US Existing Home Sales in July crashed 27.2% since June. Apparently, consumers are conditioned to buy things when they are receiving a “credit” as opposed to when the same exact item is the same price as or less than the item with the credit. Looks like we may have a moral hazard on our hands.

Mortgage rates are at historical lows. Housing prices continue to drop in search of offers. As the high season for home sales soon comes to an end, another tax credit may be the only way those with jobs can get excited about playing Let’s Make a Deal in the housing market.

Source: Bespoke Investment Group

The US is in deep shit. However, if we’re willing to take the necessary steps, we can recover from the mess we made.

The mainstream media is filled with emotionally-driven, over-simplified proposals for fixing a very complicated problem. We are inundated with single-brain-cell solutions such as deporting illegal immigrants, defending the Bush tax cuts, or simply changing political parties in November.

Newsflash: none of these things will fix our economy. This is all noise to increase media ratings and career minded politicians.

If we are really serious about resurrecting our economic power, we need a 12-step program to address the core of our problems, addictions, and bad habits. Today I will cover Step #1 …

Step #1: Buy Local

By far, one of the biggest cancers in our economy is the trade deficit. Every day we purchase goods or services from foreign sources, we are giving them our powerful wealth in exchange for a short-lived experience.

For example, when we fill our gas tanks with foreign oil, we send our personal wealth to another country and all we have to show for it is a car ride to the grocery store. In this example, our wealth pays foreign salaries to people who buy stuff in their local communities, in turn creating a positive feedback loop within that economy at the expense of ours.

On the flipside, the tank of gas in the US disappears. The same holds true for the cheap crap goods we buy from China: they are ready for a landfill in a mind-boggling rate of time.

So, at the end of this bargain we end up with either nothing or worthless junk, and the other country ends up with real wealth which goes into their economy. Basically, they bleed us to death.

Although global trade is very valuable, we must rigorously pursue a proper balance between buying foreign goods/services and buying local goods/services. Currently, we send far too much more of our wealth to other countries than they are sending to us. This is what we academically refer to as the trade deficit. However, we should start calling it the Black Hole of Economic Death.

Maybe people will think twice about buying the cheapest possible item if they know it’s literally bankrupting our economy. Maybe people will pay the extra buck to buy local knowing that this will create solid communities with stable jobs.

Then again, maybe not.

However, we’ve got to start somewhere. And the ONLY way to heal our economy long-term is to first stop the bleed which has made the leaches our masters. It may seem nice to have cheap gas and super stores. But we are now borrowing back our own wealth with interest from our trading “partners” because it’s been sucked into the Black Hole of Economic Death.

I’m not advocating harsh protectionism or tariffs. I’m simply proposing we get back to a point of sane moderation where we eliminate the trade deficit and learn how to build strong local economies. Many parts of the US are supporting local farmers and food. Let’s take it one step further and support local everything.

JetBlue (Nasdaq: JBLU) flight attendant Steven Slater is a bad ass. After Slater was treated like crap by some idiot who thought they had the right to be a jerk because they paid a few bucks for a plane ticket, Slater made a Hollywood exit from the plane after putting the passenger in place, apologizing to the other passengers, grabbing two beers, then sliding down the emergency chute like the Dude in The Big Lebowski.

Shortly thereafter, Slater became a pop culture hit. The insta-legend virally spread across the Internet and suddenly hordes of people started poking Slater on Facebook. Apparently, millions of service professionals could relate to the infamous bad attitude of American consumers.

Leave it to the completely uncreative people in the mainstream media to hyperventilate and offer Slater his own reality TV show. The show will allegedly focus on disgruntled workers quitting their jobs in entertaining ways. Seriously? Are these people living on another planet where unemployment data is not regulary on the front page of the newspaper?

If the media turns Slater into a hero during one of the worst recessions in a century, they may actually succeed in irresponsibly convincing people (fortunate enough to have a job) to catalyze a personal tragedy. As we know, the general public is not known for thinking too far ahead of their actions. A few examples include taking out unaffordable mortgages, running up credit card debt, and watching 101 Dalmatians then adopting dogs which are extremely hard to domesticate (only to return them in flocks). [Feel free to add some more examples in the Comment section below.]

Assuming Slater’s new show hits the airwaves, we’re screwed. The Labor Department is already reporting five unemployed persons competing for every one job opening.

I applaud workers who demand respect, but how about putting this show idea in the queue for when the economy is roaring and job opportunities are plentiful? Let’s not make this the Black Swan that kicks the unemployment rate into another dimension. If we do, then we’ll need a real hero to save us.

It’s hard to see the forrest from the trees — especially when living within extraordinary times. Such was the case in 2008 when the economy seized up like the most dehydrated muscle in the world.

At the time, one of my favorite authors Michael Lewis penned a popular article, “The End” [of an era on Wall Street]. Lewis hypothesized:

I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system. Then came Meredith Whitney with news …

Almost 2 years later, the only era that ended was the one on Main Street. Wall Street is still living in a Golden Age:

• 2008 Bonuses: $18.4 Billion.
• 2009 Bonuses: $20.3 billion.
• 2010 Bonuses: “Incentives at financial firms should rise from 2009 levels but remain below the record payouts of 2007, according to compensation consultant Johnson Associates.”

The operative word is “sector rotation”. Mortgage-backed securities (MBS) and real estate are down? Head over to fixed-income. Fixed-income is down? Trade currencies.

If you want to compare record bonuses from 2007 to now, you will definitely notice tighter purses. But to say we won’t see those payouts again is to deny the animal spirits of greed.

Although Lewis is correct that a short term era ended in 2008, the long term era of finding opportunities in financial services is far from over. In fact, based on our recruiting over the past year, we still see the “best and brightest” clamoring for spots in investment banking. Here is one such person begging for iBanking work via Craigslist (Hat Tip: Deal Breaker).

So, I wouldn’t say an era on Wall Street ended. I’d simply say there was a brief palpitation in the life of a vampire. And we all know vampires live forever unless extreme action is taken. Last I checked, I didn’t see any vampire hunters south of Canal Street in Manhattan.

This is a 60 minute chart of the SPY. The circled area beneath the line is what I call the “bear trap” zone. The shaded area within the circle is representative of all the market action that took place below the 1,040 level on the S&P futures. 1,040, if you’ll remember, was the neckline of the much ballyhooed “head and shoulders” that technicians could not stop talking about. 1,040 was both the line in the sand area that stopped the flash crash and the area that supported the market on the January-February market pull in. To many technicians, this was a key area; however, when prices failed to stay below we got a nice bounce-back higher in the market.

Since making lows on July 1st, the market has consistently been making both higher highs and higher lows, while forging a new trendline higher (represented by the white, rising diagonal line on the chart above).  So far today, this trendline provided the support necessary to stop the market’s drop, and at the moment we are basing right on top of what can be a pivotal indicator between Bull and Bear (breaking the trendline does not guarantee selling to the downside, it might just be an indicator that we need more time before moving higher).  This afternoon I will be watching to see whether the market can give itself a little cushion above this line, or whether the pressure builds and selling ensues through this area.

Update:

The S&P held this trendline test today and carved out a comfortable cushion for the weekend.  As selling pressure subsided and volume waned midday, the market proceeded to retake the 200-day moving average, at which point an aggressive rally ensued.  Once again, the evaporation of volume signaled the all clear to buy stocks (see my thoughts about the lack of volume).  It as if this market’s sellers are worn out.

Have a great weekend everyone!

The classic battle between bulls and bears on Wall Street continues:

Lagging Macro Economic Data vs. Positive U.S. Earnings Reports;

Technical Analysis vs. Fundamental Value;

Greed vs. Fear; and, Confidence vs. Caution.

Lately, the bear argument for a collapse has not been manifesting in reality as the Dow Jones Industrial Average (DJIA) is up nearly 1,000 points and S&P 500 is up 100 points from the recent bottom. Has Robert Prechter gone certifiably insane with his Dow 1,000 prediction? I personally invite Robert Prechter to read my recent recap on 3 Dow bellwether earnings reports highlighting improvement and recovery, not Armageddon or doom-and-gloom.

Big names like Pimco’s Bill Gross, fund manager Jeremy Grantham, and Schwab’s Chief Investment Strategist Liz Ann Sonders are all sharing interest in stocks again. They aren’t calling for another huge boom in prosperity, but they are selectively picking names in the current market.  As the tides are turning, I believe there are 4 compelling catalysts that could awaken the idle animal spirits on Wall Street:

4) The Re-emergence of an Iconic American Auto Company: General Motors

On Tuesday, General Motors Co. said July sales from its four core brands – Chevrolet, Buick, Cadillac & GMC — leaped 25% from July of 2009. That makes the 10th straight month of year-over-year gains.

GM’s sales of crossovers jumped 41% and combined sales of full-size pickup trucks rose 22%. If you are still unsure the U.S. economy is recovering after such a strong report, let’s examine a list of companies that have all successfully paid back the taxpayer ‘bailout funds’ (a.k.a. Troubled Asset Relief Program, or TARP) once needed to survive the financial crisis of the Great Recession:

American Express (AXP) – Repaid $3.389 Billion in preferred stock purchased by TARP

Bank of America (BAC) - Repaid $45 Billion in preferred stock purchased by TARP

Bank of New York Mellon Corp (BK) – Repaid $2-$3 Billion in preferred stock purchased by TARP

BB&T (BBT) – Repaid $3.1 Billion in preferred stock purchased by TARP

Capital One Financial (COF) – Repaid $3.555 Billion in preferred stock purchased by TARP

Citigroup (C) – Repaid $45 Billion in preferred stock purchased by TARP

Discover Financial (DFS) – Repaid $1.23 Billion in preferred stock purchased by TARP

Goldman Sachs (GS) -Repaid $10 Billion in preferred stock purchased by TARP

J.P. Morgan (JPM) – Repaid $25 Billion in preferred stock purchased by TARP

Morgan Stanley (MS) – Repaid $10 Billion in preferred stock purchased by TARP

PNC Financial (PNC) -  Repaid $7.579 Billion in preferred stock purchased by TARP

State Street Corp (STT) – Repaid $2-$3 Billion in preferred stock purchased by TARP

U.S. Bancorp (USB) – Repaid $6.6 Billion in preferred stock purchased by TARP

Wells Fargo (WFC) – Repaid $25 Billion in preferred stock purchased by TARP

The Total Repayment by the 14 companies listed above = ~$190 Billion Dollars

Meanwhile, General Motors repaid its total loan portion with interest to U.S. & Canadian governments as of April 21, 2010 with only $2.1 billion in preferred stock and 61% common equity shares outstanding (source: USA Today).

Founded in 1908, General Motors and the American auto industry became the foundation for driving the industrial engine into the future. GM is now in 140 countries across the globe. This month, GM plans to file its IPO registration during the week of August 16th.

GM represents a diversified automotive company with a variety of brands. Even with latest buzz surrounding the electric Vault in 2011, other GM brands are creating a splash. Have you seen the new Chevrolet Equinox? They are commanding a price premium in the market due to demand for the new crossover. The new Chevrolet Camaro is beginning to pop up on roads alongside its long-time competitor, the Ford (F) Mustang.

The U.S. government has made it clear their intention is not to own and operate GM, but to provide help during a time of financial crisis. Over 60% of GM is currently owned by the U.S. taxpayer, but the IPO will put GM back on its own feet as the government sells its stake in the company back to, none other than, the public. The temporary TARP relief to the 244,500 employee-driven organization was a vital necessity to preserve GM and dodge failure. Down the road it will be viewed as a success when we peer at our rear-view mirrors in a few years.

If you are looking for an iconic American brand that experienced a similar GM path, look no further than Sears Holdings (SHLD) and its masterful comeback from bankruptcy in 2003 with an IPO indicative of the 2003-2007 bull market (a rise from $13 per share to over $190 per share over the course of 4 years). Some may call it irrational exuberance, others may call it the awakening of the animal spirits. Remember, Sears is a brand name known since 1886, GM since 1908. Both of their places in American history are unforgettable.

3) Cheap Debt … Again

No one is surprised the U.S. is a debt money system. The real question is how well the U.S. can manage its debt.

At this moment in time during the business cycle, debt is simply cheap. Moreover, debt is being re-financed at extraordinarily low rates. In fact, companies are borrowing tons of cash to invest in the future growth of their company as more executives warm up to the word ‘recovery.’ For example, at the end of July, both McDonald’s (MCD) and Advanced Micro Devices (AMD) sold $750 million and $ $800 million, respectively, worth of debt securities (source: Bloomberg News)

Just last week, I spoke with an anonymous financial advisor at Morgan Stanley (MS) who said he is “buying stock on margin.” Why? Not only because he wants to take part in the rising return of a company like Ford (F) delivering over 20% stock returns in July, but because margin interest (debt) is just too cheap to ignore.

Those who can afford debt — financial citizens who save for a rainy day and do not overextend themselves by ATM-ing their home, car, and any other assets — rightfully deserve to take advantage of cheap debt. They can start putting that money back to work in the U.S. financial system and reaping a return while competitors are vulnerable.

The resurgence of cheap debt and more capital moving back into the system can only lead to better times ahead: jobs, income, the ability to pay a mortgage, and the ability to consume!

2) Justice Served to Crony Capitalists

According to the Department of Justice, in the first half of the 1990-2000 decade, over 3,600 bankers and fraudulent contributors to the late 1980′s savings & loan crisis were prosecuted and penalized with jail time (source: Financial Times). Since the 2008 Great Recession, only a handful of cronies and crooks have been penalized. However, the FBI is handling 2,100 open cases pertaining to securities fraud during the financial crisis. As we discussed on Yahoo TechTicker on June 25th 2010, if these cases start making headlines with handcuffs there will be renewed optimism to invest in markets without financial terrorists.

1) Job Creation May Surprise Sooner Than Bears Think

On July 27th, Derek Thompson of the Atlantic called attention to a very interesting chart in one of his articles. Thompson noticed that corporate profits were up and I say they could act as kindling for new hiring.

As you can see in the chart above, corporate profits broke above the steady unemployment line at the start of Q4 2009. So far during 2nd quarter 2010 earnings season, over 70% of companies are beating earnings estimates. Thus, it is safe to assume the corporate profit (blue) line is continuing to rise and deviate away from the corporate jobs (red) line.

For example, a Dow Industrial component such as Caterpillar (CAT) delivered a 31% increase in revenue growth year-over-year, while a software tech giant like Oracle (ORCL) delivered a 40% increase in revenue growth year-over-year. Looking deeper, for Q2 2010, Caterpillar generated $10.4 billion dollars and Oracle brought home $9.51 billion dollars.

Moreover, there is roughly $1.8 trillion dollars in corporate cash sitting on the sidelines. A lot of this cash could quickly move into the economy as executives get more clarity after the November elections.

Using history as a benchmark for U.S. business cycle activity, it’s fair to say the U.S. economy operates in a domino effect-type manner. Bottom-line and top-line growth usually lead to an increase in capital expenditures such as new employee hiring. More new-hires equals more consumers with disposable income.

The most evident small-scale examples, which are still better than cost-cutting and layoffs announcements of late 2008 and early 2009, are the SEC announcing 800 new positions available as a result of the financial regulatory legislation. Chrysler announcing on July 30th they will add 900 jobs to a Sterling Heights, MI manufacturing plant. A Japanese auto-parts supplier announcing the construction of a new plant in Tennessee to manufacture seat components for Nissan vehicles beginning in mid-2011, eventually employing up to 224 workers. These numbers are small, but we have to start somewhere.

Confidence is a temporary cure, yet can spark animalistic appetites for fat equity returns. As the S&P continues to ‘remain in a range,’ all eyes are moving toward the approaching S&P 1144 battle line. Which animal are you: a bull or bear?

Disclosure: Ford (F) was a Wall St Cheat Sheet Premium Watch List ‘Buy’ Selection on July 9th at $10.85 per share.

Our poll results are in. Here is how a sampling of you answered the question “What is the probability of a double dip recession?”

40% said, “100%, We are already double dipping.”

23% said, “50%, I see good signs and bad.”

22% said, “75%, Housing is on the precipice.”

8% said, “25%, Friends are getting jobs and spending.”

7% said, “0%, Just waited in line for 2 days to get my new iPhone.”

Thanks for sharing your thoughts. We will leave the poll up for another day or two for those of you who still want to be heard.

The Wall St. Cheat Sheet Premium Newsletter has delivered 15 out of 16 winning picks since inception in November 2008. Let the Hoffman Brothers give you their best investing and trading ideas: click here now for your free trial.

(Source: Calculated Risk)

The Wall St. Cheat Sheet Premium newsletter has delivered 15/16 winning picks since inception in November 2008. Let the Hoffman Brothers give you their best investing and trading ideas: click here now for your free trial.

There are a ton of talented people looking for jobs. If you are not interested in these position, please post these openings on your Facebook and Twitter so we can employ someone who deserves a job. If you help out a friend, the karma is incredible!

We are trying to fill two specific roles:

1) Tech Cheat Sheet Premium Editor

The editor of our Tech Cheat Sheet Premium has taken a new full time job at a financial research company which will not allow him to write a newsletter. Therefore, we have an opportunity for YOU!

Wall St. Cheat Sheet is seeking an ambitious writer who is passionate about technology and technology stocks (e.g., AAPL, GOOG, etc.). If you think you or a friend have what it takes to help other investors and traders succeed in the tech space, please shoot an email to: info at wallstcheatsheet dot com

2) Bloggers

Yup, we’re growing. That means we are ready to bring on more contributors.

If you are intelligent, witty, ambitious, and understand how to help drive traffic to your articles, we want to speak with you. If you want to be part of a fast growing company with great exposure, please shoot an email to: info at wallstcheatsheet dot com

If these positions aren’t for you, post them to Facebook and Twitter to help out a friend …