Monday, February 28, 2005
New home sales fell sharply in January to a lower-than-expected annual rate of 1.106 million, disappointment offset in part by an upward revision to December which now shows a 1.218 million rate vs. a prior 1.098 million rate. But weakness was broad in February, including sharp 33% declines in the Northeast and Midwest. Supply of new homes rose a sharp 3.5% in the month to a record 438,000 -- swollen supply may point to lower construction rates ahead. More startling was a sharp 13% fall in the median price of a new home to $199,400. The level is down 4.8% year-on-year. Abundant supply and falling prices make this new home sales report unusually interesting. Indicators earlier this month, including existing home sales and housing starts, showed unusual strength in February. If today's report doesn't prove to be a one-month fluke and other data also begin to erode, it could prove to be the first hint of a housing slowdown that many economists are expecting.
More downside, IMHO and a meaningful break I am looking at 1500 to give way.
something new.....BOND market sells off with stock market, WHERE is the flight to? Cash?
As I alluded to this AM, it seems a price hike by XMSR put is back in orbit, so the SIRI-ous look and article I posted WAS a buying opp.....
OK, how do we sustain the economy and spending? NOT this way. WEAKEST RECOVERY IN MOST ASPECTS from RECESSION in HISTORY! And can be but one reason....IMHO the BEAR!
Time to do some TA for a ride? or are the NEW expenses killing them?
Sunday, February 27, 2005
M3 FELL $24.B last week and is down $49.4 B last 2 weeks. IS "EASY AL" finally coming off the gas?
It seems to me, this is coinciding nicely with the FIB turn dates we discussed for a PoTENTIAL TOP by MArch 8th, as we are rallying into the date, should it still hold water.
OIL STEEL GOLD BONDS everything looks overbought to me. Some suggest buying the DOGS OF THE DOW to overperform in 2005, MRK PFE SBC JPM and GE head that list, overperform could mean they fall less. IMHO
My Bond portfolio tracker of 7 funds rebounded from low of $2,200 to about $3,800. HIgh a few weeks ago was $6,500.
As SAFE as Bonds seem to be, we KNOW how manipulated the long rate has been, it may not happen, but the fuel is there for a HUGE spike in rates, presently we are looking for a move near 4.4% 10 yr before any significant reatrace.
As with all indexes, nary a straight line ever seen, but is OIL looking like its BLOWING OFF into at least a near term top?
No weakness in CHinese tracker FXI, not homebuilders neither, even as FRE and FNM have CRACKED WIDE OPEN, market seems not to care.
WMT within pennies of 52 week lows, and WHO else is even seeing that? I ask what does it mean. I expect WMT totally some here, a crack below 52 week would add to caution I already mention.
SUch a V bounce from a panic 175 pt selloff, odd indeed. Coming into the turn now, my SPidey senses on FULL ALERT
That's all until something worhtwhile develops, all need their rest. Worst case, will be writing sometime next Saturday.
Saturday, February 26, 2005
Quotes at time of story, top stories today:(BEAS 15:12) (MFE 10:24)
Feb 25, 3:12pm ETBEA Systems (BEAS) $8.27 0.05 (0.60%) BEA Systems reported all time record revenue and all time record earnings for fiscal 2005, but the stock is down today. Since setting record revenue and earnings should be what a growth stock does every quarter, what's wrong at BEA Systems? Well, nothing goes up forever and when a stock does reach the top, by definition, the revenues and earnings are all-time records. That's what "the top" means. BEAS is down because all of the typical signs of the end of the road for BEA's strong growth pattern is near. The best dashboard measurement of how well a software company with a traditional business model is growing is the trend in license revenues compared to maintenance revenues. Rising license revenues means new customers are still being added.. Rising maintenance revenues simply means that the installed base of customers is continuing to pay their ongoing maintenance fees (for support and upgrades). When the total license revenue begins a clear pattern of decline, it mean that the company is not signing up new customers at the rate they used to. While This is the pattern at BEA. License revenues have shown a clear downward trend for three full years now. In fact, the 2005 Q4 license revenue of $131.8 million is lower than the two-year ago license revenue of $134.6 million (2003 Q4, ended January 31, 2003). So, if you combine the perspective of license sales being the best indicator of real growth, it is hard to say that BEA Systems actually did set record revenues. Total revenue may have been a record, but with new license sales still showing their long term declining trend, it is hard to view BEAS as a growth stock. If you also add to the picture the fact that there was no new customer deal greater than $5 million in size, a real contrast to years past when BEAS used to deliver several new $5 million or high deals routinely. The inability to sign major new customers to big deal clients implies the scariest possible scenario for any software company: can it be that all possible customers are now actual customers? When that happens for a software company, it spells doom for the stock. While the underlying fundamentals of a maturing software company are still that of a pretty good cash cow, especially if management decides to really milk the maintenance revenue stream, the valuations of a mature cash cow are so much lower than that of a growth stock, that the actual price decline in the stock is severe. Especially if the cash cow does not pay a dividend. That's the story of BEAS for the past two years - and last night's 05Q4 earnings report simply reinforces the idea that markets for BEA products have matured. Many analysts felt that this quarter would be the one that marked BEA Systems "turnaround" and a return to strong revenue and earnings growth. Now, after the conference call, many analysts are saying that "mid-summer" is when BEA's revitalization of strong growth will occur, as the new product for the VOIP telecom product is rolled out. We don't view that market as robust either, and may never reach the powerful growth stage some expect. If you believe, as we strongly do, that the markets for enterprise software in general are maturing, and combine that with the idea that the telecommunications software market is consolidating, you get a picture of BEA Systems as reaching the eventual total fulfillment of their business promise. Record revenues always happen at "the top." None of this means the company is in any kind of financial difficulties. It just means that multiple contraction is probably going to continue, making BEAS a pretty unappealing stock. All of these reasons are why the stock is down today - and probably will continue to slowly decline over the coming months. Robert V. Green
VALUATION—The S&P 500 is selling at 20 times trailing reported earnings. Over the past 78 years the average P/E ratio has been 15.8, even including the recent outlying years. For most of these 78 years the range between high and low has been about 21 times to 7 times earnings. Markets selling at the high end of the range have resulted in below average subsequent returns or outright declines, while markets selling at the low end have been followed by higher than average returns. The analysis holds true under other metrics as well, including the dividend yield, the price-to-sales ratio, the price-to-cash flow ratio, and the price-to-book ratio. Most observers try to get around this analysis by using a forward price-to-earnings ratio and inflating earnings by excluding so-called one-time occurrences (called operating earnings). If we do this, however, the average historical P/E ratio is more like 10 or 11, still leaving the market highly overvalued. Comparing P/Es using forward-looking operating earnings to historical P/Es using trailing reported earnings is akin to comparing apples and oranges.
MONETARY POLICY—History indicates that tightening monetary policy is poison for the stock market. The Fed has now raised short-term interest rates six times, and says that the rate still must move higher to be consistent with their policy of neutrality. The three-steps-and-stumble rule, promulgated by the late Edson Gould, states that whenever the rate is raised three consecutive times, the market goes down. This rule has been highly accurate for the last 75 years, and with good reason—and it has proved to just as valid when interest rates were low as when they were high. The key is direction rather than absolute levels. These tightening periods usually lead to economic recessions as well since the Fed doesn’t stop tightening until something negative happens, and that is not good for stocks.
SENTIMENT—Market sentiment is always high at peaks. Currently, the Investor’s Intelligence Survey shows 54% of all market letter writers are bullish, while only 21% are bearish. Historically, these observers have been 50-to-60% bullish and 20-to30% bearish at tops. In addition cash as a percentage of assets in equity mutual funds is only 4.1%, close to a 39-year low. At market bottoms the cash percentage usually runs into double digits. The VIX measure of volatility is near an eight-year low. This indicator is usually low at market peaks and high at bottoms.
TREND—So far the upward trend since early 2003 has not been broken, although the narrow trading range in force since mid-November may be a warning that the uptrend is faltering. Since that time the S&P 500 has fluctuated between 1217 and 1163. In the last secular bear market from 1966 to 1982, the rallies following presidential elections have tended to peter out between mid-December and mid-January. To date the market peak of 1217 on January 3 is right on schedule. Given the high valuations, bullish sentiment and tightening monetary combined with the probability that this is a secular bear market, a significant break below 1163 (which we think is a strong possibility) should lead to far lower levels and a test of the 2002 bottom
By HIROKO NAKATA Staff writer
Japanese banks nationwide are prepared for April 1, when the government will remove its full guarantee on ordinary bank accounts, according to Tatsuya Ito, state minister in charge of financial services.
"Things are all set," Ito said in an interview this week, working to assure depositors that there is nothing to worry about.
Beginning April 1, bank deposits of more than 10 million yen will not be guaranteed by the government if an institution goes under.
The move effectively marks the end of the government's decade-long emergency measure aimed at soothing fears about fragile banks saddled with bad loans.
The guarantee was partially lifted in 2002 on some types of accounts, including time deposits.
Ito cited banks' lowered ratios of bad loans to their total outstanding loans as the main reason for his confidence in the banking system.
The bad-loan ratio for big banks was 4.7 percent as of September, almost reaching the government-set target of halving the level seen in 2002. The ratios for smaller banks are also declining as a whole, he said.
He said there has been an improvement in banks' disclosure of their business operations and financial health.
Depositors are expected to become more selective after the full guarantee has been lifted, and flee to stronger banks from weaker ones.
"We see this as the starting point for financial institutions to compete with each other to achieve depositors' trust," Ito said.
But analysts do not expect a big change anytime soon.
"It is true that the peak of financial instability is over now," said Hideo Kumano, a senior economist at Dai-Ichi Life Research Institute. "But unless the first case of bank collapse and a cut in deposit returns happen, there may be little pressure for depositors to feel cautious about risks of financial institutions."
Depositors can continue to enjoy full government protection if they agree to receive no interest on their deposits.
The Financial Services Agency has been encouraging banks to introduce "zero-interest" accounts used only for settlements. The new type of accounts are mainly targeted at large-scale depositors, including companies and local governments, which need to keep everyday settlements free of interruptions. About 97 percent of Japanese banks have already introduced or plan to introduce this type of account, according to the FSA.
The Japan Times: Feb. 25, 2005
We are coming into a high as the turn window approached and extends thru next week, will it still be valid? Could it be a FINAL high of correction of BEar Market which began in 2002-2003?
70% of our debt being swept up by foreignors, mostly Asian. We're selling out, and they're buying. When this musical chairs ends for any reason, the dollar collapses and the Trillions $$$$ of bonds they bought begin to gwet sold, rates would skyrocket, worlds economies would collapse. But I have NO idea why they would stop playing....or when.
Home builders make new highs, energy stocks make new highs, steel makers new highs. Was everything PEACHY at the 2000 top? Did it look brightest right before things changed.
McClellan OSC is back positive again, it will be important to see how long it lasts, and where the markets go while it is.
AT ANYTIME the music can stop. But the liquidity the FED is pumping is mind blowing.
But don't discount the TIGHTENING, and what effects it WILL have on stocks. Earnings will begin to slow, the Punch Bowl is being drawn away even as the Punch is kept flowing.
Richard Russell agreed with me when I suggested PDG and DROOY diving (gold shares) proved you MUST DIVERSIFY when investing in ANY SECTOR IMHO, it helps to spread risks.
Many are living week to week, but as long as credit is available, the spending seems endless. AS we rise evermore to new historic highs in this CREDIT EXPANSION WAVE.
I believe actions by the Fed have extended the K-Wave and put off the arrival of Winter, but it will come.
Friday, February 25, 2005
Above one of largest Diesel engine manf in China...is the bubble bursting there?
http://stockcharts.com/def/servlet/SC.web?c=wmt,uu[w,a]daclyiay[dd][pb50!b200!f][vc60][iut!Uah12,26,9!La12,26,9]&pref=G WHY is WMT (China's largest importer) NEAR 52 WEEK LOW?
Man, not much to say actually. Market is on steroids. Go long to sell higher or step aside.
Volume was tepid considering how CLOSE DOW was to breaking 2005 highs. Feels like TRANS and DOW are in lock step, new recovery highs possible, but large Specialist short is noteworthy.
Go to bottom of page, see % of change, also look at accompanying chart.
"SMART" money looks way short.
History shows WEAK market performance especially after 6 increases of FED rate, he can't stop now.
http://www.contraryinvestor.com/2004archives/mofeb04.htm Now look at debt chart again.
http://www.ship.gr/dry/ WHat it comprises, shows weakness when BUBBLE BURST.
http://www.naftemporiki.gr/markets/quotegraph.asp?id=.BADI&ctime=3M&cperiodicity=D&cstyle=L SHOWS a FALTERING near end of 2004 into 2005.
COuld be why we had non confirm in TRansports and Dow, but there has been a slowing of world economy.
Here in the US, we see only the curtain, not the man behind it.
ALL US DATA is manipulated.
From DR Richebacher from 2002
What was behind the paltry upturn, amounting to an annualized $5.2 billion? The main item was government spending, in particular at the state and local level. It soared by $36.1 billion and contributed 1.59 percentage points to real GDP growth. The other main contributor was business spending on computers. As price declines of IT equipment accelerated, the hedonic deflator worked another wonder. Measured in current dollars, spending on computers increased a paltry $1.9 billion. But hedonic treatment turned this trivial amount into a capital-spending boost of $23.5 billion. Had it not been for government spending and the hedonic deflator, U.S. real GDP growth would have been down in the fourth quarter at an annual rate of more than $50 billion, or more than 2% - far worse than expected.
And we are the ONLY country to use Hedonic pricing, to attract buyers ofour debt, we must put the best face on.
Thursday, February 24, 2005
NOW, is not the time the $$ hits new lows, but it will.
I think Greenspan will try anything to go out a champ and not a chump, I wonder if he can do it, or like my last chart shows some pulling on the string.....are we at the limits for debt taking?
But 2006 could be a doozy and a new Fed Chief comes on board. This reckless pumping cannot go on forever
Nice buy signal when 10 wk crossed up thru 50 WK. NOPE, no inflation around here, just sky high energy, and the price on almost anything going thru the roof.
IS Greenspan succeeding? GDP tomorrow
"However, in the short run, Greenspan at least can stop the ridiculous roller-coaster ride that has plagued us during his tenure as chairman of the Federal Reserve System. That would mean stopping the spikes in money growth, stopping the erratic policies of forcing down interest rates below the "natural" market rates, and calling for a major cutback in government spending. Once upon a time, Greenspan would have advocated such policies. Today, however, he is just another cog in the Washington, D.C., machine that grinds down everything that is good in our society."
**The Maestro knighted one has succeeded in floating the boats higher, and now withany sign of trouble he opens the flood gates again of the money supply......DAMN THE TORPEDOS
A rebound of the 175 point oops is near complete like it never happened......swooosh goes the money spigget, damn the consequences.
Was it all just a misunderstanding, an oil spike dollar dissing mistep?
BZH home builder streaking to new highs, like this will never end.
Help wanted index vaulted higher today to 41. We have been in LOW LOW 300K area for unemployment reports, again today.
BUT durable orders were down a big .9%.....a surprise? ahhh things made ot last.
MUSA and the steels still hot, but FRD is not, I am looking into that one to see why....$9 now. (3% dividend was $16, restated earnings HIGHER, so I know not the weakness)
I am thrown off by markets ability to hold on, but if we are talking about the rise from lows of this year, it is a tired rally, IMHO.
I wonder if the turn window will hold true and if rallying....would it be a high.
AHH, these's ONE DAY SELLING WONDERS do make one scrtach their head.
SGTL made nice come back today. Good trading to those nimble.
See how MACD and RSI on WEEKLY diverged when rates were making their lows? By that the STRENGTH of move in level of RSI and MACD were weaker, each thrust.
I know I need to join stochCharts full service so I can label my charts for you. BOTH MACD and RSI NOW RISING WEEKLY
With out WMT Chinese outlet $$$$, the CHinese are going around the world BUYING up NATURAL RESOURCE companies, investing in Canadian energy companies, securing their oil driven commodity hungry consumption future.
At the same time they have begun building and strengthening their miliatry, upgrading their technology. Are the CHinese closer to EUROPE than we are?
Chinese demand has driven up the cost of energy and commodities with COPPER reaching new heights, the cost of STEEL skyrocketing. Now even URANIUM is on the move.
http://stockcharts.com/def/servlet/SC.web?c=PGH,uu[w,a]wallyiay[pd20,2!b50][vc60][iut!Ub14!Ua12,26,9]&pref=G CHART OF PGH ENERGY TRUST
ABove chart (again I appologize I cannot figure out how to post the ACTUAL chart so you can see as I describe) shows weekly and probably MONTHLY overbought Canadian Energy Trust.
I could list any of them, and I bet chart is similar, MANY or MOST are CAnadian, some oNLY trade there, LIKE SHININGBANK, pays near 14% dividend!
Some others PVX, PWI ERF. You can do simple net search for even more, and see what % they pay.
You can see after brief pullback last April they were a freaking SCREAMING BUY! I have owned PVX PWI and PGH, when they weren't cool to own, made $$$$ on capital gains and dividends, but I must prfoess, EXITED WAY TOO EARLY and did not re-enter. THIS WAS a group to buy and hold, reinvest dividends and buy the dips.....if ever there was one!
And is why so important we look at SKIMPY SPX and DOW yields, and must ask WHY SO LOW? WHY NO RISK PREMIUM? And my answer is the BEAR has MUCH work to do, to return markets to balance to HISTORIC NORMS.
IT IS ALWAYS "REVRSION TO THE MEAN" It has been over 70 YERAS since our last DEPRESSION, and G-d HELP US, we are in WORST condition NOW to deal with it then in 1929!!! Then we had savings, then US was NET CREDITOR to world. THEN MOST ASSETS were in liquid stocks, now AMERICANS WEALTH is tied up in NOT SO LIQUID REAL ESTATE.
http://stockcharts.com/def/servlet/SC.web?c=wmt,uu[w,a]wallyiay[pd20,2!b50][vc60][iut!Ub14!Ua12,26,9]&pref=G WMT, the largest IMPORTER in CHINESE "stuff" has gone NOWHERE in last 5 years!!?? If buying LOW and selling HIGH isn't good for WMT, what does this say about ALL the CHinese krap we import?
And it isn't just that anymore, they build Airplane, Yatchs, Kitty Litter......FURNITURE, and some VERY HIGH END types as well, VERY WELL MADE.
US companies are losing business to them hand over fist......or they decide to IMPORT and sell under their name.
http://www.technicalindicators.com/gold.htm Interesting site for watching commodities.
Back to energy. Can the uptrend in those stocks continue?
MANY think so, but IF economies slow, demand will slow, hurt CHinese economy, demand for commodities could lessen or wane, stocks would be impacted.
We are looking at a much longer term trend. I WISH I could see into the future.
GOLD, Greenspan is flooding the Banking System at the rate of $trillion a year!!!!!! HE IS INSANE!!! HE IS EGOTISTICAL. HE IS AN IDIOT.
Destruction ofour manufacturing base, Our Service Sector going same route, and if interestrates RISE more quickly, an IMPLOSION of the recent DEBT INDUCED REBOUND will ensue IMHO
TAME CPI????? MY ASS! WITH CRB hitting Historic highs, COPPER OFF CHARTS
I am sorry, this is one Cowboy, one BOZO who just doesn't like what he sees!
TOTLA CREDIT DEBT http://www.economagic.com/em-cgi/charter.exe/frbz1/fl894104005+1990+2004+0+0+0+290+545++0 ONE LOOK
http://www.contraryinvestor.com/2004archives/mofeb04.htm SEE FIRST CHART. We are at 305% of GDP an HISTORIC HIGH.
http://www.gold-eagle.com/editorials_02/chapmand062902.html A MARKET LOW in 2006?
With ALL my sources, I hope to for myself and my loyal bloggers, keep us safe, and be ready to POUNCE when the ultimate Bear MArket lows appear.
ALL THIS JMHO, but I have history on my side and as a guide, and the venerable Richard Russell whispering in my ear.
Wednesday, February 23, 2005
2002 BOTTOM? SPX PE OF 30 and SPX DIVIDEND YIELD OF 1.7% !!!!
Man oh man, the market could bottom easily 50% below where it is now IMHO.
I trust history, I study history. I cannot time it exactly, I just know what values are supposed to look like.
Thinking ahead is how you position.(in 2002) LOW LOW rates.....should help housing and lenders. Dollar falls.....should help gold. CHina world power will use more oil buy oils and tankers and commodities.
CASH! IMHO GET OUT OF DEBT IMHO
I'm right with Metz on this one, peakid volume on a rebound, but let's wait and see yet if it has legs......the LEMMINGS are VERY resilient, and show NO FEAR, off the cliff they gooooooooo.
SICK SOX make SMELLY FEET.
I will have better feel after tonights Elliott Wave counts what the parameters will be.
Hard to ignore a 175 point drop.......but the LEMMINGS DO!
Certainly NOTHING like 2000-2002 is possible again?
And if you think that, then you don't know Bear Market history and what is FOUND at the bottom. 6% SPX Dividend yields single digit PE ratio's. MONTHS and MONTHS of BEARISH PLURALITY.....in more than 2-3 years...I don't even think ONE!
WMT nearing 52 week low of $51.08 What's WRONG with that picture?
Players still MAIN force in markets, rebound today expected, see how it closes. LOTS of technical damage done yesterday IMHO
Tuesday, February 22, 2005
(by Natalie Novak)
The US cellphone users are shocked by the news that a brand new virus was found in the country, after it hit at least a dozen countries all over the globe.
The virus, called Cabir, was found in a technology gadgets store in Santa Monica, California on Monday, when a passing techie spotted a telltale sign on the screen of a phone in the store. There were two infected cellphones in the store, both Nokia.
Cabir was invented in Philippines and began to travel around the world some time ago, having settled in at least twelve countries before it got to the US. Earlier, it already damaged so-called "smart phones" in up to a dozen countries, using Bluetooth wireless technology to spread from phone to phone.
The virus was found in at least 15 variations and continues to improve. So far it drains mobile phones batteries, said Mikko Hypponen, director of Finnish anti-virus research company F-Secure. “It’s not the end of the world,” that it was found in the US, he added.
The virus is spread in different countries through travelers that take their phones with them.
Cellphone virus threat became substantial since the technology is developing rapidly. “Skulls” virus aimed at advanced mobile phones was sent to security firms in November as so called “proof of concept.”
"This is just a new place where you have to be smart, and you have to protect yourself," said Kari Hernandez, a spokeswoman for the Bluetooth special interest group.
The responsibility for the virus was claimed by hacker Vallez at a group called 29A Labs. The group said it is aimed at creating “new, unique, interesting viruses.”
I will get to my email acct as I can, try to reply if appropriate.
I am a BOZO ON THIS BUS, but you gonna need a sense of humor to get by.
I also appreciate thekind comments some have sent my way, it makes me want to continue the blog, it's free for as long as I can.MAny things going on, my business and my other hobby photography.
It is also understood, I do this for recreation purposes, don;t try these stunts at home and my postings are my opinions nothing more.
WHO can see the future? I rather look to the past for clues, and keep my ear to the ground in the present to understand the trend and its potential parameters.
SEE, I am not ranting and raving about the napalm sent to Wall Street today, no reason, I sit on the sidelines and sling mud, but the ACTION will determine how much we credit todays action to pointing us to potential top short term or not.
Smart money is short, dumb money is long.....bend over Hedge Funds.
http://stockcharts.com/def/servlet/SC.web?c=$VIX,uu[w,a]daclyiay[pb200!b50!f][vc60][iut!La12,26,9!Lh14,3]&pref=G VIX BLASTS THRU 50 SMA ! I had said earlier, a LOW VIX is only a warning, but when it rises thru its longer term moving averages, we better pay attention.
http://stockcharts.com/def/servlet/SC.web?c=$indu,uu[w,a]daclyiay[pb200!b50!f][vc60][iut!La12,26,9!Lh14,3]&pref=G 2005 low is 10,368 and SEE it fall RIGHT to 50 SMA? will it hold. (3454 for Transports)
ALWAYS strongest when both indexes move together.
MACD looks ready to give up the ghost on the daily. Triangle formed from recent highs trend line and rising lows off recent move....has been broken to the downside, IMHO a bearish omen.
20 EMA is STILL acting as good resistance, weak as it is, not sure if she's ready to go just yet. But it sure feels like support is giving way.
NEW YORK - A rise in crude-oil prices above the $50 a barrel mark sent U.S. stocks sharply lower Tuesday morning but the major indexes climbed off their worst levels as a bullish ****broker call*** lifted technology stocks such as Intel and Cisco Systems
**Wall Street are reduced to hawkish shills..when NO value, when interest rates are going against you....when debt piles up to historic highs.....when there are FEW values....what else ya got?
http://finance.yahoo.com/p?v&k=pf_6 My int rate/yield tracking group hammered! Remember, just a week or so ago it was around $6,500 profit.
Last time OIL was rising so were stocks. When was last time NAZ futures pre open clicked red by -12 ?
A DECIDED BREAK down and DEEP RED finish to indexes today could throw a full blown sell signal IMHO.
I will try to have more to offer later today after close, if anything significant occurs. That cycle door is squeezing SHUT if still in play.....the NATURE of the selling if coming and where it takes us to will help decide if a top MAY be in.
Monday, February 21, 2005
My own opinion is it IS valuable. Rather than predicting a LOW VIX will lead to a decline like many did as it fell into 2003, you MUST wait until it breaks above its longer term moving averages, then you can feel more confident that RISK is less tollerated.
ALL a low vic tells us now is that Options Writers have little fear of losing when selling CHEAP PUTS! And they have been right! SO we must wait for a strong trend reversal in the longer term MA'S of the VIX.
It isn't that it doesn't work, it is all in how you interpret it. MANY went short at 20 VIX because it was at 50, a FALLING VIX was a sign of falling FEAR, just the opposite of what the hasty shorts felt!
BUT, the SPX VIX ratio I show from time to time, is a better tool, IMHO
We can compare the VIX to the price of the SPX. And we can compare it to the ast 10 years. We have a new high and a current double top in it.
With prices STILL below 2000, BUT this RATIO at ALL TIME HIGHS, ti is not signalling a top, it is WARNING OF ONE.
Sunday, February 20, 2005
One is the period near end of FEB and into first week of March. AMAZINGLY, as pointed out in ELLIOTWAVE.COM Friday update, from top in 2000 to bottom in 2001 (not the low) then from there to next TOP in 2002 and then again to the lows of 2003 the avg time passed was about a year! They also describe another relationship I can only refer to (subscription service....well worth checking out), from 200 high to 2003 low and then from 2003 lows to anticicpated HIGH somewhere near the window I mentioned above is a strong 2/3 or .786 FIB relationship.
IMHO raising the potential for a high to be put in sometime in next few weeks, and with LAGGING breadth and overall weakness, I wonder if we have seen the high already for this move.
McClellan OScillator is negative again. Summation index has turned down.
I NOTE from AUG high in McClellan index, ithas made 2 lower highs from which a trendline can be drawn, EVEN though SPX has worked itself higher, BEARISH IMHO. Twice has hit upper trendline as this occured.
ALSO ( one reason I enjoy EWT) I find sentiment VERY important. and it is no SECRET that the lemmings, the hedge funds (DUMB MONEY)/largest speculators are now at a new NET LONG position! DWARFING the net contract at 2000 highs! conasidering the indexes....rather interesting.
IMHO, this is NO time to fall asleep, market action coming up may be very telling.
Saturday, February 19, 2005
Customer lost big in 2000 Bear, KIds in Tulane $40K yr. He's a doctor. Well diversified now.
REfinanced house and put on addition at 4 3/8% (meaning TOOK equity out, now owes for 15 years.)
IMHO......this equity OUT financing based on ever escalating values is the juggling the FED has tried to keep going, I don't care what he says, he WANTS long term rates to STAY LOW, and now they are starting to come up.....I am NOT sure if the low is in but I think it is.
I think the LOW rates have kept us from FEELING the whole enchillada of pain from thebursting bubble of techland.
But since then the Value LIne and Transports have hit higher highs than the 2000 bull.
The DOW DID NOT, has not. We have a continuing non confirmation of Transports and DOw indexes...not good.
What are their reluctance? Unfortunately we can only guess, but JUST being aware of this is important.
FNM ruptured through support at 60.......anyone talking about it?
Watch happy go lucky home builders TOL BZH HOV.... and their still building like crazy. I have HOV as customer.
The low rates have taken the STING for many MIDDLE AMERICANS from the devestating losses suffered during the BEar mkt.
Are we even LESS prepared for a downturn now?
A SHARP RISE in rates will be quite disastrous....as our debt piles up to even higher historic levels.,
Friday, February 18, 2005
Do ANY of us, understand the depths of the situation, or how WRONG it may have gone? The human suffering......is immesurable.
and the market so far IGNORES IRAQI and US deaths. I have not seen a single trading day derailed beause of a single brave US fighting soldier killed......the markets go BEYOND complacency IMHO
My gut was MRK was beaten down more than it should have, and how many times have you seen this kind of reversal of opinion? As panel which advises FDA (they usually go along but don't have to) said the COX 2 products should stay on market.
I assume with warning it can kill you. I used the product years ago for back pain and it didnt work for me.
This is not the end of this story, nor the lawsuits I suspect.
DUL DULL markets, WEAKER and WEAKER volume...this is how TOPS are formed, usually not spiked to, but dwindled to. I believe that is what we have been forming since early 2004.
I work tomorrow, I might find something and time to post it. All have great weekned.
(February 17, 2005)
Please note that we switched to a neutral position from a 100% long position in our DJIA Timing System on the morning of January 12th at DJIA 10,530. No new signals as of now. My partner, Rex Hui, is currently in Hong Kong and so the new section on our DJIA Timing System won't be finished until he gets back from Hong Kong (middle of next month).
Good news - our charts section is now interactive! We still currently provide only two studies - the % deviation from its 50 & 200 DMAs for the DJIA and for the NASDAQ Composite. But this will change as we seek to improve our website further and as we get more subscribers!
Note: Going forward, our charts section will be updated on Wednesday and Sunday evenings - concurrent with the updating of our regular twice-a-week commentaries. I personally feel these charts are invaluable. One can also do historical studies on them - as well as to see how the DJIA and the NASDAQ are currently doing relative to their 50 DMAs and 200 DMAs.
Again, we will need all the subscribers that we could get! Current subscribers: Please continue to forward this to all whom you think will be interested in reading our commentaries going forward. New subscribers can subscribe here.
Dear Subscribers and Readers,
Like I have said many times before, I will continue to try to devote more space in our commentaries to individual stocks and industries in 2005 and going forward. There are many basically three ways to make money in the stock market, as I outlined in my Monday night's email to our subscribers. There is perhaps a more important one - but one which most people don't have the necessary skills to follow. That is, if one has the vision and the correct perspective, then one can make an immense amount of money by buying the next Microsoft or Coca-Cola - holding those shares thick and thin through bull and bear markets. Huge fortunes have been made this way, but not only does one need to have the vision, one also needs a certain temperament and confidence in order to hold a common stock for the long-run. Unlike the three methods that I discussed in my email, one cannot hope to do this by purely just devoting an immense amount of time to studying stocks or by crunching numbers. People are inherently emotional beings, and having the ability to hold a common stock through the ups and downs of the economy, wars, and financial crises is an ability that 99.99% investors do not have.
Okay, you may wonder: Why am I discussing this concept if I personally believe that 99.99% of investors cannot do this? Well, remember Warren Buffett's "20 punches and you're done" concept? Basically, it means that every investor should treat his investing career as a punch card with a limit of 20 punches. After 20 punches/investing decisions, then you're done for life. Always put this at the back of your mind, dear readers. Sometimes, we find ourselves getting into stocks that we are really sure about just because we have idle cash lying around. Don't tell me you haven't made this mistake before. Buffett made this mistake when he bought a significant portion of convertible preferred stock of USAir in the second half of 1989. Buffett knew the dynamics of the airlines industry. He had previously remarked that as a whole, the airline industry has never made money. The violation of his investment principles cost him dearly. Jesse Livermore, the legendary late 19th and early 20th century "Boy Trader," has also made these mistakes numerous times - and often paid dearly for it. Bernard Baruch, a trading friend of Livermore, would often remind Livermore that "it's time to go duck hunting" whenever they both felt that there were no obvious opportunities in the stock market.
Again, I would like my readers to always keep this "20-hole punch card" analogy at the back of your minds whenever it comes to investing. Having this thought would always cause you to be more selective in picking stocks - and would more likely than not to induce you to do more fundamental research before pulling the trigger.
Each of the three money-making methods that I outlined in my Monday night's email is not applicable in all situations. There is a time for everything. Momentum investing was not a good play in March 2003, and yet value investing was. Similarly, value investing was definitely not in vogue during most of the late 1990s. One of the more popular trades in the last few years - the carry trade between the short and long end of the yield curve - is also now disappearing. However, this fourth method that I have outlined is timeless, and can be "used" successfully in every trade that you make. I personally believe that most investors don't have this in the back of their minds when they are buying a certain stock. Warren Buffett does. And you should as well - as it will give you a huge advantage when it comes to investing successfully in the stock market.
Given what I have said above, another useful endeavor for the investor who wants to be successful going forward is to find out what type of investor one is. Learn about your strong points and try to adopt a trading methodology that takes advantage of your strong points. Work on your weak points. Being able to successfully manage a portfolio is very similar to managing the human body. If any one of the many organs should fail to function, then the whole body suffers a great deal. That is the same with investing. If you are very good at finding good companies at good prices but are very emotionally when it comes to enduring the bumps in the major indices, then perhaps you can do better by not watching the financial news every day. The image of the successful trader who watches the ticker screens all the time on an intraday basis is merely a myth. Buffett does not have a stock ticker in his office and neither did he have one in his younger days. Soros actually had better performance once he started writing "The Alchemy of Finance" in the late 1980s - primarily because he was forced to write down his thoughts and think about the big picture instead of focusing on the day-to-day movements of his investments or speculations.
Another "big picture" study that may be useful to your investing health is to study financial and stock market history. For example, in the years before World War II, a lot of investors made fortunes by betting on the business cycle and relying on insider information. Names like Jay Gould, Daniel Drew, Bernard Baruch, and Jesse Livermore were the more notable names. Even figures such as Andrew Carnegie made some money by trading on insider information (along with his boss, Tom Scott, he would buy the shares of his suppliers just before a major contract was announced) during his early days at the Penn Railroad. With the rise of the Federal Reserve and the SEC, money-making opportunities that were very profitable in the 19th and the early parts of the 20th century are mostly no longer valid. It may be fun to read about the exploits of the pools, the 1901 Northern Pacific Corner, or Livermore's shorting of the market during the Panic of 1907, but such scenarios are nearly no longer valid today. True, the days leading up to the 1987 crash was a great money-making opportunity for people who had bet on stock market cycles. So was the 2000 to 2002 tech crash. However, such scenarios (and thus money-making opportunities that bet on these scenarios happening) occur much less frequently today. The intervention of the Federal Reserve has meant longer business trends, less financial crises, and less power being exerted by individuals or trading houses. The creation of the SEC, meanwhile, has created more transparency and accountability. Today, companies are much better run in general. Research material can be more easily obtained - especially with the advent of the information age and the internet. Buying and holding truly great companies at good prices such as Coca-Cola or Starbucks has turned out to be a great strategy and should continue to be a great strategy for the 21st century.
In short, a great investor has to find an edge above all other investors and be able to take advantage of his strong points and work on his weak points. Know your stock market history, and you will learn how to adapt to changing times. Constantly ask yourself questions and reflect upon them, such as: Why doesn't Livermore's strategy work as well today as it did one hundred years ago? How about the classic Benjamin Graham way of investing? Given the rise of the age of advertising in the post World War II era, brand names can now make up a majority of the wealth of a company - even though that number may not be easily calculated. For example, according to Interbrand, the brand name value of Coca-Cola is approximately $67 billion - equal to about two-thirds of the company's total market capitalization. Studies such as this would driven Graham & Newman nuts back in the 1920s and 1930s. The value of selected brand names will continue to increase as the consumer markets in places such as China and India becomes more developed over the next few decades.
There is a time for everything - and there will be a time when the final top of this cyclical bull market will arrive - but until that happens, I believe we should focus more on studying individual stocks and industries and finding the great investments through this method instead. We will see.
Henry K. To, CFA
SHould we consider THIS, the LARGEST seller of mortgages.....it's total devestation as a coming TSUNAMI for Housing?
Rates have BUSTED OUT, some areas have seen 100% and more housing price increases in last 3-4 years.....I think people havebought into their necks, I am extremely worried going forward, should this thing catch fire!
FAR FAR cry from 2000 considering. And why I will remain....this is the WEAKEST RECOVERY from Recseeion in history.
Anyone who trades would like to know how to be more successful, and it helps to learn from an expert. Bob Prechter has six secrets for becoming a successful trader. Today's column, excerpted from the 2004 edition of Prechter's Perspective, explains that the second requirement is to be as disciplined and tough as a Marine. This report is the second in a series.
Refresher: The No. 1 requirement for being a successful trader is to get a method, such as the Wave Principle. What's the second requirement?
No. 2 – Be disciplined. You need the discipline to follow your method. Among the true professionals, this requirement is so widely understood that it's almost a cliché. Nevertheless, it is such an important cliché that it cannot be sidestepped, ignored or excepted.
Any system with a decent track record will be profitable if you apply it rigorously and honestly. As I indicated before, using the 10-day advance/decline oscillator with reasonable parameters, you can make money seven times out of 10. But very few people have the discipline to do it. Discipline is much more difficult to obtain than a method.
Do you mean that a well-constructed system will work, but the investor often doesn't?
Well, certainly a lot of work is required. But that's not the only aspect of the task. Lots of workaholics fail at trading. What you need is the guts to do what is right when it feels wrong. That takes immense courage and discipline. It struck me one day that among a handful of consistently successful professional options and futures traders of my acquaintance, three of them are former Marines.
The few, the proud?
The few, for sure! Among my acquaintances anyway, this is a ratio way out of proportion to the ratio of former Marines as a percentage of the general population. This anomaly implies to me that discipline is extremely important. At some point in their lives, these guys volunteered to serve in an organization that requires discipline and stamina. These people knew they were "tough" and wanted the chance to prove it. Being "tough" in this context means having the ability to suppress a host of emotions in order to act in a manner that would cause most people to shrink back in fear.
But you don't seem like the Marine type.
No, I'm not. But years ago while attending summer school with Georgia's Governor's Honors Program, I was given a psychological test and told that one of my skewed traits was "tough-mindedness." I didn't exactly know what that meant, but after trading and forecasting the markets since 1972, it is clear that without that trait, I would have been forced long ago to elect another profession. The pressures are enormous, and they get to everyone, including me. If you are not disciplined, forget the markets.
Can anyone follow rules if he or she puts a mind to it?
A lot of people will tell you that they have that discipline, but when it comes to actually doing it, they don't. The markets aren't merely an intellectual exercise. They're an emotional one as well. By the time the emotions have eaten away at you for several months, it's even physical. Trading is incredibly difficult to do, and it's one reason I do not like trading.
The most important factor in the market strategy is learning to stand fast if your system tells you to do so, even when the news, your friends and the tape are screaming at you to do the opposite. Outside forces don't really affect the market and never have. People hear horrible things on the news – the assassination of President Kennedy is a good example – and they panic and sell. A crisis may influence where prices go that afternoon, but not overall. You have to learn to avoid that natural human reaction to what looks catastrophic or hopeful. Stick with your system; never second-guess it; always follow it.
Does discipline mean you should stick to one or two markets?
Not in my opinion. One of the most important characteristics of a successful commodity trader is the flexibility to go into any tradable market. If traders are "married" to particular markets, they may find themselves forcing a trade where none exists. The flexible trader can ignore 80% of the charts that are saying nothing and concentrate on the 20% that are calling for action. On the other hand, if one's method is market-specific to some degree, then specialization can add value.
Next installment: Requirement No.3 – Experience
And BONDS have reacted savagely, I really think rates have bottomed.....more later. (Gold unchanged......could be inflationary fakeout which leads to deflation)
It has shown me BEST way toinvest "conservatively" is to SPREAD the risk, IMHO. AT one point even though 4 of the 7 were LOSING MONEY (all pay dividends) but the portfolio of 7 was still UP!
When I deploy money, unless single stock speculation, I plan to use this method to lessen my risk. NOT ONE fuel cell company but a few.
Not ONE energy company, a few.
And anything paying decent dividend (should it HOLD UP...remember FNM cut theirs in HALF!) also helps to reduce risk.
Is also why SPX dividend yield near 2% (even after tax break law) is a VERY bearish sign, IMHO
LOTS of data this AM
Thursday, February 17, 2005
Market continues to sport broad-based losses and an overall bearish bias midday following mixed economic data, guidance and earnings reports... As expected, Fed Chairman's remarks have more or less mirrored yesterday's statement to the Senate, reiterating that inflation-adjusted interest rates remain "fairly low" and that a drop in yields on longer-maturity bonds since rate hikes began in June is a "conundrum," reflecting the increased possibility that further Fed tightening is necessary...
Jan Leading Indicators fell for the first time in three months, declining 0.3% (consensus -0.2%), versus a revised 0.2% increase in December... Weekly jobless claims fell 2K to 302K (consensus 315K), the lowest level since October 2000, but while layoffs remain at low levels, hiring activity has become a much more important employment indicator... Better than expected quarterly results have come from the likes of WMT, TGT, HPQ and BHI, but disappointing guidance from NXTL, RSH, GENZ and CCE have somewhat offset any potential momentum stemming from strong earnings...
Meanwhile, widespread profit taking, technical breakdowns in the indices and relative weakness in large cap names have kept virtually every sector under pressure... Technology continues to show broad-based losses while financial, health care, transportation, utility, retail and consumer staples remain influential leaders to the downside... Respectable gains in diversified metals and aluminum have limited losses in the materials sector while biotech, due to positive clinical data from BIIB (+1.6%) and ELN (+1.1%), and homebuilding, despite higher bond yields, have been the only notable sectors showing relative strength...
LOOK at indicator since April of '04 !! DAMN the slide began there....FED goosing has kept this floating....like RATS, they are backed into a corner now. I think we're royally screwed.
Takenaka still upbeat on 'long pause'By MAYUMI NEGISHIStaff writerThe nation's economy contracted for the third straight quarter in the October-December period, pitching Japan into a technical recession.
Government figures released Wednesday show the economy shrank an annualized 0.5 percent in the quarter.
Households refused to spend more amid rising pension costs and slumping wages, causing gross domestic product to post a 0.1 percent quarter-on-quarter decline in real terms on a seasonally adjusted basis. The government the same day revised downward its preliminary estimate of July-September GDP to a contraction of 0.3 percent from a gain of 0.1 percent.
A recession is widely defined as two consecutive quarters of GDP contraction.
"Companies may be doing better, but wages are down, social security costs are up, we're eyeing a future of tax increases, and households are forced to be on the defensive," said Kunji Okue, fiscal policy analyst at Dresdner Kleinwort Wasserstein Securities Ltd. "The economy physically can't grow" without external demand, he said.
The latest result is the worst since the economy contracted for four consecutive quarters through the January-March period of 2002, when the economy was hit by the collapse of the information-technology bubble.
Policymakers and corporate executives dismissed Wednesday's figures, denying the economy was in recession or that any change was needed in government policy.
"It's a rather long pause in the economy," said Heizo Takenaka, economic and fiscal policy minister.
The government cannot say the economy is in recession on the basis of GDP alone, he said. "There is no change in our basic view that the economy overall continues to recover."
He said the GDP data show signs that price conditions are improving.
The GDP deflator, which measures changes in prices, fell 0.3 percent year on year, compared with a 1.3 percent decline in the previous quarter.
"I am not at all pessimistic," said Kenji Miyahara, chairman of trading company Sumitomo Corp. "It's an adjustment phase."
The government projects a real 2.1 percent growth for the full fiscal 2004 year.
Real GDP for calendar 2004 grew 2.6 percent year on year, the highest level of growth since calendar 1996.
But economists say the latest GDP figures suggest the economy is not as strong as the government and business leaders make out.
"The data disprove the government's assessment that the economy is on a genuine recovery path," said Yasunari Ueno, chief market economist at Mizuho Securities Co. "With expendable income being squeezed, I can't forecast sunny skies through 2005."
Warm winter temperatures hurt clothing sales and recreational sports businesses, while rising vegetable and oil prices further hurt personal spending, which fell 0.3 percent from the previous quarter. Nominal yearly wages, which economists say have a strong impact on the consumer psyche, fell for the fourth consecutive year in calendar 2004.
Okue and other analysts also said the current slowdown in exports will likely recover somewhat in the latter half of this year.
"But it won't be a dramatic boost that will carry us all the way through 2006," Okue said.
The total value of external demand -- exports minus imports -- trimmed 0.2 percentage point from the GDP, as imports outpaced exports on high demand for raw materials, clothes, higher-priced farm produce and aircraft.
The Japan Times: Feb. 17, 2005
http://stockcharts.com/def/servlet/SC.web?c=$NYAD,uu[w,a]dallyiay[dc][pc20!c5][vc60][iut!Ub14!Lh14,3]&pref=G Advance decline ratio
VIX near 11 !
http://stockcharts.com/def/servlet/SC.web?c=$SPX:$VIX,uu[w,a]dallyiay[df][pc20!c5][vc60][iut!Ub14!Lh14,3]&pref=G ALL TIME HIGH! Ratio of SPX value and VIX measure.
I don't know what else to say. Can't predict timing when time runs out, but we have PLENTY of evidence, history in making.
Greenspan defends Bush SS Private accts, yet when asked how would $2 trillion in new borrowing effect markets he replies "I don't know?" LOL our fealess......SIR leader.
Bush NOW considering TAX increase for SS. FED in raising mode. Markets historically overvalued. Markets historically bullish. Country historic in debt. Historic highs in housing.
Wednesday, February 16, 2005
Maybe maybe not, but bullish in this sense means MUCH higher yields......the door is open..
Tracking the effect of rates - Kathleen PenderSunday, April 25, 2004
Alan Greenspan clearly has his finger on the interest-rate trigger. The question for stockholders is whether he's holding a pop gun or an AK-47.
Historical studies show that after a period of falling or stable interest rates, one or two interest rate increases did not, on average, hurt the stock market. But a sustained series of interest rate hikes usually did.
Here's why: The Fed typically raises rates when an economic recovery has taken hold and inflation starts looking like a problem.
A single rate increase, sometimes even two, doesn't usually slow the economy or put much of a dent in corporate profits, so investors remain bullish on stocks.
And in the early days of rising rates, stocks don't get much competition from bonds and other fixed-income investments.
When interest rates go up, bond prices go down, and investors are reluctant to jump into bonds while their prices are falling, even if their yields are going up.
But after three or four interest rate increases, the economy and corporate profits will start to slow. And at some point, many investors will switch out of stocks into bonds, when they decide bond yields are high enough to compensate for any risk of further price declines.
The Leuthold Group has studied the stock market's performance following Fed rate increases going back to 1946.
"A year after the first increase, you see the market up about 10 percent over that time frame. As you get into third and fourth rate increase, that's where it really has a bite," says Andrew Engel, a senior research analyst with Leuthold.
His study shows that a year after the sixth in a series of rate hikes, the Standard & Poor's 500 index was down almost 7 percent.
When multiple rate increases do kick in, few sectors of the market are spared.
Standard & Poor's studied the market's performance following Fed rate increases for the period since 1970. (It excluded periods when the rate was raised only once before it was cut again.)
It found that the S&P 500 was down, on average, about 5 percent six months after the first in a series of rate increases.
"More interesting, of the 56 industries in the index (that were around for the entire period), only one was higher" six months after the initial rate increase, says Sam Stovall, S&P's chief investment strategist. That one was electronic instruments.
Laid-back approach: There are reasons to believe the Fed could take a leisurely approach to raising rates.
Although the consumer price index jumped a surprising 0.5 percent in March -- following gains of 0.3 and 0.5 percent in February and January -- inflation is tame by historical standards.
And the federal funds rate, stuck at 1 percent since last June, is extraordinarily low.
The difference between the federal funds rate, at 1 percent, and gross domestic product, which is growing at a 6 percent rate, "is artificially very wide. If they raise the federal funds rate, they are taking their foot off the gas, not putting it on the brake," says Stovall.
This suggests the Fed could raise the rate, sit back and see what happens, without roiling the stock market.
"An increase in rates from really low levels won't worry people as much as if they come up from a high level," says Sam Burns, senior equity analyst with Ned Davis Research.
What's different this time, and worrisome, is that "there is a lot of debt in the economy. The ratio of debt to GDP is the highest it has ever been, " Burns adds.
"Rising rates may have more impact now," he says. Because households are over-extended, a small rate increase could cause a bigger-than-usual slowdown in housing, autos and other key parts of the economy. That could prevent further rate increases, but it would also be bad for corporate earnings and stock prices.
The other fear is that inflation could shoot up higher and faster than anticipated, forcing the Fed into rapid-fire rate increases.
Here's what Greenspan told Congress about inflation and interest rates on Wednesday:
"As I have noted previously, the federal funds rate must rise at some point to prevent pressures on price inflation from eventually emerging.
"As yet, the protracted period of monetary accommodation (in other words, low interest rates) has not fostered an environment in which broad-based inflation pressures appear to be building. But the Federal Reserve recognizes that sustained prosperity requires the maintenance of price stability and will act, as necessary, to ensure that outcome."
Market outlook: The prospect of higher rates has led some analysts to trim their market forecasts.
"We recently reduced our year-end target for the S&P 500, from 1,230 to 1,215. Instead of a low double-digit gain (for the year), we think it will do 9 percent," says Stovall.
After rising 26 percent in 2003, the S&P 500 is up about 2.5 percent this year. It closed Friday at 1,140.60.
In recent weeks, the market has been on a seesaw, rising one day on good earnings and falling the next on concerns about interest rates.
Stephen Sanborn, executive research director with Value Line, says that, on balance, corporate profits will be the decisive influence.
"Our view is that the economy is going to be good at least through 2004," he says. "Corporate profits will boost stock prices more than interest rates will pull them down."
That could change, however, if inflation or long-term interest rates get out of control.
Long-term rates are established by bond investors, and they often move in advance of short-term rates set by the Fed. The yield on the bellwether 10- year Treasury bond has risen sharply, from 3.68 percent in mid-March to 4.45 percent on Friday.
"If you saw the 10- year Treasury bond yield go up to 5.5 or 6 percent, then you might have problems," Sanborn says.
Sector plays: If you own a wide variety of stocks and the desired allocation of stocks, bonds and cash (i.e. money market funds) based on your age, financial goals and risk tolerance, there is probably no need to make major changes.
But if you are overweighted in stocks that could get hurt by rising interest rates or underweighted in sectors that could do well, you may consider some adjustments.
The sectors most vulnerable to rising interest rates are financial services (such banks, thrifts and brokerage firms) and anything real estate- related, including homebuilders, building materials and real estate investment trusts.
Utilities, which are purchased mainly for their dividends, can get hurt later in the interest-rate cycle as income-oriented investors switch into bonds.
Most of these industries have already been hurt by rate jitters.
In the past month, the REITs in the S&P 500 are down 12 percent, homebuilders in the index have fallen 9 percent, thrifts are down 5.5 percent, investment banks/brokerage firms are down 4 percent, and electric utilities have slipped 2 percent.
During the same period, the entire S&P 500 has risen 4.3 percent.
Engel, of the Leuthold Group, says his firm is positive on the market overall, but "we are trying to avoid the financial area."
David Darst, chief investment strategist for Morgan Stanley's individual investor group, says REITs, homebuilders and "certain banks and thrifts are areas we would underweight. We think they can fall further. We would not chase them."
Sanborn on the other hand, says, "I think some of the banking and S&L stocks that have come down are fairly attractive at this point," although he is cautious about them for next year.
The sectors that tend to do best when interest rates rise are technology, health care and energy.
Health care holds up because people still get sick.
Technology holds up because most tech companies have little debt, so they are not hurt by rising interest costs. And because they usually don't pay dividends, they don't see shareholders fleeing for higher-yielding investments.
Energy does well because when interest rates go up, inflation is usually rising and so are energy prices.
Engel says his firm is overweighted in health care and energy and is holding utility stocks as a bond alternative until long-term interest rates stabilize.
Darst says investors who are worried about higher rates might hold a basket of energy stocks including the majors, the secondaries (exploration and production companies), natural gas companies and oil drilling stocks.
Market performance after Fed rate increases
This chart shows the median performance of the S&P 500 for a given number of trading days after successive Fed rate increases since 1946.
Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at email@example.com.
252 days later after Sixth -6.98
by Gary Shilling
My economic, financial and political outlooks have spawned six investment themes for this year. Three are likely to happen, while the other three are in the "maybe" category-they'll probably unfold at some point, but their timing is less clear.
First, a rally in the dollar is likely, especially vs. the euro
The rationale for the weak dollar is the growing trade and current account deficits. The fear is that foreigners will soon no longer be willing to hold the dollars generated by these deficits and invest them in U.S. assets, so the buck's decline is anticipating its collapse. Indeed, Indian, Russian and some other central banks say they are thinking about reducing their dollar shares in favor of the euro.
Nevertheless, most foreign countries depend on exports that directly or indirectly go to the U.S. Also, keep in mind that foreigners are selling and Americans are buying their goods, and in a world of excess supply, the buyer is king.
There are good fundamental reasons for the dollar to strengthen. The United States is the world's growth leader, which should benefit her currency. In addition, America lacks the language barriers, labor immobility and productivity-robbing socialistic tendencies that hinder Euroland economies. With these forces and consumer malaise, the outlook for economic growth in Euroland in 2005 and beyond is bleak. And with slow growth, interest rates there are lower than in the United States, which should attract money to America.
Longer run, America's commanding lead in new tech should ensure the buck's dominance for at least a decade. Historically, the country with the fastest productivity growth had the strongest currency.
Secondly, consumer deflationary expectations will spread:
When deflation is widely accepted, buyers anticipate it by waiting for lower prices before buying. This creates excess inventories and idle productive capacity, forcing sellers to cut prices in order to move goods and services. These cuts, in turn, confirm buyer suspicions, so they wait even further for even-lower prices and, in the process, generate a self-feeding deflationary cycle.
This is already evident in autos. In Oct. 2001, GM introduced loans with zero down, zero interest rates and zero payments for six months or a year, in response to 9/11. The result was an explosion of vehicle sales during that month, as consumers left their barricaded homes and stampeded into auto showrooms. But they got accustomed to big incentives quickly, so GM and other auto companies have had to keep increasing them in order to move the metal.
This last Christmas season showed that consumer deflationary expectations have spread from autos to general merchandise, especially Christmas gifts, as Wal-Mart saw when it decided not to offer giveaway prices on Black Friday, the all-important shopping day after Thanksgiving. When customers simply trotted over to the competition, leaving Wal-Mart with lousy start-of-the-season sales, the giant retailer had to chop prices to catch up.
Airlines also face consumer deflationary expectations as online ticket sales make it easy for consumers to find the lowest fare, and fares continue to fall. Telecom is another example. Intensifying competition among land-based telephone service, cell phone, cable, satellite, and now wireless is slashing prices and encouraging consumers to sign short contracts in anticipation of lower prices.
One can argue that falling real wages among lower-income households are the mainstay of this ruthless search for low prices. True in part, but as noted in the case of autos, and also valid in airfares and telecom, a pattern of price declines spawns deflationary expectations that spread to almost all income classes.
Another point to make is that the yield curve will probably continue to flatten:
The Treasury yield curve has flattened since the Fed started raising the short-term rates it controls last June. There's not much question that the Fed plans to continue its rate-raising campaign, which started when Federal funds was at 1% and at the current 2.5% target is still considered by the Fed to be below equilibrium.
How far is the flattening yield curve likely to go this time? Will it go all the way to inversion with short rates above long rates? It didn't invert in the low inflation run-ups to the 1953-54, 1957-58, 1960-61 and, in essence, the 1990-91 recessions, but it did invert ahead of recessions in the high inflation days-1969-70, 1973-75, 1980 and 1981-82.
The yield curve also inverted ahead of the 2001 recession, and that was definitely not an era of high and rising inflation. But the federal budget was in surplus then, and that may have convinced bondholders to accept lower yields than during the days of deficits. In any event, that surplus is history, at least for now, and in this era of low and, I believe, declining inflation, I look for a further flattening, but not an inversion of the yield curve in the quarters ahead. If I'm wrong and the yield curve does invert, look for a recession. That's always been the case in the post-World War II years. No exceptions.
Even without an inverted yield curve, the effects of the spread between interest rates on 2- and 10-year Treasuries moving toward zero will be considerable. It certainly would ruin the part of the carry trade that concentrates on borrowing short term and investing in long-dated Treasuries. And it's clear that the Fed is not happy with this carry trade anyway.
A flat yield curve would damage many less speculative investments. Financial stocks have done well in recent years and the earnings of those in the S&P 500 index account for about 40% of the total. This isn't surprising since, at heart, many financial institutions are spread lenders, borrowing short term and lending long term. The steep yield curve in recent years has been their bread and butter. Further flattening in the Treasury yield curve would compress these spreads-and the earnings of financial institutions-considerably.
And to start on the "maybe" section...maybe the housing bubble will break this year:
I've warned about the expanding bubble in housing prices in recent years, and continue to forecast its burst. Prices, which normally rise in step with incomes and the CPI, have run well ahead in recent years. What might trigger a nosedive in American house prices?
I can see four triggers. The first would be a spike in mortgage rates, reversing their long and housing-friendly decline. A second pin that could prick the house bubble is loss of confidence in mortgage-backed securities in addition to faith in the obligations of government-sponsored housing enterprises. This could result from the ongoing investigations of Fannie Mae's accounting. Fannie dominates that market, and the fixed-income instruments it backs have become very important components in the portfolios of many financial institutions. Third, the housing bubble could end if the low-end, first-time homebuyers lost their jobs and consequently were frozen out of the market. Then their plight would ripple up the move-up market, as those planning to buy more expensive houses couldn't sell their existing abodes at their hoped-for prices. Finally, leaping house prices might reach the point that they simply fall of their own weight.
A significant nationwide fall in housing prices, the first since the 1930s, would wipe out the slender equity of many homeowners and cause much more national distress than the big 2000-2002 bear market in stocks. As a result, widespread or chronic house price weakness would almost certainly end the 20-year U.S. consumer borrowing and spending binge and touch off a frantic saving spree.
A residential real estate collapse and a saving spree in this country, combined with its echoes and other negative economic consequences abroad, could create a big enough global financial and economic crisis to convert the good deflation of excess supply I foresee to the bad deflation of deficient demand.
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Looked like no end to EAGER buyers,
Look at the over bought weeklies, WOW! I just wonder if this will continue into the year? I expect incresing volatility.
Also in the tanker area like SFL and TOPT, look at their action today.
BOTh Industrial Production and FACTORY CAPACITY missed badly with SHARP declines.
Where is the BEEF?
We will see if GOOD news is BAD NEWS.
INFLATION is segregated into small areas? I'm not so sure, one thing I am.............this is not natural, the demand because of rate policy, It must be slowed down, prices IMHO have staged to a BUBBLE.....and don;t AL bubbles pop?
I am on PINS and NEEDLES waiting for GReenspan testimony! I will surely tune in CSPAN and have my calls put on hold.
I just recieved my pocket translator from Keeko Products (off Race Krispy Box) and I know it will decifer what he says.
".....everything is all good cept the few bad parts which aren't all bad and kinda good especially in the daytime at certain hours within limits, no inflation I can see but how well do I see, alram alarm deficits deficits....just kidding.....pssst I think I Lost them...your momma"
"....in the first half of the quarter of the part which is in the other half of which I am not concerned about. We have 20% of the latter 50% with 10% pressure on the original 70% gives us lower inflation pressures coming in from the west due east 40% of the time...are there any questions?"
reporter for COntrarian Times....."Uh Sir greenpam.....Lord of the rings and Bubbles....go ^^%$$## yourself!"
I am running on little sleep..... LAst Sunday we picked up an 11 week old WHipett Puppy......my free space here doesn't allow me to figure out how to work all the functions of my own fricken site! LOL
My goal is at SOME POINT to have a REAL CUSTOM DESIGNED site, where I could collect emails and alert you to new postings etc. And when I get OLD (I just turned 50 !) I might have enough PSYCHIC powers to impart wisdom and charge a PALTRY fee so I could live comfortably in the old folks home.
One thing for sure, we are ALWAYS learning, perfecting and trying to look ahead, be in the present and learn from the past.
I THINK key to markets will be in the direction of the US $ and Bond Yields. WE must be LOOKING for any signs YIELDS have bottomed.
With ALL the leverage and money that has flowed INTO higher yielding funds, Treasuries etc, PLUS derivitives......one day man it is going to implode.
The CAVEAT, the flattening yield curve could be sign of economic weakness ahead. WHY with supposed BLUE SKIES ahead for markets and economy, is there such devoted strength to Bonds?
I should have posted the 7 funds I set up months ago to take advantage of this trend for yield.
http://finance.yahoo.com/p?v&k=pf_6 (I posted EVT twice but it is n't added in total) HERE is my list of 7 diversifed Funds for Yield.
DOH! I originally set them up to A) Test this YHOO feature. B) Prove to myself that DIVERSIFICATION WORKS to spread dout RISK. C) See how smart I was setting this up to track performance.
Well with 1,000 shares as TEST to track each, you can see how well it has done. HIGH is CAPITAL GAINS was around $6,300. Low was about down $1,500 and then they really snapped back. ALL the time they were also PAYING ME (would have been) nice returns.
I LIKE to watch HOW they react as GROUP to changes in the 10 year notes.
I am VERY GOOD at picking, but I have been reluctant to TRADE. This is a personal deamon I am trying to purge.
At BREAK down in these stocks COULD be sign of a change is coming. MONEY continues to flow into US assets. PEOPLE.....and traders (LOW LOW VIX) seem oblivious to any risk.
Tuesday, February 15, 2005
George Schaefer stated: "There are three principle phases of a bear market: the first represents the abandonment of the hopes upon which stocks were purchased at inflated prices; the second reflects selling due to decreased business and earnings, and the third is caused by distressed selling of sound securities, regardless of their value, by those who must find a cash market for at least a portion of their assets."
Robert Rhea described the three phases of the bear market in a very similar way. More importantly, Rhea goes on and states: Each of theses phases seems to be divided by a secondary reaction which is often erroneously assumed to be the beginning of a bull market." Does this sound familiar or what? Rhea also states: " Such secondary movements seldom prove perplexing to those who understand the Dow theory."
Rhea says that these secondary reactions (bear market rallies) seldom prove perplexing to those who understand the Dow theory because the Dow theory student is a student of history. It now seems that the only bears left standing are all students of market history. I suspect that the market historians will likely prove once again to be right in this case as well.
A look at Value
Another longer-term historical fact that I would like to discuss is dividend yields and price earnings ratios. Historically, price earnings ratios and dividend yields have been roughly equal at bear market bottoms. When the bear market ended in 1932, price earnings ratios had fallen to less than 9:1 and dividend yields hit a high at 10.55%. In 1942, as the '42 to '66 bull market began, price earnings ratios were roughly 8:1 while dividend yields hit 8.71%. At the 1974 bear market low, price earnings ratios had fallen below 7:1 and dividend yields fell just short of 6%.
As of June 24, 2003 the GAAP price earnings ratios for the S&P 500 is at 32.85. I have recently seen reports that are showing "core" earnings are as high as 39. As of June 24, 2003, Pinnacle Data reports the S&P dividend yield to be 1.67%. It's obvious that the price earning ratios and dividend yields are at extremes as well. Unfortunately, they are at bull market extremes.
Based on today's earnings, the S&P 500 would have to sell at 303 in order to have a price earnings ratio of 10:1. Let me emphasize that this is based on today's earnings. This assumes that earnings will remain constant as the market falls. This is not going to be the case. When the market starts to fall and the consumer begins to pull back I can almost assure you that earnings will fall. No bull market has ever begun at current valuations. Based on this simple fundamental fact, how can anyone suggest that a new bull market has begun?
*(Tim Wood )
**VERY BASIC. Richard Russell hit it on the head tonight. And I have stressed dividend yields and what they tell us.
BULL and BEAR MARKETS begin and end VERY similar. ONE THING is a constant. YIELDS AT TOPS (near 3%) at BOTTOMS (NEAR 6- 10% !!!)
1980 BULL MKT began with Dow yielding around 7% YES 7% !
2000 HISTORIC LOW in YIELD 1.4% !!!
5 YEARS LATER???
ABout 2% YES 2%. Now go ahead and trade and be happy, but you are trading in an OLD CYCLICAL BULL in a SECULAR BEAR. IMHO the YIELD EVIDENCE PROVES IT!
IMHO the chart I showed of the action of the 200 and 400 WEEK SMA's PROVE IT.
KEEP your STOPS TIGHT IMHO.
I DO NOT know how or when it ends, but history WILL REPEAT, and yes you can bet on it.
SIR Greenspan goes before congress. He has one more year to go on his legacy building before he retires most beloved.
WHY WOULD any investor do anything based on his testimony or otherwise.
Either we have a sustainable economy or we don't, words are meaningless at this point, IMHO
I wonder, could the startegy of SIR G actually have worked? You know, lower rates 13 X ! to 45 yr lows, FLOOD the system with notes...liquidity.....FLOAT ALL BOATS UP!!! REFALTION here we come dodoah.
I would love to give a quick NO! maybe I should, but did homeowners SQUANDER ALL THAT CASHOUT and equity?
ISN'T/HASN'T all that money and from speculation and reflation of stock markets, hasn't that RIGHTED the almighty ship?
Or why hasn't it put is really right! THIS recovery is PALE compared to any before it, and to amount of STIMULUS applied, call it bang for the buck.
NOW companies are awash in CASH, but homeowners DID NOT take advantage in gross numbers to PAY DOWN THEIR debt, oh no they PILED IT ON!
My good thoughts go like this, had we all switched to 15 year mortgages, at lower or near current 30 yr payments.....if not NOW, down the road as these debts get paid off, we could have had a SAVINGS CASH FLOW OUT OF DEBT SOCIETY!
Free to save and invest.....HERE.....every day all day, because the BIG one was paid off....spurring the most unbelievable bull mkt in history...but we did not, alas poor homeonwer.
http://www.publicdebt.treas.gov/opd/opdpenny.htm CURRENT PUBLIC DEBT
http://www.contraryinvestor.com/2004archives/mofeb04.htm MUST READ.
FROM year ago PRIVATEER NEwsletter:
BEST OF BILL BUCKLER
August 12, 2004
Here comes the economic clincher. Total US credit market debt (government, corporate, and individual) is $37.1 TRILLION. Debt is over 300% of GDP and still growing. Total credit market debt had reached 260% of GDP in 1929 on the eve of the Great Depression. Today, US total credit market debt has doubled over the past five years. The US Treasury Department has reported that there are $44 TRILLION in unfunded liabilities in the "Entitlement Programs". That alone is more than the net worth in the country. Added up, funded and unfunded US liabilities come to $US 81.1 TRILLION. The US net international debt position to the rest of the world stood as of March 31 at $US 5.2 TRILLION. Clearly, the USA is tapped out. It is running on empty momentum…..
Consider the pace of Fed debt "monetisation", as published by Mr. Russ Winter and taken from figures on the Fed's website:
In the year (52 weeks) which ended on May 5, 2004, average weekly Fed "monetisation" (outright buying of Treasuries with newly-created Federal Reserve Notes - aka US Dollars) averaged $US 577 million per week. In the 12 weeks between May 12 and July 21, that average weekly figure jumped to $US 1,395 million, just under two and a half times the pre May 12 level. Over the last eight weeks of that twelve week period, the average weekly figure grew further to $US 1,532 million. Here are the clear tracks of the Fed "compensating" for the drop off in Japanese Treasury purchases. Here also is the evidence of the US Central Bank having to directly inflate its own currency through outright "purchase" of US Treasury debt instead of standing benignly by while the Japanese (and Chinese) Central Bank does the purchasing by inflating their own currency, the Yen. This is pure, unadulterated, unvarnished INFLATION by the US Fed which cannot fail, in time, to hasten the erosion of the purchasing power of the US Dollar.
But the Fed doesn't stop simply at "monetising" Treasury debt. It also has a practice which it calls "Permanent Open Market Operations". These are very low interest rate loans which it makes to "selected" financial institutions, as and when it deems them required. They are "required" whenever the Treasury markets look a little shaky, and or when there is a potential for them to look a little shaky, like just before a big Treasury auction, especially the quarterly refunding auctions. These "permanent injections of new liquidity" have been averaging well over $US 1 Billion per week since early May.
The Fed speaks of its "mission" as being one of fostering "sustainable growth" and its core task as being one of preserving "price stability". In its actions, the Fed has been creating new "money" at a pace never before equalled over the past three months while watching "growth" ebb away again. It has also advanced a long way on the path towards destroying the credibility (let alone purchasing power) of the currency of the United States. Remember that the next time you hear a speech from Alan Greenspan.
Ó 2004 – The Privateer
**Yes you have come to the end of today, I was really going here today! WE ARE NEAR, at an END of a CYCLE of credit EXPANSION, NOT the middle or beginning, or how do we reconcile the figures I show?
SURELY we have REINFLATED the game players........if money out of think air is your bag, the value of our DOLLAR does notlie and how it show anemic market recovery.
Now we are left with smart mouthing double talking politicians, telling us "we will pay down the debt in HALF in 5 years" but dear sirs......the debt over the next 5 years will STILL BE GROWING and PILING UP? how is that? the answer is the 50% reduction comes from the SIZE of the expanding debt, not the reduction of existing.
WHY hasn't the ever growing NEED for debt, borrowings rasised the interest rates?
Think about who prefers it that way.
We sell out to large corps, they pay REDUCED taxes for repatriating OVERSEAS profits, we set up tax system that expands class spreads and gives overly generous tax deductions to the ALREADY wealthiest individuals, we DESTROY our manufacturing base, we create housing bubble by compressing housing price gains of 15 years into 3-4, property taxes skyrocketing, inflation roaring even as GOV understates it! WE BURN OUT demand for auto's and housing and things. WE build up China into SUPER POWER. WE SELL OUT as 50% of our debt now FOREIGN OWNED.
NO ONE will OWN up to it, what price MUST be eventually paid by some future generation. Every damn program (like medicare) is sold to cost one price and its usually double triple that! ooopsss.
SS reform?LOL WHO needs a cost of $2 TRILLION PRIVATE ACCOUNTS when we already damnit have 401K's ,IRA's ,profit sharing, Roth IRA SEP etc etc etc ad nauseum!
LET the YOUNGER FOLKS add a tad more into those??!!!! too f'ing simple! let's spend $2 Trillion we don;t have!?? YOU KNOW who profits.......damn, everyone is blind.......and sometimes I wish I was a lemming.....