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Without a Big Surprise, Obama’s Thursday Speech to be Followed by Selling

Brooksie's Daily Stock Market blog  -  an edge before the openWednesday, September 7, 2011                  9:12 am EDTDJIA: 11,139.30     S&P 500: 1165.24While the

Brooksie’s Daily Stock Market blog  –  an edge before the open

Wednesday, September 7, 2011                  9:12 am EDT

DJIA: 11,139.30     S&P 500: 1165.24

While the stock market posted a loss yesterday, it closed well above the lows. Credit a better than expected ISM  Non-Manufacturing  report for heading off what looked like a wipe-out when the market opened.  Non-manufacturing industries account for 90% of our nation’s economic activity.

Investors  found the initial sell off  provided some attractive prices for them to buy in advance of the President’s Thursday address to Congress where he will outline proposal to boost the economy and hopefully reduce joblessness.

The Federal Reserve “Beige Book” is released today, possibly shedding some light on the nation’s economy. Published eight times a year, the Beige Book presents the results of a survey of economic conditions in the  nation’s 12 Federal Reserve Banking Districts. Info coming out of this report is mostly  already known. Tomorrow we get the Jobless Claims report (8:30 a.m.), Consumer Credit  (3:00p.m.) and Friday, Wholesale Trade (10:00a.m.).

Based on what is known now, it doesn’t look like President Obama’s address Thursday will launch a big rally in the market. Without a major surprise announcement, the market should sell off Friday. Even if he proposes some aggressive measures, the likelihood of Congressional passage is slim based on past behavior.

I think the Big money is biding its time, not wanting to step in if the economy suddenly nosedives, but ready to buy  “in-size” if it appears a recession will be avoided.

Without the Big money’s aggressive buying, the market will have to find a level that discounts negatives and uncertainties and that could be at lower levels possibly below DJIA 10,000.

However, based on the avoidance of a recession and looking out 9 months to a year, many stocks are attractive here. Toss an accelerating economic recovery in there and stocks are cheap, very cheap.

 Resistance: DJIA 11,460 (S&P 500: 1210).

 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’s infrastructure 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 not crunched 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 owned.

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).

George Brooks


A weekly five-point roundup of critical events in the energy transition and the implications of climate change for business and finance.