>> a close start to help struggling homeowners. only a fraction of those eligible to get help through the latest mortgage modification manns have actually seen their payments change. >> where have all the investors and traders gone? stock market volume has plummeted even as prices have rallied to the high of the year. >> and from foreclosures, the job losses, the unsustainable american dream rg going from housing boom to bust in one suburb all ahead this this edition of first business. >> you're watching first business with tom penders and beejal patel >> glad you're along for the ride ahead of thursday's market action, not a lot on the tape for investors to consider. all ahead of how the unemployment picture has been shaping up in the month of july. those numbers are due out on friday. still the market trying to drift higher here. >> and tom, one trader actually likens the stock market rally to a house of straw. and yet he says the market mail still not pull back and we'll hear more on that in a moment. >> if that's the case here's

the big bad wolfe who will try to huff and puff and try to blow the house down. home prices see a certain amount of destruction, but we're waiting for friday's numbers, the job numbers. any kind of hope and silver lining at this point. >> and retail sales, same store sales on the retailers due out on thursday as well as the jobless claims as well that continues to be a big news for the market. >> the stock market rally that started in march has been impressive, beating many people's expectations, especially in the mi midst of this historically session, since march the dow has gained 42%, the nasdaq up 57% since march. traders say it's been hard to believe the rally has lasted five months, especially when volume or market participation has been weak for the past couple of month. >> volume hasn't supported it necessarily, but things are starting to turn around a little bit fundamentally it seems like. probably not sustainable at this rate that we've seen

the rally and definitely not sustainable unless volume picks up. >> back in march when the rally started, traders say volume was strongly initially, but then it really tapered off as we got into the summer. last month volume on the new new york stock exchange was recorded at 55 billion shares traded, significantly down from one year ago, which saw almost 75 billion shares traded in july 2008. that's a drop of 26%. and some believe the market will need better news and more participation to keep going higher. >> you could only put in so much credence into the rally. i like to think of it as building a house out of straw or brick. this seems to be a straw hut. >> for now, though, the stock market is still going strong and while more traders are growing more skeptical as stocks grow higher, they say it's hard to tell when the rally will run out of steam. >> the jobless rally like we thought, we'd like to see it

pull back, but in this environment it may not pull back. >> this rally definitely has legs, there's no question. i wouldn't want to be the one to get in front of it at this point. >> ben lichtenstein of traders audio says that the nasdaq starting to show signs of slowing. since it has been leading the overall market, it could mean stocks may develop a sideways trading pattern to consolidate all the gains. >> here within one out of every 10 homeowners struggling with their mortgages, ineligible to take advantage of uncle sam's modification program have actually seen their programs drop. several lenders haven't changed even one payment since the programs began. here's how big lenders have been performing. of the # hundred thousand mortgages held by bank of america, only 12% have been helped. six percent at wells fargo. despite the slow start, the white house still thinks the program will help up to four million homeowners by 2012. >> it's another test for the nation's retailers on

thursday when they report just how much the registers have been springing up last month. the latest data on seem store sales show that most major retailers will continue posting poor results which they blame on cool and rainy weather this summer. they are forecasting july sales dropped five percent, which would mark 11 months in a row that same store sales have dropped. it could be a disappointing sign that the government stimulus efforts are not yet still getting through to retailers' bottom lines, especially with people still reluctant to spend money on things they may not need. and some analysts believe the government's cash for clunkers program may have taken a spotlight away from spending money on clothing and other items, but next month sales numbers could be better because august is when several states hold sales tax holidays. >> one of the things to watch and traders will be watching along with matt

shapiro over the options exchange will be cisco systems. after a pretty decent number after the close on wednesday, certainly momentum for technology and the broad market continues to look for higher prices, doesn't it matt? >> it really does, tom. i think one of the major factors is the overall very barest sentiment amongst really professional traders, upstairs money managers and sort of your pro short etf crowd. i think it's setting up continued momentum higher and almost the mother of all short squeezes, if we blast through, you know, 1025 on the spx. >> do you think we can get up there. that's another 25 points from where we're at. but boy, we could see that in a couple of sessions. >> sliewlgt. you know, banks and receipts were very strong yesterday and we have quite decent and solid cisco earnings. one of the big trades has been that volatility has been very high, so i think the short players have been purchasing options to protect themselves against the market really going

higher and they're starting to get boxed in honestly, tom. >> yeah, it just builds up more and more buying pressure at this point. you think that's going to blow a cork when the s and p is able to get over 1025 say before the end of the month? >> i think so. there's deals on bonds are so low, big time asset allocation money managers they have to buy stocks. the dividend yields do good, tom. >> all right. we'll leave it there, matt shapiro over at the options exchange in chicago. thursday's market calendar has our weekly look at first time state unemployment claims. the big unemployment number due out on friday of course. out of the belfast food company, wendy's after the close, graphic maker individualia. and communities that popped up during the housing boom are being affected by the bust. plus if you have money in your money market, listen up. the new rules the securities and exchange commission would like for those investments. finding the balance between risk and reward is coming up next. billions of bankers and billions for automakers, but what about you?

get ready for a virtual town hall meeting. join first business online video, voice mail or e-mail and be heard. we want to hear your ideas for fixing the u.s. economy. the new president, trillions of dollars in taxpayer money and new efforts to fix the economy. first business will be holding a virtual town hall meeting. you can submit your video questions on youtube and find out how on our website, firstbusinessx.com.

the security and exchange commission wants to unplug flash trades. flash trades give some big traders a peek at buy and sell orders milliseconds before they're actually carried out and critics say the big traders with powerful computers get an unfair edge and can make pennies in profits per share multiplied over hundreds of thousands, even millions of shares it can mean big bucks. this would be the latest trading practices that the feds have moved to outlaw or new rules the sec is considering in wake of the financial melt down. one area where new rules could be coming is money mark. the sec would like to require money market fund to hold a percentage in actual cash, shorter securities and limit investments to only what it calls the highest quality bonds. all in an effort to avoid money markets from breaking the box falling below a dollar a share. we spoke with andrew donohue, director of the investment management division atthe securities and exchange commission. >> can they make money

markets safer and still provide a bit of return for investors? >> it's interesting that you put it that way because that's a pretty good insight on your part. we could make this the sayest investment -- safest investment anybody ever had and it probably wouldn't be attractive to anybody with a degree of return. no matter what we do, i think we run the real risk that we kind of overregulate it from washington. what came out of the haft two years -- i wouldsay that the breaking of the buck by the reserve fund and what occurred after that is just one part, one chapter of really a somewhat lengthy book that has been written over the last two years. and the challenge is that the money market funds have met during that period of time and what we're doing here is there are certain lessons that we learned and the industry learned. >>s there a concern that some of these new rules could impact the rewards

that investors can reap with money markets, like trying to eliminate risk? >> well, we'r certainly mindful of that. i would point out that money of the proposals that we have after the changes are actually consistent with what the industry has come back and recommended to us, that in many cases they feel that that's where their members are now in terms of how the funds are being managed. and so to that extent i don't think that we would wind up in a way damaging the value proposition for investors. but we should learn from what occurred in the last two years. i think it would be -- we would be remiss if in fact we didn't go back and see if there are ways to strengthen it. >> before joining the feds, donohue chaired the global risk oversight committee at merrill lynch. online you can see our conversation about what he thinks about how risk was

managed by the pros. from foreclosures to skyrocketing energy prices, why the american dream is quickly turning into a nightmare. on our website see what it's going to take to keep that dream alive. plus why small businesses still have yet to see stimulus money. why they're not optimistic it would even help. and the analysts expect gasoline prices to remain steady for the rest of the year. you can find these stories on our website, firstbusinessx.com. and straight ahead on the show, part two of sustaining the american dream in the midst of foreclosures and job losses. that's coming up after the break.

>> the american dream has turned into a nightmare for many homeowners and their communities much the housing building boom has turned into bust with rising foreclosures and unemployment rates pressuring home values. john wasik wrote the cul-de-sac syndrome, turned around the unsustainable dream. he took us to two very different communities, a redeveloped urban neighborhood just a couple of miles from downtown chicago where there are a few hundred foreclosures and a suburb grand lake illinois around 50 miles from the center center home to over 500 foreclose shuz. >> this is so so far removed that this is basically an old country road that you have to get in and out of here. so these people are very isolated. there's a commuter train, but it's a good 20 minute drive from here.

this is where it starts and this is where it might end. we have a lot of cheap land. this used to be a farm here. farmer sells the land to developers. the developers say, look, we can give you, you know, x amount of square footage for this price, and it's a great price relative to the inner suburbs or the rest of the city. so people flock out there. they're thinking, oh my god, this is my home. this is my starter home. this is where i'm going to live. unfortunately it's not really close to anything. you can spend hours on the road just getting in and out of here. people really crave land in this country. they love open space and there's nothing wrong with it. in fact, it's probably a great idea to preserve open space. but you have to integrate it with public transportation, with accessibility to the city and jobs. if you don't have that, it can become very unaffordable. people out here who have kids are just absolutely getting nailed for taxes because there's no industrial commercial retail

base to support the schools. the developers don't support the schools going forward. and if you keep building homes with kids, guess what, you need more schools. you have to raise the taxes. so the bargain they thought they were getting in moving out here and getting that really cheap per square foot cost evaporates because they get nailed by taxes. >> like the newer development we just saw, john, and this is more of a mature housing development again in chicago. we see a foreclosed home here. what are the risk of the sustainability of some of these kind of neighborhoods? >> first there's the economic quotient in that people got in here largely through adjustable rate loans. since they were really tied into the market, they had total exposure to the bond market. when the interest rates went up the homes became unaffordable. part of the crisis was that a lot of people were not prequalified in the way they should have been. so they were just one paycheck away from disaster. as a result a lot of these

homes were foreclosed upon. this particular area was very indemic in the foreclosure crisis because a lot of these homes were new, they were targeted to families that wanted an affordable home out in the country. this is a lovely community. there's a little park behind us, a lot of open space. very desirable. there's nothing wrong with it physically. it's just that people were on the edge just to be able to afford this american dream home. you cannot have a housing recovery without a job recovery. you have a low density area such as the single-family homes, big lots, you know, that's always going to be desirable to a lot of people. and there's nothing wrong with it. but in order to make that feasible over time, to make it sustainable you have to bring the prices down. they will come down because of this crisis, but long-term you have to make homes more affordable. you cannot have a healthy

housing market without decent jobs. and high paying jobs, not just service jobs like the strip malls behind me, but technical jobs, professional jobs, things like that. in a place like this they're very sparse. you can go from coast to coast and find communities that are very much like this and they're not just single-family homes, they're inner cities like detroit, cleveland. some of the rust belt communities are losing factories from the auto industry. you have job dislocation that's going to be going on well beyond this current crisis. >> nationwide more than one and a half million properties fell into some stage of foreclosure in the first half of the year in cities and suburbs. mailbox of one out of every 84 housing units across the country received at least one foreclosure filing between january and june all according to realty track. coming up friday morning a look at a different threat for those suburban and

exurban neighborhoods, higher and higher gasoline prices. >f

>> earlier we were talking about the market performance since march. the dow, s and p 500 and the nasdaq, up between 42% to 57% for those indexes. do you know what? we forgot. it's actually beaten all of those indexes.

the russell 2000 up 67% since march 9th hit the bottom. >> this is significant because this one is a bigger universe than all this. these are 2000 generally mid to small cap stocks here which make up really a broad breadth of u.s. industry. and it just shows you that the appetite out there to buy a piece of american industry still is solid. >> let's look at what tracks the russell 2000 index, it's iwm. and these shares holding right around $56 a share. you can see it broke above that recent resistance level at 53. and the chart looks really strong in the near term. >> what was interesting is that was resistance back in october of last year and also around the first of the year in january. it's able to crack over that, although on lighter and lighter volume as we spoke about earlier in the program. so here we are at levels not seen really since early october, right when the market had just fallen off a cliff. so it's got a lot of ground

here to make up before it regains the levels we saw back in september. >> last august, one year ago, iwm was trading in the 70-dollar range. and just before you can see that crater right in september and october. so it's definitely, what, about 21% off of its 52 week highs, yearly highs. it definitely has a long way to go to make up. >> a lot of what we hear from market strategic gists is long-term time horizons. just talking about it there, consider this over five years, the russell 2000 is up over three percent. five years and only a three percent gain. >> on the watch list is the inflation trade finally begin to go take hold? for a listening time now many corners of the market have been worried about inflation, the federal reserve doubling its balance sheet has it tries to punch cash into the market to try to get it flowing again and unlock the frozen credit market. well, certainly money supply

is close to all time highs, but instead of inflation in the short-term, the worry has been about deflation as consumers continue to deleverage and folks stock up on cash in their bank account and banks stock up on cash to try to repair their balance sheets. now when you look at gold prices that have been creeping higher ever so slowly, and albeit somewhat quietly in this market along with the broad market, the broad economy and the broad stock market. we have seen gold prices make another run up to their most recent highs that just are below a thousand dollars an ounce. at the same time also seeing the cost of cash increase as well. take a look at the yield in the 10-year government bond as interest rates have been creeping high as well. >> one more item here for you before we let you go. you may be used to naming your own hotel rate or airfare. now a guy in vermont is asking people to name their own fares in his taxi. he claims so far it's all been fair. he hasn't been shortchanged. in chicago, i'm tom penders in first business. we'll see you online.

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