Once again we had a negative day on a Tuesday and so, the commentators remind us of the phenomenon called “Turnaround Tuesdays.” I used to ignore this idea and yet, the more it happens - the more I am thinking about it. It seems to me that Tuesdays follow Mondays (brilliant right?) and lately, Merger Mondays are pushing the market a bit too far. As a result, it’s not so unrealistic to expect that we get some selling the following session.  When you couple that with other factors such as mortgage problems (CFC), currency issues, earnings concerns, etc. you get a decline.  I am confident that if all of this had happened on a Wednesday / Thursday combo, we would just be looking for an ugly name that goes well with “Thursdays.”

At long last, we have an increase to the minimum wage. Personally, I’d rather have the labor market decide what an hour of work is worth in various positions but I am glad the debate is over. It’s time to move on. Unfortunately, the minimum wage became more of a political strategy rather than an economic one. If you are a Democrat, you are likely to believe that the minimum wage will lift people out of poverty and if you are a Republican you will probably suggest the free market approach or suggest that it hurts employers of industries with high concentrations of low-priced labor. While think tank economists will support whichever view their political benefactors like, the majority of “regular economists” are not supportive of the minimum wage being the most effective way to help low-income families, and likely causes more harm than good. If you agree with me, you’ll not need to pull up the academic research. If you disagree with me, please spend some time reading through the literature and for a brief moment, try to take political bias out of the discussion. Regardless, I am hopeful that it will help those that it can and I am concerned about the impacts on the individuals and families it will hurt. As for businesses, I trust you’ll make whatever changes you need to make to either maintain your labor costs or raise the price of your products. Do what you need to do. It will be interesting to watch the CPI, wage inflation, unemployment statistics, poverty levels, etc. and attempt to quantify the real consequences of government’s involvement in labor rates. However, those discussions always degrade into political parsing so around and around we go. Now that this is out of the way, I am glad it’s off the campaign dialogs for the next few years. We have big problems in this country and the income/wealth gap is one of them - unfortunately today’s increase in the minimum wage is not the answer.

I have been expecting a market decline for months and it hasn’t happened. When we get big down days like we had at the end of February, beginning of June and a few recently, that’s not what I am looking for. If I could draw a real decline, it would happen over a period of weeks and in small amounts, not over one day in big amounts. We’d be down 2 on the S&P 500, then up 1, then down 2… you get the picture. Two small steps backward, one small step forward repeated until bulls get disappointed they aren’t getting the big gains they feel entitled to. So when I see 100 point drops on the Dow, I start expecting the bears to begin scalping penny gains and providing artificial support. All the previous declines this year have been buying opportunities - that’s been the bull line and they have been right. Until we get a selloff that isn’t followed by new highs or until the selloffs become too frequent to allow for happiness over the recovery, I have no reason to believe the bull run is over. I cannot design or construct or implement the start of a meaningful bearish move and absent a significant negative catalyst like a US-based terrorist attack (let’s hope not), I don’t expect any decline in the indices to be extremely long-lived or very big. More likely, even if we get a 10% decline, that will put us back to the February lows near 1380. This 4-year bull run has built a tremendous amount of momentum and support that will be hard to crack. So while I am bearish, I am not dreaming of a washout unless there is a negative shock that persists. Just as a reminder, the last bear market may have started in April of 2000, but it took about 5 more months before the S&P fell below 1450. The bulls may not like to hear it, but not every bear is expecting Armageddon. And when I look at the shape of these 1% down days, I am not even seeing a threat to ending record highs.

I cannot stand protectionism. Worse yet, I cannot stand politicians who have no clue about the economic consequences of their protectionist policies. I know the electoral effect seems to be more important when trying to confuse the populists even more than they already are. But would someone please tell Sen. Grassley (R-IA) to stop saying “Pussyfooting” every time he refers to Secretary Paulson’s handling of China’s currency.  Personally, I think Sec. Paulson is doing an excellent job and the Chinese government is doing as good of a job managing their currency as we are doing with ours.  Seems to me that we have had a strong dollar policy for years now and how’s that working for you?  A rapid decline in the dollar relative to the Japanese Yen was troubling in February and early March - remember that?  A rapid appreciation of the Yuan would devastate the American economy so if “Pussyfooting” is what it takes to avoid that mess, then Sec. Paulson - please pussyfoot all you can.

I am going to wait until tomorrow’s release of AAPL results before I make a decision on the success or failure of 2 freaking days of the iPhone. I know that may sound unfair and useless - after all it’s only 2 days. But it would only be unfair if the iPhanatics and AAPL stock hypesters hadn’t overemphasized it when it was happening. So now it’s payback time. Before the lines started forming on the sidewalk, some analysts were suggesting 200,000 unit sales, then after the first two days the analysts upped that number to 500,000 units all the way up to 1 million (yippeee!!). So now that AT&T reported it only activated 146,000 we’ll need to see confirmation from AAPL before I start questioning how 146,000 is kinda close to 500,000. You know that if Apple’s number is also near 146,000 there is going to have to be some serious spinning and ass covering including blaming AT&T technology problems. Except you won’t hear any excuses from CIBC’s analyst Ittai Kidron who says that channel checks show a significant decline in demand over the past 10 days. I guess the sidewalks aren’t so comfy anymore. I think the iPhone is great, but as I have repeatedly written here - most of the runup in AAPL was based on the showmanship of Steve Jobs. Expectations were high before the first two days, they became ridiculous after the first weekend of sales and now it’s reality time. I suspect that after the initial pullback, the stock will get defended by everyone who was wrong on the opening sales and investors will probably listen to them. As for all the little companies that got pumped up on all the iPhone hype, that’s where the action is going to be fun to watch.

Last week, I tried to be a nice guy and kept my negative commentary to myself. It wasn’t easy and I didn’t really get any other bears to join me in my Boycott on Bearish Commentary.  But I was happy with the results and gained a healthier perspective on the positive aspects of this market.  In my attempts to point out the risks facing investors, I can get too wrapped up in only seeing the negatives.  By forcing myself to limit bearish commentary(if only for a week), I was able to appreciate many of the legitimate upward pressures that the bulls are hung up on.  Maybe they should take a week to do the opposite of what I did.  It would certainly mess with the contrarian sentiment indicators but never fear - I doubt the permabulls have what it takes to go through the pain of trying to understand the other side.  As for me, I am done with my little experiment.  Sorry if I bored you last week.  It’s game on - NO MORE MR. NICE GUY!  Actually, I’ll try to be balanced but I won’t bite my tongue on the bad stuff.

Ever since environmentalists convinced politicians that Ethanol was the solution to energy independence and global warming, the government has contributed greatly to massive food inflation in the United States and all over the world. In the first half of 2007, food inflation is running about 8% and I expect that to continue if not increase. Now that we have a surge of Democrat and Republican efforts to focus on food safety, I can only imagine the incremental impact on food costs, not to mention taxes needed to pay for these programs. While the Dems are leading the fight, the Bush Administration is also showing their concern for this “emerging” crisis by setting up a panel on the subject. Both sides claim this has nothing to do with the anti-China trade sentiment that is floating around Congress and other protectionist camps, but the timing of all this food safety action makes those denials seem ridiculous to me. We have had food safety issues for years, if not decades, and that includes domestic supplies as well as imported. So while the politicians fight their battles to win votes and try to convince you they are doing it for your health, please remember these good intentions while you are at the grocery checkout. Protectionism has many forms and all of them result in dangerous economic consequences like inflation. I am all for food safety, just recognize that your food bills will reflect it.

As I was looking over the charts this weekend, I was struck by extreme swings in many stocks and in both directions.  While the S&P 500 fell 1.2% from Monday’s open to Friday’s close, that’s not an abnormal move.   However, 215 individual stocks in the HEDGEfolios universe had gains in excess of 5%.  Many of these stocks are trading above their 50 and 200 day moving averages, upper Bollinger Bands, and near their historical or long term record highs.  As impressive as these big breakout moves are, they are not unexpected while we are in bullish trends with strong momentum.  What really stood out to me though was the number of big percentage losers - 639 stocks declined more than 5% last week.  To have 17% of the 3,689 stocks decline by more than 5% during a week that the S&P only had a marginal drop is very rare.

Google’s spending has not been as frugal as their former shopping dealfinder tool used to be but I thought their most recent quarter was still pretty awesome. Revenue increasing by 58% and earnings by 28% is an enviable figure even though it missed estimates by 3 cents.  So hopefully investors have had a chance to calm down over the weekend and assess the 5% selloff on Friday.  I am not going to say that it was justified or not since I leave those things up to the market, but I have a hard time believing it was as bad as the media hypesters were pointing out.  The stock price is the same as it was one month ago and the only other time GOOG missed estimates in January 2006, it was about 25% cheaper than today.  Analysts and investors may be upset they don’t get guidance from Larry, Sergey and Eric, but if this little slap on the wrist is the sole result, it really was no big deal.   As for spending billions on the FCC wireless airwave auction, that doesn’t sound so Froogle either.

When Blackstone had its IPO, many pundits and more than a few media outlets took the opportunity to exploit the moment and say that it was evidence of a market top. I wasn’t believing that nonsense then and I am not now. In case you hadn’t noticed all the ridiculous hype, we have taken out the record closes on both the Dow and S&P 500. Since Blackstone’s June 22nd IPO, the S&P advanced 2% to its record and 0.8% through Friday’s close while the DJIA increased 3.4% to hit 14,000 and 2.3% overall. Those are pretty healthy numbers and as we were in La La Land last week, I wasn’t hearing the people that called the Blackstone Top reminding everyone how wrong they were. When stocks slid on Friday, I started looking for headlines blaming Schwarzman but thankfully, I didn’t find any. The financial media spends a lot of time informing us of their market wisdom and focuses attention on useless activities like counting record highs or calling tops - apparently that’s their job. But it shouldn’t be yours.