I hope everyone had a relaxing holiday. Holidays can
definitely help all of us recharge our batteries. And sometimes, a break can
even give investors a more positive perspective on stock prices.

It looks like we may have a good rally at hand, at least for
today. And with the S&P 500 now trading at around 10x next year’s
earnings, we could even say that any rally would be based on valuations.

But we also know that investors have been pricing in slower
earnings growth and slower economic growth in general.

2Q earnings season is right around the corner, and, at this
point, I can’t help but wonder if another good earnings season will be enough
to move stock prices much.

Investors seem to have reached a foregone conclusion that
earnings will fall. If not during 2Q, then it’ll be in the current 3Q.

We haven’t seen any significant profit warnings for the 2Q
that just ended. Of course, we could get warnings or tepid outlooks for 3Q
when companies report 2Q earnings, but it’s a little surprising that stocks
have sold off so hard without any concrete catalyst.

I receivedthis
response to my quasi-rant from Friday from Keith:

You’ve written some decent stuff over the months I’ve
been reading, but I am done.

You sound a little here like the talking heads. The rate
fell because 650k dropped out, that’s why the rate went from 9.7 – 9.5.
Nothing good about it, or positive, but it sounds like you think

Another thing, how long exactly would you like to extend
unemployment benefits, may 2 years, maybe 3 years,

Why not just make it permanent,

This is sounding way to liberal to me, another spin
doctor, no thanks,

At this point, I thought it was widely understood that the
official unemployment rate was so massaged and adjusted that it was pretty
much worthless.

I have in past issues if Daily Profit
discussed a more broad measure of unemployment, U6 unemployment. U6 includes
part-time workers (the underemployed) and workers who may have simply given
up trying to find work.

As Keith points out, the reason the official measure of
unemployment fell was that 652,000 people dropped out of the workforce. Just
due to demographics, the workforce is expected to grow by 200,000 workers a
month. So a 652,000 drop is significant. In fact, it’s the biggest drop in
the workforce in 15 years.

Without that 652,000 decline in the workforce, the
unemployment rate would have jumped to 10%. U6 unemployment currently sits
around 16.5%.

The only thing good about last Friday’s jobs number was that
hiring by private companies was actually in the ball park of expectations.
No, 83,000 jobs added isn’t fixing much. But it’s a vast improvement over
May, when private companies added just 12,000 jobs.

Now, I understand
the perspective that the
U.S. is becoming a nanny state, and the
citizenry looks to the government to fix everything.

But to me, unemployment benefits are an exception. Better to
look at unemployment benefits as a loan against future tax receipts than as
an outright handout. And that necessarily implies some fiscal restraint when
times are good.

It seems clear to me that the housing market and the economy
in general would be much worse off if unemployment benefits had never been

I would also suggest that there is a “point of no return”
for the
U.S. economy. If deflation
takes hold, how long before we get out of the vicious cycle of falling asset
values and falling demand?
Japan‘s been battling deflation for 20
years, and efforts to spark some much needed inflation have left it with a
GDP ratio of 170%.

One more note:
Maguire Properties (NYSE:MPG) is near support at $2.50. Daily
readers have made good money on this stock a few times,
simply by buying near support. With a rally seemingly imminent, I won’t be
surprised to see it move higher.

Oil and financials should also make moves higher.

As always, thanks
for all of your comments, and please keep them coming:
[email protected]

Published by Wyatt Investment Research at