Thursday, March 31, 2005
Washington think tank informs us that the average annual compensation of the top 100 chief executives amounts to an astonishing $37.5 million, which is 1000 times the pay of an average worker. The top one percent of households reportedly earns 20 percent of all incomes and owns 33.4 percent of all net worth. The most astonishing feature of such concentration of wealth in the hands of a tiny elite is the utter lack of concern and comment by the American media. They apparently find nothing wrong with such glaring inequality.
We may readily agree with the media as long as the great chasm of income and wealth stems from great differences in economic productivity. Surely, we cannot fault the great American entrepreneurs who in ages past built famous enterprises employing thousands of workers and serving millions of consumers. They discovered new methods of production, opened new markets, and developed new sources of raw materials throughout the world. They succeeded by serving and pleasing consumers. Their talents of enterprise actually raised American standards of living to one of the highest in the world. And their labors bridged the wide legal, social, and economic gulf that separated the social classes throughout the ages.
The economic order that developed gradually during the 20th century gave life to yet another economic and social elite which does not seek new methods of production and does not give employment to thousands of workers; it shrewdly speculates on the effects of various government policies, such as inflation, credit expansion, and new regulations and controls. An economist who visits the new elite may actually discern three distinct branches that cooperate as readily as they feud with each other.
A large branch does not create new enterprises nor give employment to a single worker. It opens no markets nor develops new products. Its members thrive on boom-and-bust cycles which afford great opportunities to traders who observe and understand the portentous policies of the Federal Reserve and the U.S. Treasury. They may manage investment trusts holding corporate stock worth billions of dollars or merely look after their own accounts. They weigh and appraise political intention and government intervention, always gauging the consequences, acting in anticipation, and profiting immensely from political moves. While many businessmen suffer painful losses during a business cycle, they succeed in increasing their funds throughout it all.
These speculators actually render an important service. The Federal Reserve and the U.S. Treasury frequently intrude on and disrupt the smooth performance of markets, which then must readjust; they actually facilitate the adjustment. They anticipate future price movements, assume market price rick, and add liquidity and capital to the markets. Theirs is a necessary and productive activity.
A remarkable feature of this new elite is its frequent disagreements and altercations with the other branches of the business elite. Its members may find frequent fault with and cast aspersions on the elite that actually manages the production. They prefer to support and consort with the political powers that shape the economic policies, seeking the company of well-known politicians who in turn feel at ease with generous nouveaux riches.
Another branch of the new elite consists of chief executives whose compensation usually comprises a base salary and incentive options. They earn million-dollar lucre whenever the Federal Reserve blows stock market bubbles and corporate share prices soar to lofty price-earnings ratios. During the 1990s-bubble they pocketed hundred-million-dollar profits without any particular efforts of their own. They created no new industries and opened no new markets. The corporations they managed did not grow and corporate profits stagnated or even declined. But stock prices soared and CEOs reaped much lucre at the expense of their own stock holders. For every bubble profit taken is total worth consumed. It waters the stock and diminishes the property of all other stockholders. To remedy the situation, the corporation must henceforth increase its assets without increasing its outstanding shares or reduce outstanding shares without reducing assets. CEOs probably are aware of these implications, but few, if any, have ever returned their bubble lucre to losing stockholders.
The most powerful elite is yet another; it springs from political power that holds authority over the body politic. It is the natural extension of the new economic order known by various labels such as the New Deal, the Great Society, and other Democratic and Republican Deals. They made politics an important vocation and elevated politicians to positions of importance and eminence. Surely, politicians have to be ever mindful of public opinion which is shaped by the elite of education and communication. Many master the art of political communication and thus manage to perpetuate themselves in office. In their footsteps their children are laboring to forge a self-perpetuating political elite.
This country is not about to degenerate into a class-based society led by a ruling elite. Competition is a time-honored practice, a cultural custom followed from generation to generation. But, under the influence of collectivist ideologies, many politicians and journalists are ever eager to strike at successful entrepreneurs who earn much more than they do. It is difficult to ascertain their motives; it can be simple envy which consumes many men, or it can be economic ignorance. After all, market economics is barred from most universities and is unknown to leading politicians and journalists. It may explain why most politicians are ever eager to regulate industrial and commercial activity and strike at the economic elite with confiscatory taxation. Unfortunately, regulation and taxation tend to hamper economic activity, inhibit productivity, and depress levels of living. But they create ever new profit opportunities for the new economic elite.
Hans F. Sennholz
Americans' Incomes Rise ***Solidly***
Thu 8:43AM ET - Associated Press
Americans' incomes, bolstered by strong gains in hiring, rose by 0.3 percent in February while consumer spending climbed at an even faster pace of 0.5 percent, the government reported Thursday.
**Solidly my bleep! WHO didn't mention prior DECLINE of 2.3% was revised worse to 2.5% ??
SO, when 'sperts were looking for .5% GAIN in wages how is .3% SOLID? coming off addt'l .2% revision?
Wonderful SPENDING KEEPS outpacing wages?
I must really be in Willy Wonka-Land!
The lessons of the past are going ignored by most. There is NO evidence of a resumption of a NEW CYCLICAL BULL MKT, only the waning days of one....the corection to initial wave down of a SECULAR BEAR MKT.
20 PLUS year bull mkt, in general, the bear market that follows a bull mkt is usually equal to what previous extremes and intensity was experienced.....a BEAR MKT which took stocks down to PE of 30 DIV YIELD OF 1.7% was indicative of previous market tops! And instead of previous bear markets where bearish plurality exceeded 40 weeks running, we have had maybe 3 weeks during entire bear market where that was true!
ONLY MASSIVE FED intervention turned the course.
Here we are today, BOOMING REAL ESTATE MKT! now at same % of household wealth as was the holding of equities at 2000 top! a bubble? 140% of GDP.
WHat did the FED actions and BUSH policies get us?
:New tax policies favoring the RICH.
New BAnkruptcy laws making it harder to disgorge debt.
A WAR PResidency.
POLICIES aimed at increasing CONSUMPTION......we cannot keep up with demand so we IMPORT MOST of what we need.....hence....loss of over 2.5 Million manufacturing jobs, and the building of CHina as SUper Power, in many cases companies have become marketing arms of these companies not even associated with design phase or any phase except marketing.
Total CREDIT MARKET DEBT exceeds any past EXTEME now near 315% of GDP! if we keep current pace we will end 2005 near 350%! UNHEARD OF IN MODERN TIMES.
GOV LIES and manipulates data to show LOW INFLATION, especially by NOT INCLUDING HOUSING PRICES!!!!!!!!!!!!!!!!! instead using a RENTERS INDEX and THAT makes up nearly 25% of CPI !!!
(I have just raised MOST of my prices 10%) !!
FED action caused CHinese demand to grow for raw materials sending CRB to 20 plus yr highs along with OIL STEEL etc prices skyrocketing....WHERE do these price increases show?
OVER 30% of housing sold in 2004 for 2nd home or speculation!
GM's $300 BBBAAABILLION in debt near JUNK STATUS...
FANNIE MAE stock COLLAPSED.
WMT right at 52 week low....as is JPM !! The leaders of tech MSFT CSCO INTC have gone nowhere.
200 WK moving avg's are converging on 400 WK...not seen in 10 maybe over 20 years.
We are in RISING INTEREST RATE ENVIRONMENT.....this is NOT STOCK FRIENDLY! 3 steps and stumble rule are now 7 steps.
KUDLOW has OWN SHOW.
CRAMER has OWN SHOW, and is allowed to hype his own positions......he is shown as investment GURU.
Commercials abound for learning how to trade stocks and sell real estate for a living....anyone can do it!
LONG TERM TRIN ABOVE 1.0 55day and longer.
Now MOST of AMERICA OWN their HOME....has a NEW CAR.....we have excessively borrowed from FUTURE DEMAND, only gov spending left to spur economy?
With a SAVINGS RATE NEAR ZERO, and DEBT Up to their eyeballs....AMERICA is ILL PREPARED for a less than perfect landing.
all imho DURATEK
Wednesday, March 30, 2005
NDX right up to 20 EMA
VIX dropping like stone.
LOW LOW TRIN (bearish)
HIGH VOLUME ON DOWN DAYS, WEAK VOLUME TODAY, end of month operator window dressing, IMHO APRIL can be brutal.
Tuesday, March 29, 2005
TIME TO BE WARY Real Estate assets have risen to 140% of GDP!!! same as the bubble stocks did in 2000 !
Mere coincidence? My ass! Greenspan and cohorts supplanted ONE bubble with another, as they play their deadly game of talking down inflation in their Goldilocks economic scenario that couldn't be farther from the truth!
Let me add a stat I have mentioned before. More than 30% of all homes bought last year were for 2nd homes or speculation!
HOME IS THE HEART OF THE MATTER CONTRARIAN INVESTOR APRIL 2004
2000 BUBBLE consisted of very LIQUID stocks, but now consists of very ILLIQUID HOMES.
SKYROCKETING homes sales are NOT an effect of growth in wages and incomes which have been stagnant, but merely historic low interest rates and liquidity.
Is it good that last year about ONE out of every THREE homes were not for a primary living space?
We are in uncharted territory my friends, but as history has shown us, we ALWAYS REVERT BACK TO THE MEAN .
That would mean much pain for the many unprepared.
STock prices can jump around, and there is little fear, bu it doesn't mean something isn't lurking out there, something totally out of control.
Monday, March 28, 2005
End of days action shows smart money exiting, IMHO
NAZ prints at days low. VOLUME weak action NOT bullish IMHO
Sunday, March 27, 2005
The Markets and GLOBAL economies are being levitated by a SEA OF LIQUIDITY from the Central Banks. A specific date for an end cannot be predicted but an END will come to this game.
GOODS being shipped in from ASIA may not be going up much (because of dollar peg) as other currencies are being kept weak by forced dollar buying, but all else is RISING..health care energy, food housing, tuition.
The FED may try and talk out of both sides of their mouth, by dear readers they aren't FOOLING all of us!
And it is taking ever more $$ of debt to turn into a $ of GDP, we already have surpassed any historic precedent when it comes to liquidity, money supply growth debt etc, there is no EASY way out.....down.
Imbalances and investment are so screwed up and misallocated there is no easy way out.
I feel a crash of unprecedented severity could occur at ANY TIME, IMHO.
The JUICE BAR is still open, but for how long can you squeeze lemmons into lemonade!?
Saturday, March 26, 2005
Conclusion for those who won't read the whole tirade:
We are in the early first round of what will surely be a challenging period of heightened financial instability and uncertainty. The financial backdrop is changing, although I would expect fits and starts, unpredictability and global market bouts of manic-depressive disorder. It is, however, often a case of crises taking much longer than one would expect to develop, only to unfold rather quickly once in motion. Still, recent views of a U.S. and global slowdown, if they come to be supported by economic developments, would be expected to take some pressure off of the U.S. interest rate markets. I am at this point skeptical that growth is poised to slow quickly and sufficiently enough to contain rising inflationary pressures (look at bank Credit!). More likely, I expect continued pressure on interest rates and the leveraged players. That the Leveraged Speculating Community is arguably immersed in The Most Crowded Trades in History leaves one apprehensive. U.S. asset markets have become addicted to low rates and abundant liquidity. The global economy and markets have similarly grown liquidity dependent. Today’s market instability and resulting heightened risk aversion are Speculator and Liquidity Unfriendly. And there is always that specter of a whiff of smoke being sniffed in the exceedingly crowded theater.
ALSO Broad money supply (M3) declined $11.8 billion to $9.49 Trillion (week of March 14). Year-to-date, M3 has expanded at a 1.3% rate.
The FED wants YOU to believe its policy is for TIGHT MONEY But it is not. Raising a paltry .25 pt each meeting is a JOKE! NOT nary keeping up with inflation, all the while they keep PUMPING the system with MONEY! JUST LOOK at all the bank credit in Noland's report.
ALL we get from officials/FED is LIES and manipulation. They were in the market BUYING TREASURIES in latest week, to try and KEEP long rates down? Or to use that money in their operations to keep PUMPING the primer. JUST look at last weeks housing data STILL ON FIRE, are they really trying to cool that market?
My companies Health Care plan going up ANOTHER 20% even as the bastards made $100 M last year.
Have we lost count of the multiple bubbles formed? THE POP will be heard round the world.
ME, I keep rasing cash levels, I will be prepared to ACT when REAL VALUES appear again.
Thursday, March 24, 2005
WILL this JUMP START THE STOCK?
CPC to .45 and VIX falling.....NO FEAR even after a sharp decline....downtrend will resume after some retrace, IMHO JUST operators at work.
EXTREME McClellan reading oversold, rally could take hold
Wednesday, March 23, 2005
By Adam Shell, USA TODAY
NEW YORK - Tales of quick riches, supersized gains and waves of "buy!" orders for tech stocks have been replaced by a new kind of speculation on Wall Street: bets on when, if ever, the once-mighty Nasdaq will ascend to a new peak.
The Nasdaq market marquee in New York's Times Square displays a drop in the market on Feb. 24, 2003.By Rich Kareckas, AP
It's been five years since the Nasdaq composite NASDAQ notched its record close of 5048.62 on March 10, 2000. While most milestones and anniversaries are cause for celebration, the memory of the hissing sound of the deflating stock bubble, rather than the signature pop, pop, pop percussion of exploding champagne corks, is the sound more likely to greet investors.
There are legitimate reasons for investors to embrace a more sober view of the Nasdaq. The most obvious negative is the fact the technology-packed index remains 59% below its high, despite standing at 85% above its bear-market low. In contrast, the blue chip-dominated Dow Jones industrial average is flirting with 11,000 and is just 8% off its peak.
History also waves a big caution flag. The aftermath of past speculative bubbles has been painful for investors. Of the giant boom/busts of the 20th century - the 1929 stock market crash, the gold rush in 1980 and the super spike of Japan's Nikkei stock index in 1989 - only the Dow, which plunged 89% from its 1929 peak, has eclipsed its post-crash high. But it wasn't easy: It took more than 25 years for the Dow to accomplish that Herculean feat, according to Ned Davis Research. The Nikkei is still 69% off its high, and gold is 48% below its peak.
"It's important to remember that bubbles - once popped - do not easily reinflate," says James Stack, president of InvesTech Research.
The Nasdaq composite index over 10 years.
There's a wide range of predictions and theories on when the Nasdaq will post fresh highs, and what it would take. Forecasts range from a super-aggressive four years, to a decade, to a generation, to a lifetime.
The consensus is that it will occur later rather than sooner. Here are 10 reasons why stock market experts do not expect a speedy recovery for the Nasdaq:
1: Flashback to go-go '60s?
Working off excesses takes time. There's a strong chance the Nasdaq will go sideways and "remain flattish" for a very long time, just as the Dow did after a big rally pushed the blue-chip gauge above 1000 for the first time in 1966, says Carl Haacke, author of Frenzy: Bubbles, Busts, and How to Come Out Ahead, and economic policy adviser to President Clinton.
Driven by investors' fascination with the so-called Nifty Fifty stocks, such as Kodak and Xerox, the stock market racked up big gains until being stopped in its tracks by the 1973-74 bear market. In a market punctuated by periods of mini-bull markets and mini-bear markets, it took the Dow 16 years to hurdle 1000 for good. This period feels similar, Haacke says.
2: A "perfect bubble" is unlikely to be repeated soon.
Investors' fascination with tech stocks in the late 1990s was fueled by a powerful one-two punch, notes Jeremy Siegel, finance professor at The Wharton School. The key drivers: the emergence of the Internet and Y2K fears, which sparked a blitz of buying of tech gear in an attempt to avert computer meltdowns when the calendar turned from 1999 to 2000.
"You had the culmination of these very important factors that generated huge amounts of attention," Siegel says. "But both turned out to be one-time events that resulted in the 'perfect bubble.' "
3:People have memories.
The wildly inflated valuations of tech stocks were never justified, adds Siegel, whose latest book about stocks, The Future for Investors: Why the Tried and True Triumph Over the Bold and the New, was published this week. The book advises investors to avoid chasing hot stocks and to buy stocks that pay dividends instead.
"People learn. People have memories," Siegel says. "When they look back, they say, 'That was crazy,' and conclude that maybe the Nasdaq shouldn't reinflate."
4: Caterpillar is not in the Nasdaq.
With growth in China white-hot, big energy companies and Old Economy products such as earth-moving equipment and truck engines made by big industrial companies such as Caterpillar CAT are hotter commodities than computer chips, says Stephen Coleman, chief investment officer at Daedalus Capital.
Dub it the "Caterpillar" rally. The big stock market gains these days, and since the bubble burst, are coming from Old Economy stocks, not tech stocks. Since the Nasdaq peaked, Caterpillar is up more than 170%, and Microsoft is down around 50%.
When asked why the Nasdaq is faring worse than the Dow this year, Coleman responded: "Because Caterpillar isn't in the Nasdaq, and neither is Exxon." These non-tech names, Coleman adds, are also where the earnings growth is. Analysts expect Caterpillar earnings to grow 29% in 2005. Exxon posted 55% growth in 2004 thanks to high oil prices, a trend that shows little sign of abating.
5: Profit growth for tech giants has slowed.
The mega-cap tech stocks, such as Microsoft MSFT and Cisco Systems CSCO, that powered the Nasdaq during the late 1990s, have experienced a sharp slowdown in profit growth. In 1999, Microsoft was the biggest stock on the planet; its earnings grew 40%; Cisco earnings jumped 32%.
But those days are over. Analysts expect Microsoft's earnings to grow just 4% in calendar 2005, and see Cisco's growth rate at 14%, Thomson First Call says.
"Growth rates at the big tech firms have slowed to a crawl," says Gary Kaltbaum, president of money management firm Kaltbaum & Associates. "Companies like Microsoft and Cisco are never going to be what they used to be."
Slower-growing big-cap techs will make it more difficult for the Nasdaq to blast higher, Kaltbaum adds. The index is weighted by the market value of its components, which means the biggest companies have the greatest impact on its returns. Even if smaller tech firms innovate and are rewarded with higher stock prices, it will be tougher for tiny companies to drive the index dramatically higher.
6: The "hot money" has moved on.
The so-called smart money, such as hedge funds, tends to flock to areas of the market that are enjoying the biggest price appreciation. That's another negative for the Nasdaq, which has lagged the overall stock market, oil and real estate this year.
"The hot money wants to get into what is working," Kaltbaum says. "More and more, the hot money sees the Nasdaq is not working, so they are going into other areas."
7: Old leaders tend not to lead new bull markets.
The big winners of one era are rarely the big winners in the next boom, says Marc Klee, manager of John Hancock Technology fund. He notes that energy, the big winner in the '70s, didn't regain its leadership position until last year. Similarly, growth stocks, or companies with accelerating earnings, dominated the 1990s, but value stocks, undervalued names with solid balance sheets, have led since the market topped in March 2000.
"It's tough to hold the leadership mantle on a sustained basis," Klee says. "For tech to become a megamover again, we'll probably have to wait a few market cycles."
8: Even a 100% gain isn't enough.
Another psychological downer is the fact that even if the Nasdaq doubles in value from current levels, it would still fall 18% short of its March 2000 peak. "There's a lot of headroom to get back there," Klee says.
9: Tech stocks are still not cheap.
As the Nasdaq neared its top in February 2000, the index was trading at 246 times earnings, InvesTech Research says. While tech stocks are not selling anywhere near those rich prices today, they still remain overvalued, InvesTech's Stack says.
The P-E ratio of the Nasdaq 100 is currently 30, which, prior to 1996, was considered a "peak" level, Stack says. In October 1990, at the start of the great bull market of the 1990s, the Nasdaq 100 P-E was closer to 15. "Bottom line, one could hardly call the majority of Nasdaq stocks bargains at today's levels," Stack says.
10: History says more pain is to come.
In the grand scheme of bubble aftermaths comes a decidedly pessimistic observation from Pete Kendall, co-editor of Elliott Wave Financial Forecast.
"The historic pattern is for manias to retrace the entirety of their advance," he says. In other words, before this is all over, Kendall says the Nasdaq will plunge back into the "triple digits," the level it was at in the early and mid-1990s. Says Kendall: "The Nasdaq still has a ways to go" - down.
But just because something goes up a lot, then goes down a lot, doesn't mean it can't go up a lot again, other experts say. Just as there are good reasons why the Nasdaq will stay down for the count, there are reasons why the Nasdaq might surprise people and levitate more quickly than some pundits think.
If tech has one thing going for it, it is its ability to come up with the next big thing, says Kevin Landis, chief investment officer of Firsthand funds. "I'm looking out my window in Silicon Valley, and it looks as dynamic as ever," Landis says. "There will be another generation of companies and another wave of technology."
He points out that new technologies and new markets are built on the success of past successes. The PC, he says, paved the way for the Internet, and the Internet paved the way for networking companies. Today, there's whiz-bang TV technology, cell phones that take pictures and satellites that beam radio into cars. Tomorrow will bring fresh innovation. "It's time to question the fear-driven markets and look for opportunities," Landis says.
The next big bull in the Nasdaq will come "when there is such disinterest, and they get so underowned - that is when the big move can be made," Kaltbaum says.
Don't rule out the chance of another bubble. "Bubbles will increase in frequency," Haacke says. "There is huge incentive for the world stock of capital to chase the next bubble. So whatever looks like it is the next hot thing in the global economy, tremendous amounts of money will move there very quickly."
Why not tech?
For more of Pete Kendall's insights, you can read the March issue of The Elliott Wave Financial Forecast. Click here to begin a subscription.
Story Stocks Updated: 23-Mar-05
Quotes at time of story, top stories today:(ADBE 10:55)
Mar 23, 10:55am ETAdobe Systems (ADBE) $67.18 +0.82 The last time we wrote a Story Stock on Adobe, we noted that some of the luster had come off the potential for the company and was reflected in the shares. Today, it appears that some of the fears from our last story have arrived. Google has released free software that includes many of the same features as PhotoShop, a core product in Adobe's suite, of which Acrobat is the flagship. A core element of most positive recommendations for Adobe in the past six months has been the growth of digital photography. Expectations were high that digital cameras and camera phones would be among the top sellers in the Christmas season. The rationale was that manipulation of digital photos would be the natural progression to the growth of digital cameras, to take out the hated "red eye," improve the contrast, or crop out the ex-boyfriend. The expectations were that Adobe would be the natural beneficiary of this new cultural adoption of digital snapshots. However, that's not what happened. Instead, it appears that what most consumers like to do is upload their photos to websites where they are easily shared with friends and family. In fact, now that this trend has become obvious, there have been a number of M&A deals recently in this space, including Hewlett Packard snapping up SnapFish, one of the most popular sites. Yahoo has also got involved into the space with a recent purchase of a similar entity. So how does this change of expectations for the future of digital photography affect Adobe? Certainly expectations that PhotoShop would become the widespread standard for consumers have fizzled. The model for the internet "photo-album" sites provides free storage space to build a free storage up front, with the idea of selling add-on services of various kinds. PhotoShop is far more advanced than most web-site based digital photo Java-script software, but the single-computer-license model doesn't fit this new model. Until Adobe decides to somehow drastically alter the business model for PhotoShop, there probably won't be a revival of expectations that PhotoShop will benefit from the inevitable digital photography boom. Adobe Acrobat, now at Release 7.0, is still the industry standard for electronic document distribution. However, like many software products, it is hard to make an argument that anyone really needs Release 8.0, whatever features it might contain. Adobe, like many other companies in the industry, has matured as a business. How strong growth is generated now is This speaks to the idea that Briefing.com has been stating for some time, that the software industry has reached maturity. Going forward, growth will likely only come through acquisition for most software companies. At this stage, Adobe is clearly a hold, not a buy and not a sell. The company needs to somehow explain to Wall Street where the next growth wave is. The "digital photography boom" argument probably backfired, since that boom definitely arrived, but it turns out Adobe had the wrong kind of surfboard. It won't be enough now to simply point to the next coming secular boom. Adobe will have to prove they have the right product at the right time.
Mar 23, 09:08am ETPage One - CPI Adds to Inflation Woes : The CPI this morning has heightened concerns about inflation raised yesterday by the Federal Reserve. Market conditions are not getting any better.Yesterday, the Federal Reserve raised the fed funds rate target 1/4% to 2 3/4%. That was fully expected. They also kept the measured approach language in their statement. The market was roiled, however, by Fed comments about inflation. The Fed statement that inflationary pressures were building and that pricing power is picking up was, in fact, nothing spectacular. Those trends are clear to anyone that has looked at the inflation data and read recent corporate statements. It does, however, reflect significant concern on the part of the Fed and that means rates are going higher. Perhaps significantly higher. The CPI data haven't helped. February core CPI was up 0.3%. It was expected at 0.2%, and had been at that level for four straight months. If it settles into a pattern of 0.2% to 0.3% per month, that would be a 3% annual rate. That is up sharply from just above 1% a year ago. If the core CPI runs near 3%, the fed funds rate may have to head towards 4% given the strength in the economy. That would imply a 10-year note yield of as much as 5 1/2%. The outlook for higher inflation and interest rates is a definite negative factor for the stock market right now. The market will remain extremely sensitive to any bad news on inflation, while good news on inflation will be seen as aberrant. The view is shifting. The corporate news is better. After the close yesterday, Oracle produced what appeared to be a good earnings report for the February quarter. Profits and revenue were ahead of expectations for the February quarter, and the company said current quarter profits would be better than Wall Street expected. Some analysts were disappointed by the makeup of revenue, but the report overall is good. Economic and earnings data will continue to be bullish for the stock market. Inflation and interest rates will not. The market is priced for the good news, but not the potential bad news. Economic growth is not likely to exceed already high expectations, but the market will continue to struggle for a while as it incorporates a new inflation and interest rate outlook.Dick Green, Briefing.com
Briefing.com is the leading Internet provider of live market analysis for U.S. Stock, U.S. Bond and world FX market participants.
BArnam was right....
Tuesday, March 22, 2005
BZH homes was GREAT short again at intrday $160 today.
Cramer was GONGING stock market on his show...time to LOAD UP? LOL
Money Market/CASH almost as good as best yielding stocks (still at historical LOWS in yield) and Utes
My friends, REVERSION to the MEAN is something nobody can change, the FED and BUsh has prolonged and made worse the adjustment.
SOLD out to foreign creditors, going BUST domestically, since 2002 bottom, we have had reprieve and SMART MONEY has LOVED IT! distribution complete....got their chance to get out and make money back!
MOST don't see it. The door COULD close anytime.
VIX is beginning to break out.
SPX support looms, but MACD breaking down.........be careful.
GOOD chance we are headed to test 4.90% and would pressure equities, WHERE is flight to quality?
Remember my post weeks ago about CASH!? I'm not so stupid after all.
I am keeping this short, traders only in this market, IMHO SEVERE TECHNICAL DAMAGE DONE.
NEW LOWS OVERTAKING NEW HIGHS.
UPWARD PRESSURE ON RATES.
BOND HOLDERS RESTLESS?
CASH IS KING
Sunday, March 20, 2005
Health Care UP UP and away
Building materials WAY up.
COST of a home up near 100% in 5 years (not all areas)
But if INFLATION is too MUCH money chasing TO FEW GOODS, we have none! we have SLACK in manufaturing and have added TONS overseas! WE ARE flooded WITH PRODUCT FOR CONSUMPTION. *(cept demand for steel and commodities from China inflationary)
What we don;t have is SAVINGS, and so we have Capital degredation...lack of direct investment.We depend on GOV spending/borrowings to keep us out of Recession, but GOV spending is a debt we must all pay....it is destructive, it takes away from private sector spending and investment.
We are near a point of TAX HIKES and entitlement cuts.We are BEYOND any previous CRDIT EXPANSION, and THIS time it has been almost totally for CONSUMPTION>LOW LOW interest rates have come at a dear cost.....and we are all screwed next time around it is apparent to even the brain dead something is terribly wrong.Investing LONG in a rate HIKE environment where DEBT is at historic highs.....well it seems like not so good an idea.
We have already set historic records of debt. We have borrowed the world's savings to fund our consumption. A consumption society we have, our capital stock has suffered.
GOV spending becomes a larger part of GDP, any slowing in GOV spending weakens GDP, any GOV spending weakens private sector investment.
We had double whammy, increased GOV spending and HISTORIC TAX CUTS and FED STIMULUS.....it has resulted in the WEAKEST growth in wages and jobs in history.
GREEN BUM from NOV 2003
"Spreading globalization has fostered a degree of international flexibility that has raised the possibility of a benign resolution to the U.S. current account imbalance," Greenspan said in his speech to a monetary conference at the Cato Institute." (this guy is oN ACID!)
WASHINGTON -- Federal Reserve Chairman Alan Greenspan said Wednesday the economy had been showing "impressive gains," even as he warned that mushrooming federal budget deficits could derail the progress. (what the????)
We in a heap a trouble Pilgrim!
Friday, March 18, 2005
THIS IS HOW IT IS, ECHO'S MY SENTIMENTS, AND GETS TO CRUST OF THE MATTER. OUR HAS-BEEN WORK FORCE BY THE FED AND BUSH HAS BEEN HAD! And sold out
AGAIN THIS AM, TAKE OUT OIL!!!!! AND WELL NO INFLATION! LOL
Thursday, March 17, 2005
Only the 3rd gain over the last 9 months -- very deceiving perspective on the strong, broad-based economy running at 4%.
In Feb: 4 declines, 5 gainers and one unchanged.
Workweek with the strongest decline followed by the interest rate spread, building permits and consumer expectations.
**Market is grossly oversold, let's see what it can do. Fri is triple OPEX day.
Wednesday, March 16, 2005
http://www.investopedia.com/articles/trading/03/040903.asp TUTORIAL Triple Screen Method!
what bothers me most, have you noticed after early PM rally to induce in new meat, bonds had rallied quite a bit.
Now selling has INTENSIFIED again and Bond prices are at worst levels (yield recovered).
Market is on more shakey ground than most understand, IMHO
WHat is happening to GM, higher costs
DETROIT (AP) -- General Motors Corp., the world's biggest automaker, slashed its earnings projections Wednesday for the first quarter and the full year, citing lower North American sales and production, an inability to raise prices and higher expenses for items such as health care. Its share price tumbled to its lowest level in more than a year
WATCH the close friends, WEAK there, the big money is selling IMHO
y/y grew 25%!
Now textile quoto's are gone....the REAL TSUNAMI is occuring right HERE in this country.
INDIA will STEAL our Service Sector as China stole our manufacturing, and the US GOV FED and BIG Corp's etc will be complicit in it.
ALL this wonderful backdrop and NO ALARM sent out about the rampant SPECULATION that has and IS occuring in the housing sector..condo's being built and sold so FAST in FLA you think we were ALL retiring today....
My rhetoric hasn't changed, my timing is about to get better.....I have held my position during the sideways drawl.....watch the VIX,,,,watch BONDS...we already KNOW the volume on DOWN DAYS EXCEEDS that of any rally.
Break of 1500 decisively IMHO portends LOWER prices for the weaker NDX. 1200 already broken in SPX. GM leading futures down, WILL the buyers come in today to STEM the losses or turn the tide? OR WILL the hedgies go way of least resistance?
Pull up chart on NEW and see weakness in that sector.
TIDE HAS TURNED IMHO and WHERE are those financing arm profits?
Tuesday, March 15, 2005
Feels like the DAM could bust anytime
Please send your comment and suggestions to firstname.lastname@example.org
Low Volatility Pointing To Some "big Moves" In Investment Markets!Many commentators have recently pointed out that volatility in both the bond and stock markets around the world has been unusually low and that from the current low levels of volatility big market moves will emerge.
Financial pundits also expect these moves in the financial markets to be likely on the downside. And while I tend to agree that volatility will sooner or later rise, an increase in volatility does by itself not necessarily imply that rising volatility will lead to market sell-offs. As an example, extremely low volatility in the bond market gave, in early 1987, way to a sharp sell off in bond prices and a rise in long term bond yields from 7.14% to 10.23% (bond prices bottomed out a week before the October 19th stock market crash). Conversely, low volatility in April 1998, was followed by a sharp rise in bond prices. 10-year government bond yields fell from 7.11% to 4.11% and bottomed out, in September 1998, in the wake of the LTCM crisis. So, all low volatility is suggesting is that a "big move" is coming but it does not convey the direction of the next big move.
Now, in the case of the stock markets around the world we have record low volatility (see figure 1) and in the case of the US, the VIX volatility index is hovering near a ten years¡¦ low. In fact, as can be seen from figure 1, world equity implied volatility is at present far below the average volatility of the last 10 years. So, all we can say is that within the next few months a large stock market move can be expected, either up or down.
Figure 1: World Equity Implied VolatilitySource: Bridgewater AssociatesBut the question is obviously whether an upward or downward move in stock and bond markets is more likely. For equities, most indicators do seem to suggest that the next big move will be on the downside. Financial institutions have a record low level of cash hence there is little buying power left. Insiders continue to sell heavily.
The public and fund managers are very bullish about the prospects of equities ¡V a contrary indicator, which would rather point to a sell-off in equities. Moreover, global liquidity has been tightening. Earlier in the year, I showed that money supply growth had been decelerating. My friends at Gavekal Research compile a global monetary indicator (see figure 2) that suggests tighter global liquidity, which is usually not very favorable for investment markets.Figure 2: Gavekal Monetary Indicator, 1991-2005Source: Gavekal ResearchIn the eyes of the American Federal Reserve the US economy appears to be sound (it is not) and, therefore, the Fed is likely to continue to raise short term interest rates ¡V that is unless the US economy weakens suddenly once again badly. Therefore, we should assume higher short term interest rates and tighter liquidity for the foreseeable future, which should not be good for equities.
Admittedly, the S&P made a new recovery high in the first week of March, but strength was concentrated in energy and basic material stocks while financial shares are underperforming. Usually, when financial stocks are under-performing while oils are strong the market is in the last stage of a bull market. In addition, stock markets appear - after their recent renewed strength - to be overbought. This would especially apply to emerging markets, some of which had almost vertical upward moves. At the same time corporate bond spreads are at record lows, suggesting widespread complacency about risk. So all in all, as far as stock markets are concerned it is more likely that rising volatility will give way to possibly severe market downward moves.
For bonds the picture is murkier, since bullish sentiment on bonds is rather leaning on the bearish side. Still, bonds would seem to be vulnerable as either economic growth could surprise on the upside or as "visible" inflation accelerates. By "visible inflation" I mean inflation that would show up not only in asset markets like housing, equities, art, and commodities but would manifest itself in sharply higher CPI figures, which are at present kept through statistical anomalies artificially low. Therefore, I lean toward the view that the next "big move" in bond prices, given the risk of higher inflation and higher short term rates will rather be toward the downside. Needless to say that rising short and long term interest rates would not be favorable for the housing market.I have pointed to the vulnerability of sub-prime lenders before.
Robert Prechter recently produced a figure of a sub-prime lender index, which measures the stock market performance of several sub-prime lending companies (see figure 3)Figure 3: EWI Sub-Prime Lender's IndexSource: Elliott Wave InternationalIn fact, all financials including Fannie Mae, and mortgage, credit card and sub prime lenders, and providers of financial guarantee products such as Capital One Financial (COF), Countrywide Financial (CFC), Accredited Home Lenders (LEND), New Century Financial Corp (NEW), MBIA Inc (MBI), MBNA (KRB) appear to be rolling over.
JP Morgan Chase (JPM) ¡V heavily exposed to derivatives - is also not performing well. As observed before, strength in oil stocks and weakness in financial stocks is usually not a particularly favorable omen for the stock market. In addition weakness in the shares of mortgage lenders is not a positive indicator for the housing industry. We are short some of the financial shares mentioned above and are looking to renter the homebuilders from the short side on any sign of weakness (see figure 4).Figure 4: Parabolic Rise of Homebuilders, 1994 - 2005Source: Elliott Wave InternationalAs can be seen from the above figure, the S&P Homebuilding Index has risen ten-fold since 2000 and seems to be getting extremely overextended.
This particularly in view of the weakness in financial stocks I highlighted above.What about industrial commodities? From figure 5, we can see that there is a close correlation between Foreign Official Dollar Reserves (FODOR) and Crude Oil Demand (the same correlation exists between Foreign Official Dollar Reserves and industrial commodity prices).Figure 5: Foreign Official Dollar Reserves & Crude Oil DemandSource: www.yardeni.comAs can be seen from figure 5, FODOR growth has been decelerating, which confirms the tighter liquidity argument I made above. And since there is a close correlation between oil demand and industrial commodity prices, I would expect under normal conditions oil and other commodity prices to ease in the near future.
I am saying under "normal conditions" because oil prices could rise much further if geopolitical tensions increase. In particular, US air strikes on Iran and Syria have become a distinct possibility and could lead to soaring prices. I also admit that copper prices have recently broken out on the upside from their yearly trading range. However, the breakout is not very convincing and might turn out to be a false breakout move.
As an aside, I may also add that when FODOR growth slows down, the US dollar tends to strengthen. So, whereas I remain wary of industrial commodity prices I maintain my positive stance toward the grains, about which we wrote a month ago.Wheat, corn and soybeans have all strengthened recently and we would use any weakness as a buying opportunity (see figure 6)Figure 6: Soft Commodity PricesSource: Gavekal ResearchI have mentioned before that since October 2003 all asset markets including equities, bonds, art, commodities and real estate have inflated in concert.
At the same time volatility and bond spreads have been coming down to almost unprecedented lows while sentiment among investors is either very bullish or at least extremely complacent. This would suggest to me that risks have been rising and that the next "big move" in asset markets could be to the downside.Finally, we should not forget that January was a down month for the stock market in the US, which is usually quite a reliable indicator for the market¡¦s direction during the year.
So, while I am not ruling out some more upside potential for the US stock market until mid April, limited upside potential could give way, at any time, to a sharp increase in downside volatility. Thus, the high risks in buying US stocks and other extended asset markets (real estate in the US, and industrial commodities) at this point would, in my opinion, hardly justify the very limited near term upside potential that might still exist in the asset markets.
Disclaimer : The above views are the personal opinions of the author and do not represent the views of Quamnet.
Monday, March 14, 2005
TOP is IN or VERY NEAR, and a CRASH in real estate is almost guaranteed.IMHO
30% of homes bought in 2004 for specualtion. 30% of homes over $300K were adj mortgages. Median home prices on decline.
An OBVIOUS breakout above 4.90% would be catostrophic to economy.
IMHO WEAK rally today most in last 1/2 hour, dull volume, a reprieve before MORE selling shortly.
Sunday, March 13, 2005
ALmost all Market Indexes recorded recorded KEY REVERSAL WEEKS! This occurs when an INDEX makes a NEW weekly HIGH but closes DOWN for the week.
Remember end of FEB I posted we were entering a Bradley TURN WINDOW that ended MArch 4th. IMHO this time frame marked a HIGH for the market during this period.
Interest rates are on the rise and have broken ABOVE key resistance areas, a negative for the market. FED meets again later this month, a qtr point rise is expected. MM funds are approaching utility yields and have little risk.
CRB index broke to new 24 year highs, ANY suggestion no inflation is either lying or stupidity.
Weakness among most HOME BUILDERS and FINANCIALS. There is little or NO leadership in market now. Relative strength has waned during rally.
Both Korea and Japan have publically mentioned need for diversification into other currencies, which either means SELLING US ASSETS or BUYING LESS dollars/bonds, IMHO.
That, the deficits, and a TIRED 20 PLUS yr bull mkt in bonds lead me to believe we have seen the near term lows in rates and we should be leading us to test 4.90% in 10 yr.
A MORE defensive position is warranted IMHO. or KEEP rolling the die.
Saturday, March 12, 2005
Friday, March 11, 2005
NONE of the tech bellweather hyped earnings reports or updates in last 2 months have elicited a tech led rally, not IBM,DELL,MSFT,GOOG,CSCO and twice INTC.BWTDIK? just another stupid observation.
As I type INTC DOWN 60 cents! NOT bull mkt ACTION,IMHO
Bond yields UP....rubber is ON the road.
Employment Numbers Without the SpinMarch 10, 2005
Last Friday the report that February payroll employment increased by a monthly 262,000 was greeted with great enthusiasm by the stock market and most economists. This was the 39th month since the official recession bottom in November 2001. The following is an attempt to put this number into perspective without the spin.
In the previous five expansionary economic cycles the average increase in employment over the first 39 months was 10.1%. In the current cycle the increase is 1.5%.
If employment had climbed by 10.1 % since November 2001, we would have added 13.2 million jobs instead of the 1.9 million actually reported. That’s a difference of 11.3 million jobs.
If we did add 13.2 million jobs on the current cycle, the average monthly increase would have amounted to 338,000. Instead the monthly average increase has been only 50,000, and we have exceeded 300,000 in only three separate months out of the 39.
How about the last 12 months when the economy added about 2.4 million jobs? That amounts to a rise of 1.8%. In the previous five cycles, however, employment increased by an average of 3.4% over the last 12 of the 39 months. Had we done that in the current cycle, the increase would have come to 4.5 million, a difference of 2.1 million.
In the last 12 months the economy added an average of 198,000 jobs a month. In the prior five cycles the economy added an average of 370,000 a month in the last 12 of the 39 months.
The sub-par employment growth is reflected in comparable below average growth in wages and salaries. Consumers, however, have maintained their spending patterns by running down savings and racking up debt aided by record monetary and fiscal stimulus, resulting in the twin trade and budget deficits. A careful reading of Chairman Greenspan’s recent speeches and testimony indicates that he is concerned about these problems as well. Please see our comment, “What Keeps Greenspan up at Night” (February 17, 2005).
Why the Dollar is Falling
By Antony P. Mueller
[Posted March 8, 2005]
When confronted with complaints about the falling value of the dollar, the U.S. official is said to have responded to his European visitors: "The dollar is our currency, but it's your problem." That was in 1971. The politician to whom this statement is attributed was John Connally, who at that time served as the secretary of the U.S. Treasury. His boss was Richard Nixon, the same President who used a word for the Italian lira which politeness prohibits repeating. Nevertheless, Connally and Nixon made clear how matters were.
In the meantime, the Italian lira no longer exists. It has merged into the euro, when the single European currency was established in 1999. The endeavors to create a common currency had begun in the early 1970s, when the Europeans began to construct their own currency systems based on stable exchange rates and off the dollar standard.
The Bretton Woods System (named after the resort where the conference took place in New Hampshire in 1944) bestowed a singular privilege to the U.S. when the dollar became the point of reference for the new currency system. With the other member countries fixing their currencies to the U.S. dollar, and the U.S. dollar officially fixed to gold at 35 dollars per troy fine ounce, it seemed as if an ideal combination had been found to avoid international monetary disruptions.
The gold anchor was meant to curb an excessive production of U.S. dollars. When foreign countries had a trade surplus, they theoretically could have used the excess dollars and asked the U.S. to exchange them for gold. With a fixed parity between dollar and gold, this would have restricted dollar creation. However, France was one of the only countries that took the agreement literally and demanded that the U.S. exchange the earned dollars for gold instead of accumulating them as international reserves like other countries did which had persistent current account surpluses such as Japan and Germany.
The system as it evolved in the 1960s provided a free ride for the United States, and it did not take long for the U.S. to abuse this privilege. Pursuing the goal of expanding the welfare state along with ever more active foreign military involvements, the U.S. could no longer fulfill the agreement of making foreign currencies exchangeable into gold. The gold shortage of the late 1940s and of the 1950s had turned into a dollar glut. World inflation began its rise.
Under the transformed system, the need for adaptation was unilaterally transferred to foreign currencies. The system, which had once foreseen the change of currency parities as the exemption rather than the rule, entered into a phase of high instability when fixing and re-fixing of foreign currencies to the dollar became increasingly necessary.
In 1971, with the so-called "Smithsonian agreement," a final attempt was made to save the old system when the U.S. devalued its currency against gold and a series of other currencies, but soon it became clear that the Bretton Woods System was no longer viable. In 1973, with the adoption of the new rule that each country could choose its own currency arrangement, the Bretton Woods System had come to an end.
Since then, the international monetary system is more like a "non-system" than a "system," or, more precisely, the international monetary system consists of a multitude of different currency arrangements ranging from currency unions and currency blocs to freely floating exchange rates with many other schemes in between such as unilateral fixed parities, managed floating or currency boards, and currency baskets.
As early as 1970, the members of the European Economic Community, which later transformed into an expanded European Union decided to prepare for the establishment of a common currency. In 1999, the euro as a common currency was instituted, first for banking transactions and then, on January 1, 2002, as the sole legal tender in the member countries of the euro area. Currently, twelve European countries take part in the European Monetary Union.
In terms of absolute valuation, the euro is not very much of a better currency than the U.S. dollar. In economic decision-making, however, things happen on the margin and decisions are taken based on relative valuations. Given similar degrees of liquidity and financial market sophistication, the euro has become increasingly attractive for currency diversification, particularly due to the favorable foreign investment position of the euro area compared to that of the United States.
After some initial weakness—probably due to fears that the new arrangement might fail—the euro has gained markedly in value against the U.S. dollar over the past three years. The American currency is facing a rival. An increasing number of central banks announced plans to shift part of their international reserves into the European currency. The dollar is still the currency of the U.S., but a sinking dollar is no longer just a problem for foreigners, it is also a problem for the United States.
In the past, the United States could count on having the monopoly of issuing the currency with the highest degree of liquidity and financial market integration. Although there were stronger currencies than the U.S. dollar, such as the Swiss currency or the Japanese yen and the German mark, these currencies could not rival the U.S. dollar because of their limited market share.
The existence of the euro has changed this constellation. As to its market size, the euro area is up to the U.S. dollar with the tendency of further augmenting this position when new members of the European Union will adopt the single currency, some non-EU countries will peg their exchange rates to that of the European monetary union or when oil producers will change to euros when pricing their exports.
For a while in the 1990s, it appeared as if the U.S. dollar could regain its unique position. The 1990s saw Japan—the apparent commercial threat to the U.S. in the 1980s—sink into a prolonged stagnation. Germany, the other major player in the international trade arena, began to entangle itself in the morass of a costly and economically ill-conceived unification process.
After the fall of the Soviet Union and the dissolution of the Soviet Empire, the United States had emerged as the sole global military might, and, so it seemed, also as the undisputed economic and political power with global influence and far-reaching dominance. On this basis, the role of the dollar as the major reserve currency and the main currency for international transactions experienced a second spring.
In the 1990s, the new global constellation could be interpreted as the replay of the endings of World War I and World War II with the United States emerging for a third time on top of the world. In the 1990s, the triad of global dominance seemed well in place of the United States: an unrivalled military might, a booming and innovative economy and the only issuer of a global currency.
Since the turn to the 21stcentury, however, these factors of dominance have increasingly come under challenge. The mania of the New Economy has ended. The U.S. economy still registers high growth rates due to unrelenting consumption spending, but regarding its productive capacity, it is in a precarious state, as it is indicated by the persistence of high trade deficits. The military power of the United States in its present form is largely inefficient with respect to the relation between financial costs and political outcome. Finally, and probably most important, the dollar no longer holds the monopoly of being the only available international reserve currency.
While after 1919 and after 1945, the United States emerged as the largest international creditor, the U.S. became the world's largest debtor nation in the course of the 1990s. Also in contrast to the earlier world wars, the economies of Russia, Western Europe, and South East Asia were not devastated when the Cold War ended. As to their productive capacity and financial resources, these regions are on an even footing with the United States or even are superior—at least concerning their foreign investment position.
The performance of the U.S. economy in the past century owes much to the role of the U.S. dollar in the international monetary system, and a large part of attaining this role was the result of the political and military supremacy that the United States had gained since 1919. In the 20th century, the position of the U.S. dollar in the world represented a major underpinning of the prosperity at home, which in turn fed back positively on the dollar's foreign role.
As long as fiat money rules, currencies, particularly the standing of the dollar and the euro, also reflect their value as a "political currency." They represent the degree of global political and financial power and in turn they provide the basis for attaining supremacy. They are tools in the hands of governments in the struggle for dominance.
With the dollar privilege passing, the U.S. confronts a radically different situation than in the past, and a tormenting process of changing the accustomed world-view is on the horizon. However, even as of now, the role of the euro as a rival to the U.S. dollar is rarely a subject of concern in the United States. It is the same with additional power shifts that are going on, all of them potentially reducing or even eliminating the dominant role of the U.S. currency in the world economy.
New alliances are emerging that neither politically nor militarily may be benign to the United States. Also, older powers have maintained their might. The Soviet Union has disappeared, but Russia remains a military power matching the nuclear overkill capacity of the United States. China is beyond any immediate control or persuasion by the United States.
The current U.S. President identified an "axis of evil", composed of countries with relatively modest economic, financial, and military clout—and situated far away from the shores of North America. But how about the other axis that is being formed, right at the U.S. border and stretching down the South American continent. The alliance between Fidel Castro of Cuba, Hugo Chavez of Venezuela, and Lula da Silva of Brazil? What about the constant rumors that Brazil strives to become a nuclear power? What about the deals that are being made between Latin American countries and China with the perspective of forming an economic symbiosis between China's need for food and oil, and this region's abundance of natural resources?
Then there is another axis that has come into existence in the past few years: the fraternization between the leaders of France, Germany and Russia. This entente covers the Euro-Asian continent, the geo-strategic heart of the world. It represents an alliance that is ready and capable of challenging U.S. influence in almost any aspect. What do these constellations imply for the role of the U.S. dollar?
Anytime soon one may expect that countries like Russia or Venezuela and other oil producers will turn to the euro as the currency for their oil exports. The move to the euro as a currency for international transactions and reserves during the past couple of years may represent only the initial stage of long-lasting process. Currency shifts of such proportions start slowly but over time they will gain more momentum. By now, the euro may have passed the threshold that had limited its global use. Once a means of payment is widely accepted, it becomes increasingly more attractive for a wider use.
There is a consensus currently among the major players in international finance, particularly among the relevant governments and central banks, that an abrupt fall of the dollar should be avoided. Japan, the largest foreign holder of U.S. assets, depends on U.S. protection in the face of the growing muscle of China in its region. China itself most likely would also like to avoid a dollar crash at least as long as it has not yet spent a considerable part of its dollar reserves in the effort to secure future supplies of food and oil around the world. The Europeans do not want a much weaker dollar because as of now it is mainly exports that are booming in the major economies of this region.
In contrast to the wishes, however, the fundamental geo-strategic trends call for a reduced global role of the dollar. While the temporary interests of the major global players are directed at maintaining dollar stability and thus avoiding a rapid demise of the dollar's role as a global currency, these desires are not congruent with the longer-term aspirations of the foreign players themselves.
The international monetary system has entered a stage when it becomes more difficult to manage a conflict that is getting out of control the longer it lasts. Inexorably, the constellation moves to a point where the potential loss will outweigh perceived benefits—not only for the holders of U.S. dollar reserves, but also for the United States itself.
Under such conditions, economic and financial decisions in the private sector are prone to be made under false premises. One must not forget that three of the most essential prices in the modern monetary economy are politically determined or manipulated prices: the oil price, interest rates, and the exchange rates. Taking away the interventions, the price that the U.S. pays for imported oil, and the price for money and credit should already be much higher than they currently are. At their present levels, they reflect a position of the U.S. dollar in the global system that can hardly be maintained.
Given the importance of these three prices for the economy and their potential direction, it is not difficult to assess the prospect for asset prices, particularly those of stocks, bonds, and real estate which all must come down when the fall of the dollar continues.
Wednesday, March 09, 2005
If appearences matter, it looks like we will challenge 4.90% high, and the LOWS are in. I expect 4.40% to now provide SUPPORT! LAst weeks correction a head fake. 20 PLUS years of downtrend in rates, ALL good things come to an end.
HOW MUCH MORE MONEY?
Yields have fallen since 1982!!!
DEFICITS, DEBT, TRADE IMBALANCES and WEAK DOLLAR may have finally conspired to end the Bond BULL MKT?
Normally in past we got a flight OUT of stocks INTO BONDS, not today.
ELN popped back, but just for a trade, I would lock profits, IMHO
MMSI popped today, manipulated lower? It is right near it's .618 FIB from $15.64 high, tomorrow should be interesting for the stock. GOOD volume today.
Down volume over 70% today a good down day. Gotta run.
by Justice Litle
For the big multinationals, investing in China is a schizophrenic enterprise. Dreams of huge profits are balanced against piracy nightmares, profit-crushing competition and razor-thin margins. This is exactly how China likes it. Foreign multinationals are prized for their technology and expertise: If they stay and succeed, Beijing leans on them to share the wealth with local partners. For those who leave with their tail between their legs, odds are good they were picked clean en route to the nearest exit. China has practically made an art form of bringing in outsiders to develop a market or industry, transferring said outsiders' knowledge and technology to local imitators and then brutalizing profit margins with local competition once the transfer is complete. Most companies are offered a Faustian bargain: To gain access to the kingdom, you must partner up...we share our markets, you share your expertise. The bit about intellectual asset stripping is conveniently left out of the deal.
The typical turn of events goes something like this: The starry-eyed multinational, thinking of limitless profits to be made in the world's fastest growing market, bears the brunt of the initial costs to set up shop. By the time the initial setup costs are recovered, the multinational discovers, with dismay, that copycats have crept in. The local partner, backed by Beijing, does not seem surprised; in a short while, profit margins have crumbled to dust. The multinational is then left with one of two less-than-pleasing prospects: soldier on near break even and hope that prospects eventually turn up, or pack the bags and go home...with strategic assets left behind.
The above may be a slight exaggeration, but not by much. Decent profit margins are hard to come by in China, and harder still to maintain for any significant period of time, due to the process just described. It has happened again and again, in everything from mobile handsets to microwaves to automobiles, as low-margin producers imitate, conquer and dominate. Optimists point out that Beijing is grudgingly moving toward general respect of intellectual property. Rampant piracy is recognized as a problem; China's judicial wheels are turning against industrial counterfeiters, albeit in slow motion. The simple reality is that a lax attitude toward piracy and intellectual asset stripping is currently in China's best interest (though it becomes steadily less so over time). Rather than reinvent the wheel, why not let a steady stream of naive wheel inventors who have already done the hard work come in and give away their secrets?
China will take a harder line on intellectual property rights when one of two things happens: Either multinationals will demand intellectual property enforcement and stop acting like sheep to be sheared, or China will build up enough proprietary knowledge and technical expertise of its own to warrant the standard legal protections.
On a more ominous note, China's hunger for knowledge extends to military technology. At the moment, Beijing's defense budget is less than 1/40th that of the United States ($20 billion versus more than $400 billion), but the gap will eventually close. Beijing will also have the advantage of leapfrogging the legacy systems and outdated programs that make up much of America's military infrastructure, moving straight to the latest technology even as the United States sees domestic spending pressures increase. It is here, where the stakes are highest, that a distracted America is finally sitting up and taking notice. Europe, in a move led by France and endorsed by Britain, plans to lift the China arms embargo in place since 1989. From Europe's point of view, lifting the weapons ban is a natural and harmless move. Put in place as a result of the Tiananmen Square massacre, China is a new country with a new attitude. Europe and China both declare the move to be symbolic. China seeks acknowledgement as an upstanding member of the economic community, and claims to have no interest in the actual purchase of European weapons. As for Europe, it merely wants to smooth business relations with their second biggest trading partner and pave the way for future cooperation, by giving the Middle Kingdom a gesture of respect.
America, as usual, is stuck between a rock and a hard place. Protest seems pointless, but what other action can be taken? The true concerns of the United States are so grave they can hardly be voiced: potentially engaging China in a war over Taiwan in the South China Sea...and facing European military technology, bought for the express purpose of sinking American ships and killing American troops. How do you explain to your oldest allies that they are whistling past the graveyard when they breezily dismiss your concerns as paranoia? When the weapons ban is lifted - if America is unable to find some last-ditch effort to stop it - Europe will make all the right noises, all the right pronouncements. Promises will be made, peaceful intentions will be underlined, and all types of positive benefits will be sallied forth. The European Union says assuringly that a "code of conduct" will be put in place. For American hawks, the phrase might as well be "Peace in Our Time." Though the move may yet prove symbolic in the long run - China has multiple sources for military technology, at any rate - it is a harbinger of the dangerous game to come.
Who are the winners and losers in China's quest for knowledge and technology? Naive multinationals who do not understand the Chinese way are clear losers; Chinese firms that get a leg up on their foreign partners are clear winners. Avoid investments in companies that view China as a typical market with typical rules; instead, look to companies that understand exactly what they are getting into and have means to protect their intellectual assets. Also consider exchange-listed Chinese firms that are in a good position to upgrade themselves with the help of "borrowed" multinational expertise. Once intellectual property rights start taking hold in China, look for new opportunities in standards-dependent industries that were previously unfeasible in a lawless environment. Watch closely as China transitions from basketballs and sneakers to pharmaceuticals and computer chips.
On the military front, watch the drama unfold between Europe, America and China. If the ban is lifted, expect America to consider an across-the-board withdrawal of cooperation with Europe on sensitive technology projects. Will the transatlantic alliance be placed in doubt?
It's going to be an interesting century.
for The Daily Reckoning
Tuesday, March 08, 2005
Russell explained last night how like in 2000 (bubble top) where the holdings of stocks etc were 140% of GDP now SO IS HOUSEHOLD REAL ESTATE HOLDINGS! just a coincidence? or MORE PROOF to suggest we have replaced ONE BUBBLE with another?
WHat does this mean? It means that CREDIT EXPANSION MUST CONTINUE, it is ESSENTIAL to the ongoing reflation. OR IMHO it all IMPLODES.
Week of FEB 24th M3 grew an ASTOUNDING $45 Billion.
30% of home purchased are now either 2nd homes or for speculation! 30% of homes bought are also mortgaged with ARMS.
Over 80% of first time home buyers don't put down 10% !
REAL ESTATE has replaced STOCKS as the investment du jour.
HOUSING is FAR LESS LIQUID than stocks, a CRASH scenario has been born IMHO because of the excesses and lack of liquidity should SOMETHING set a tumble in home values in motion. NO ONE sees that as possible.
Is REFINANCING at the end for providing spending capital? The endless "take cash OUT of your home"? A BAD IDEA EVER IMHO
From Dr Richebacher "A bubble economy implies by definition that skyrocketing asset prices have prompted immoderate borrowing and spending binges in consumption and/or capital investment."
The US has NO SAVINGS. WE borrow almost 80% of the world's savings. BORROWING has been for CONSUMPTION NOT INVESTMENT.
NOW we have the year of MERGERS and ACQUISITIONS, not productive, destructive and these usually COST JOBS.....they PRODUCE NOTHING> isn't that how 2000 ended in a take over mania?
SURELY stock prices can go higher, but I argue this rise is based on NOTHING more than FED induced liquidity of HISTORIC PROPORTIONS, and that it has NOT grown a sustainable economy based on the distortions in savings and investment.
And so unfortunately it WILL end rather badly, and I choose NOT to chase stocks nor real estate, and look not of greed but to capital preservation.
If I was to buy a CD for 5 years paying 4% or more, if I held for that period, at least I know what I have.
MANY have told me they cannot afford to make such a piddly amount. Perhaps, but can they afford to LOSE should this unsustainable GAMBIT abruptly end?
Monday, March 07, 2005
March 7, 2005
What, first of all, is the key characteristic of an asset bubble? It implies that a sharp rise in asset prices derives from highly leveraged purchases financed by borrowing at low short-term rates. The decisive distinction is between credit-driven and savings-driven asset appreciation. In a country without savings of its own, like the United States, asset markets as a whole qualify as bubbles virtually by definition.
And what are the key features of a bubble economy? There are actually two of them. It implies, first, that asset owners, to a large extent, convert appreciating asset prices into a borrowing-and-spending binge; and second, that the credit excess enacts a major structural change in the economy’s pattern of demand and output growth. In the U.S. case, it has overwhelmingly boosted consumption at the expense of business investment and the trade balance.
There is understandably a general reluctance to speak of the U.S. economy as a bubble economy, because it would flatly disavow all the talk about its superior efficiency. For many, it is tantamount to blasphemy. The unspoken truth is that it is the biggest bubble economy in history, lasting already much longer than Japan’s bubble economy of the late 1980s.
An economy must decline in its entirety so long as more is consumed than produced, as Mr. Hayek says in the introductory quote. But this has become the U.S. economy’s long-term growth pattern. Recognizing this fact is basic for our critical assessment of the economy’s recent development. The dismal reality is deceptive wealth creation through asset bubbles on one hand and accelerating erosion of the economy’s productive base on the other.
Never before has an economy in recession been treated with such massive monetary and fiscal stimulus as the United States this time. Yet what has resulted has been a recovery that is the single worst on record in terms of generating the real (inflation-adjusted) growth in wage and salary income that determines most people’s living standard.
Sunday, March 06, 2005
Total credit market debt SPIKED to 265% of GDP during the Depression, some of that had to do with the plumetting GDP and the roaring 20's.
FROM THAT MOUNTAIN TOP we descended to a trough that lasted until about early 1950 which included a severe CREDIT CONTRACTION,DEFAULT on debt bankruptcies and increased savings.
Same time around 1950 WAGES AS % OF HOUSEHOLD DEBT (EWT) was BELOW 0.6%STILL slightly below 1% by the BEGINNING of the GREAT BULL MARKET CONSUMERS BEGAN TO PILE ON THE DEBT.....CREDIT DEBT EXPANDED once again.
BULL MKT in BONDS was also under way after GOLD $800 SPIKE.END OF bull in 2000 wages as % of household debt was around 1.4%......it NOW stands around 1.8%!!!
WAGES have stagnated....and consumers are BORROWING to keep up bull habits..TOTAL CREDIT MKT DEBT as % of GDP IS NOW an astounding 305% !! AND THAT is NOT from a shrinking GDP!
I have shown how the MONEY SUPPLY has grown by a mind blowing amount. AT some point...CONTRACTION IS INEVITABLE as the shifting sands.
UNFATHOMABLE PAIN and distress will follow the coming K-WINTER....there is nothing anyone can do to stop it.The G-MAN has done all he can to make it so much worse....
(andrew from RR board) MUCH thanks for the beautiful chart!
"How about this chart. Has a 200/400 Weekly SMA just like the doctor ordered:" http://bigcharts.marketwatch.com/charts/big.chart?symb=DJIA&compidx=aaaaa%3A0&ma=3&maval=200&uf=0&lf=1&lf2=0&lf3=0&type=128&size=3&state=8&sid=1643&style=320&time=20&freq=2&nosettings=1&rand=7433&mocktick=1
In reply to: *(ME Duratek)
MAN I'm like one hand clapping here..LOL so what...
CALL: Dow Theory BUY SIGNALEVIDENCE...or my humble observations:
1)MACD and RSI LOWER HIGHS on the DOWS MOVE to new highs! No mention of that.we have a BEARISH divergence, IMHO
2)Breaking of the UPPER BB, can be terminal move...it appears as BEST as I see this last happened in 2000 top.
3)http://tinyurl.com/4cm6v LOOK at BEAUTIFUL paralell LONG TERM SMA'S !!! THAT'S a BULL MKT!BUT NOW the 200 WK has MERGED into the 400 WK....I bet that hasn't occurred since the 70's bull began, shown here for 10 years only.
Can anyone show a monthly chart going back to 70's? using these 2 MA's?My conclusion cannot say when rally ends, only that we are witnessing the end of something surely NOT the beginning! IMHO
NOTICE the data of the 2000-2002 Bear MKT! AMAZING
Saturday, March 05, 2005
Bank Credit has expanded an alarming $226.5 billion over the past 8 weeks (21.8% annualized). For the week, Bank Credit surged $41.8 billion for the week of February 23 to a record $6.971 Trillion. Securities Holdings rose $13.6 billion, with gains of $42.1 billion over the past four weeks. Loans & Leases jumped a notable $28.2 billion, with 5-week gains of $87.3 billion. Commercial & Industrial (C&I) loans added $1.9 billion. Real Estate loans jumped $27.2 billion. Real Estate loans are up $335.8 billion, or 14.8%, over the past 52 weeks. For the week, consumer loans increased $0.8 billion, and Securities loans added $3.7 billion. Other loans dipped $5.3 billion.
© 2004 Comstock Partners, Inc.. All rights reserved.
Here is an important article (Martin Weiss/SafeMoneyReport) Great job news ... right? Not really
The stock market took off like a rocket this morning on a strong February jobs report (more below) and easily eclipsed those old overhead resistance levels and hit numbers not seen since June 2001.
After shooting out of the gate, the Dow Jones spent the rest of the morning and early afternoon hovering around the 10,900 area. The cheerleaders on CNBC couldn't talk enough about Dow 11,000 and did their best to help send the bulls off to a happy weekend.
Even though the market closes well off its intra-day highs, it was able to hold on to a triple-digit gain. The Dow Jones was up 107 points to 10,940. Heck, the bulls even shook off another increase in oil as the barrel price edged up by 21 cents to $53.76.
Several sectors were able to move up by more than 2% today. Airlines, precious metals, and brokerage stocks were the big winners of the day. In what could be an interesting development, the bond market was able to put together a gain today, too.
Bond investors interpreted the uptick in the unemployment rate to indicate a slowing economy. Of course, either the bond investors or the bulls have to be wrong. For the time being, I'd have to defer to the bulls.
For anyone that cares, I am still "long" the market and anticipate the market to go even higher ... but not for much longer. I have a clear exit strategy and I urge anybody else that is heavily invested in the stock market to do the same. This party won't last forever and when it does end, the hangover is going to really, really hurt.
Great job news ... right?
Not really The big news of the day came from the Labor Department, which reported that our economy created 262,000 new jobs in the month of February. That number was significantly higher than the 221,000 the Wall Street gang was counting on. The bulls, of course, used that news to plow full-steam ahead into the stock market. I shouldn't be surprised, but the bulls and mainstream media missed all the details in the jobs report and completely ignored the most important facts. What facts? I'm glad you asked.
The unemployment rate jumped from 5.2% to 5.4%. If the job picture is so good, why is the unemployment number rising? The reason is that the Labor Department's phony-baloney "birth/death" model that tries to estimate the number of new jobs is — as usual — way too optimistic.
The number of unemployed Americans rose by 251,000 in February to 7.99 million. If our economy is creating all these jobs, why is the number of Americans out of work increasing?
Nobody paid any attention to the news that the number of new jobs created in January was revised downward from 146,000 to 132,000.
The jobs our economy is creating are somewhere between lousy to mediocre. Of those 262,000 new jobs, 207,000 of them were service jobs, such as retail and temp jobs.
The average hourly earnings were unchanged for the month at $15.90. In the last 12 months, wages have only grown by 2.5%.
The average workweek was steady at 33.7 hours. When the economy is healthy and improving, that number should to rise.
The labor force participation was unchanged at 65.8% — the lowest participation rate since 1988. The jobs situation isn't awful, but it sure isn't the pop-the-champagne party that the bulls think it is. As always, the reaction to the news is more important than the news itself and today's reaction shows that the bulls are still in control.
Wall Street has zero caution. Consumers have lots of it The University of Michigan consumer sentiment survey showed a drop from 95.5 in January to 94.1 in late February. It is also the third monthly decline in a row.
A drop in consumer confidence makes perfect sense to me. As the Labor Department report above shows, wages are barely rising (up 2.5% in the last 12 months). At the same time, the Fed has raised the cost of borrowing money by raising interest rate six times.
And the cost of energy (gas, heating, natural gas) is skyrocketing along with other commodities like milk, cheese, meat, juicy, and coffee. The combination of stagnant income and rising expenses is putting a squeeze on consumers. The only — and I mean only — thing keeping consumer confidence from getting flushed down the toilet has been rising real estate prices.
You feel pretty good when you see the value of your house increase by $50,000. If the real estate market cools down, consumer confidence and consumer spending are going to fall off a cliff.
The February issue of Safe Money shows you why the real estate bubble is about to burst, and this month's issue — just posted today — shows you how to potentially profit from the current commodities boom.
Surging gas prices around the corner We haven't hit the peak travel season yet, but the price of gasoline is about to take off and will very likely hit new all-time highs.
The average price for self-serve gas is currently $1.92 a gallon, which is only 13 cents below the all-time record high hit last May. Based upon $53 a barrel prices, a big hike is right around the corner.
With the recent jump in crude prices, "Retail gasoline has some 25 to 28 cents a gallon in increases ahead just to catch up to what has happened with wholesale since Christmas week," warned Tom Kloza of the Oil Price Information Service.
The experts at AAA agree. "All of the dynamics are in place for U.S. motorists to pay new record high prices again this year," said Geoff Sundstrom of AAA. Are the bulls worried? Not a chance. I even heard one expert on CNBC today say that oil won't be a problem until it hits $60 a barrel.
Every extra dollar that goes into a gas tank is a dollar that can't be spent on a new car, a new home, or new clothes.
The bulls may not want to believe it or just plain ignore it, higher energy prices are a problem today.
Hard drive maker shuts one factory Maxtor makes hard drives for computers. Apparently, the hard drive business isn't so good. Maxtor announced today that it would close one of its two Singapore plants and eliminate 5,500 jobs. Wall Street is surprised, but I'm not. Last month, Maxtor reported a Q4 loss that was twice as large as Wall Street was expecting and admitted that it would very likely lose money in Q1, too. Yeah, it sure sounds like the management at Maxtor expects the PC business to take off any day now (sarcasm).
For those of you bothering to connect the dots, Maxtor's largest customers include Dell, Hewlett Packard, Fujitsu-Siemens, and IBM.