Post Labor Day Update

US Economy
From mid - 2010 through mid - 2011, the yr/yr change in the real wage went from +2% down to
-2%. In line for the same period, real retail sales went from +8% down to about +3%. By the
middle of 2012, lower inflation allowed the real wage to recover to modest positive territory,
and improving yr/yr real wage momentum does support a better retail sales outlook as we move
into fall, as does the yr/yr % change in employment which has also accelerated since mid -2011.
But, improvement in consumer purchasing power has been modest, as businesses continue to
trade on a weak labor market with pitiably low wage increases. Thus the potential for the main
engine of the economy although positive has been heavily compromised. Construction spending, an
area with powerful recovery leverage, has been doing moderately better, but its contribution
has been partially offset by a flattening of export sales with the latter reflecting a stronger US $
and far more modest global demand.

Monetary Policy
The Fed has been winding up to pitch another QE fastball, but that is all that It has been doing.
The continued official talk of "more easing as needed" has kept the risk markets afloat, but it
has also not done the economy any favors since QE talky talk has led to speculation in the
oil market, which eventually harms real incomes via higher fuel prices. By delay in the short
run, the Fed has been undercutting the eventual economic benefits of QE.

Stock Market
The boyz have yet to sell the evident double top in place with any urgency, as players do not
want to miss a QE program that could be large enough to trigger a sharp upleg. Patience was
tried today on a worse than expected PMI mfg. report and downward price pressure left the
market at a "roll over" point SPX Daily Chart If you are long the market on a QE speculation,
you will have to continue to gut it out as the ECB and the Fed should be heard from over the
next six trading days.