AA), American Express (NYSE:AXP), Caterpiller (NYSE:CAT), and DuPont (NYSE:DD) the leaders in the declining stock prices in the index.

The Nasdaq finished the trading session at 1,931, down 55 points and the S&P 500 finished at 980, down 24 points.

The Russell 2000, a composite of leading small-cap stocks, ended the day at 548, down 16 points.

Small-cap price leaders today include Align Technology (Nasdaq:ALGN), up 29%; Protalix BioTherapeutics, (Amex:PLX), up 11%; and CryoLife (NYSE:CRY), 10%.
 
*****30 Hour work week the new normal

Economic analysts were out in full force last week as headline data pointed to a recovery in employment. Although people may have started finding jobs, we question the quality of work being found by new workers.

After the Japanese financial crisis in the late 1980s, many of Japanese workers ended up working on temporary jobs that didn't have good salaries and benefits. Perhaps the U.S. is entering a similar phase.

Over the past year and a half companies have slashed budgets and expenses. Businesses are more likely to hire low cost temporary help until the economy starts to show significant changes. Part-time jobs usually have lower pay and part-time jobs don't have many of the benefits that full-time jobs have.

In past recessions, businesses would hang onto valued employees and many times increase their salary levels. This recession has proven different. There is a large number of highly educated people competing for menial jobs. This has given businesses an opportunity to hire skilled workers at bargain rates.

*****An insider's look at the housing numbers.

Inside Mortgage Finance sponsored a nationwide survey of 1,556 real-estate agents in mid-June. Their results bring up important data that contradicts many of the figures we have been reading in the past few weeks.
They unanimously acknowledge that the low end of the market is cranking. This area of the market is primarily driven by foreclosures, first-time buyers, and investors. The numbers show that near 43% of homebuyers are first-time homebuyers, 29% are current homeowners, and another 29% are investors. 
Unfortunately, their findings show that the high end of the market is dead. This area of the real estate market remains very weak because sellers are still in denial, existing homeowners aren't trading up, and there are fewer foreclosures and forced sales at the high end.

For those who already own houses, "affordability" is not a particularly meaningful measure of housing-market health. The main reason is because existing home owners cannot sell their current property at break-even levels, let alone a little profit.

*****No Inflation

Last week CPI came in about as expected. Although prices are rising slightly, CPI remains negative taking into account year over year changes.

A sign of confidence that U.S. inflation should remain under control is that foreign governments have been switching out of shorter-term U.S. government bills and into longer-dated bonds. Last week, when the U.S. government issued $75 billion in new bonds, 10-year notes made up the largest percentage since 2005.

*****Managed America

So there's where we are: shorter work weeks (read: less take-home pay), home values gone bust, homeowners stuck in their homes, and inflation initially non-existent. These are some of the themes I recently shared with investors in my Managed America: Investing in the New Economic Reality. During the presentation I shared with investors some of our top holding for the new economy and the strategies we'll employ for profits in the months and years ahead. The presentation is in replay mode and is open access (free): click HERE to watch now.

Regards,

Ian Wyatt
Editor
Small Cap Investor Daily

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