Tuesday, September 6, 2011
DJIA: 11,240'26 S&P 500: 1173.97
Expect a big crunch in stock prices today with a drop in the DJIA of 200 points in the first half
hour of trading.
I am still looking for a big buying opportunity within 6 weeks and the possibility of a drop below DJIA 10,000 before it’s over.
The Euro-zone debt crisis is competing for center stage with our own political/economic crisis.
The only solution I can see is for stock prices to decline to a level that discounts these problems, a level that scares the crap out of investors, but provides irresistible stock prices for institutional investors looking out a year or two when problem issues are less daunting.
Get ready !
The biggest buying opportunities are most often accompanied by an environment when the last thing investors feel comfortable doing is buying stocks.
We are approaching a crossroads where the economic recovery that started in mid-2009 either reasserts itself, or caves in to a multitude of problems here and abroad.
Wall Street is even worried when nothing happens. According to the 8:30 a.m. Friday Employment Situation Report, new hires in August stagnated and the jobless rate held at 9.1%. As a result, the DJIA dropped 253 points.
What did anyone think would happen in August after Congress’ pathetic display of partisan politics at the expense of the American people, the S&P downgrade of U.S. credit rating, and unrelenting negativity by the mainstream media ?
What company, large or small, would hire or even spend in that environment ?
O.K., part of Friday’s plunge was due to a long weekend, institutional portfolio adjustments, and the general knowledge that September ranks as the WORST month for stocks.*
October’s has earned a bad “rep” for big plunges, but in all it’s ugliness, it has been a great month for buying leading into the “Best Six Months”* for owning stocks (Nov.1 to May 1).
That makes September an “opportunity month,” as well if one’s timing is good.
With the DJIA at 12,248, my June 3rd blog (“Stage Set for Big Buy – Late Summer, Early Fall”) called for a buying opportunity in the DJIA 10,700-10,830 (S&P 500: 1150) area, possibly on July 29 or August 1, if the congressional debt ceiling/reduction debates pounded the market.
The market held up well, in spite of bitter debate and concerns of a U.S. default on certain obligations, prompting me to contrarily warn readers NOT to buy the Debt Ceiling rally when an announcement did come, that I expected a drop to the 10,700-10,830area (S&P 500: 1150).
The rally failed and it dropped to DJIA 10,588 (S&P 500:1101) before rebounding.
Two key events are scheduled to occur this month. On Thursday, September 8, President Obama will
present plans to boost our flagging economy. On the 20th, the Federal Reserve meets for what is perceived as, a very important meeting concerning the economy.
How will the market react to these events ?
I give an edge to another leg down, not because the actions by the administration and Fed will lack substance, but because TWO MORE ISSUES need to be settled.
The most important is, will the economy sink into a recession ? Then two, there is the Euro-zone debt crisis
where a meltdown must be averted. Continuing uncertainties will bedevil us for years to come, get used to it.
The Big money will be the first to see it, and it will be buying as hopes fade among the investing public.
My worst case scenario is for a drop to DJIA 9,680 (S&P 500: 1050).
If the present attempt to hold above 10,600 fails, that is where the market averages can go before rebounding.
All this stands to come to a head within 6 weeks.
Infrastructure Spending Housekeeping 101
Note: I will repeat this section from time to time for new readers.
As the recession and bear market were intensifying in the fall of 2009, I speculated that infrastructure spending would get a high priority for a recovery. I wrote articles for Equities Magazine and compiled information I anticipated would be useful.
I was wrong, infrastructure spending got a low priority, and today I am sure the administration has its regrets.
What is attractive about this kind of spending is it stands to employ a lot of people and it can be funded by some government spending, but to a great degree by private investment.
When I did my initial research on the nation’sinfrastructure I was surprised to find it encompassed 15 different categories: Aviation, Bridges, Dams, Drinking Water, Energy, Hazardous Waste, Inland Waterways, Levees, Public Parks and Recreation, Rail, Roads, Schools, Solid Waste, Transit, Wastewater.
In 2009, the American Society of Civil Engineers gave each category a “grade” (A through D-)
I was shocked to learn the GPA for all categories averages a “D,” with an estimated need for investment of $2.2 trillion !
Their 140 page study is available on the following web site. (Some pages are in full color, so copy with care or it’ll chew up your color ink)
These infrastructure categories encompass most of the United States. Addressing their vast deficiencies would employ a significant number of workers at all skill levels for many years. Every politician in both Houses should drool at the potential in the districts they serve.
With all categories of our infrastructure begging for attention, it is beyond comprehension that our nation’s priorities are squandered abroad. Time to come home.
There is a move afoot to establish a facility for funding infrastructure projects sponsored by Senators John Kerry (D), Mark Warner (D) and Kay Bailey Hutchison (R). The vehicle would be the BUILD Act, introduced
earlier this year by Senator Kerry and modeled after the Export-Import Bank Created during the Great Depression.hgh
Whether this will be a facility for funding infrastructure investments is unknown. Whether Congress
approves additional infrastructure spending is unknown. I thought the following information would be helpful in
the event our government decides to pursue this route for job creation while addressing an enormous need.
So what’s the best play ? An ETF may sound like an easy answer, however one of the problems with Infrastructure ETFs is they are generally loaded with utility stocks, ergo not pure plays.
I compiled a list of 39 stocks (not recommendations) with exposure to various categories of infrastructure spending. but have notcrunched numbers – a massive job and I currently don’t recommend stocks. But, this is a start.
There is no guarantee that the government will address the issue, or that any of these companies will benefit enough to have a significant impact on its stock. Eight of the ten largest highway builders are privately
For the most part, these are meat and potatoes companies, NOT alternate energy companies.
ABB Ltd. (ABB), Aecom Tech (ACM), Alamo Gp (ALG), Ameron Int’l (AMN), Astec Inds. (ASTE), AZZ Inc. (AZZ), Caterpillar (CAT), Chicago Bridge & Iron (CBI), Cemex (CX), Colfax (CFX), Deere (DE), Dover (DOV), Eaton (ETN), Emcor Gp. (EME), Gardner Denver (GDI), General Electric (GE), Gorman-Rupp (GRC), Granite Const’n (GVA), Idex (IEX), Insituform Tech. (INSU), Jacobs Eng. (JEC), Joy Global (JOYG), KBR (KBR), Layne Christensen (LAYN), Lindsay (LNN), Manitowoc (MTW), Martin Marietta (MLM), Mastec (MTZ), MYR Gp (MYRG), Pike Electric (PIKE), Primoris Svcs (PRIM), Shaw Gp.(SHAW), Sterling Const’n (STRL), Terex (TEX), Thompson Creek Metals (TC), Transcanada (TRP), Unites States Lime & Mnrls (USLM), URS Corp. (URS), Valmont (VMI), Vulcan Materials (VMC).
*Stock Trader’s Almanac
The writer of Brooksie’s Daily Stock Market blog, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole
basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk
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