When Our Dollars Come Marching Home
By: Richard Benson, SFGroup
Benson’s Economic & Market Trends
December 2, 2004
Written and published by Richard Benson, www.sfgroup.org
The financial and popular press has lately focused on the now obvious problems for the dollar created from our massive budget and trade deficits. Indeed, everyone now realizes that for the deficits to be brought into balance, the dollar must go down. It seems that virtually every financial pundit, though, still assumes that not only will the Asian and other foreign central banks continue to accumulate dollar assets forever, but that “those foreigners will never spend their dollars”. However, very little is written about what will happen when all the dollars, built up as foreign central bank and private holdings, get spent. Indeed, we believe that not only will the dollars get spent, but this spending will have massive inflationary implications for America.
Up to now, foreign central banks – particularly the Asian central banks that currently hold over $1 trillion in dollar assets – have had every reason to accumulate as many dollar credits, in the form of U.S. treasury securities, as possible. Accumulating these dollar assets has cost foreign central banks nothing as long as they have a trade surplus and can print up more of their own currency for free and swap their free money for U.S. treasuries. Rather than spending their dollars today, America’s trade partners are saving them so they can be spent tomorrow. Moreover, as long as our dollars are happily accepted by countries that produce oil, raw materials, and goods and services they need, America’s trade partners can profit in the future in exchange for paying nothing today, simply by running mercantilist policies!
Another perspective on what is happening is if trade flows were currently matched, foreign countries would not be building up dollar credits; they would be spending dollars “taken in trade today”! This dollar spending would increase the demand for goods and services in America and raise prices, creating inflation. The very fact that foreign countries have not been spending their dollars now but are, instead, storing up massive dollar credits, means there is going to be a whole lot of dollar spending in the future. One can compare this to a huge dam filling up with dollar credits, but look out when this “dollar dam” breaks and the pent up dollar reserves flow out and flood America.
Sooner or later all currencies come home to their native country to be spent, but as long as the dollar is viewed as the international reserve currency, the process of massive credit and dollar inflation showing up is delayed. The fact that the dollar has been the world reserve currency simply means that the dam full of dollars has been allowed to fill up higher than anyone could have ever imagined.
Take China as a shinning example. China has amassed over $500 billion in dollar credits and is a developing country with 1.3 billion hungry, needy and politically restless people. The Chinese government has built up dollar credits temporarily, but as their citizens learn more about the good life – which includes electricity, heat, air conditioning, two cars and meat in their diet – the government may have to share some of its wealth with them. Not only is it possible for the trade deficit to swing into balance if this occurs, but all those dollar credits will get spent while they are still worth something.
What is on China’s shopping list? Already announced are purchases of Noranda and Husky in Canada, the large mining and energy groups, as well as other significant investments in synthetic oil (tar sands). A major Chinese supplier of automobile parts has been buying up rustbelt auto part suppliers in the American Midwest. President Hu of China just came back from Latin America and announced plans to invest over $30 billion in Argentina and Brazil in order to build plants that are needed to extract raw materials. We expect that China’s shopping list will continue to grow and they will start buying up the world with America’s money!
How do our dollars finally get back home to our country? Well, if China does buy Noranda, the Canadians can invade shopping malls south of the border. If China also buys Latin American resources, Latin Americans can then buy the rest of Miami. As dollars get spent and move from country to country like a hot potato, eventually the dollars will come marching home because a dollar will always buy something in America, even if it isn’t very much.
The fact that dollar credits will get spent will help pressure the dollar far more than is currently appreciated. There are reports that the average man in China is already willing to stand in a long line at a bank to convert dollars into the Renminbi; they have already dumped over $20 billion of U.S. dollars this year. How many Americans do you know are willing to wait in line to dump their dollars, other than Warren Buffet or George Soros?
The Russian President, Vladimir Putin, recently announced that his country will diversify foreign exchange holdings away from the dollar. Upon hearing that, every Russian or Eastern European gangster, drug-runner or plain old tax-avoiding businessman, should take the hint from Putin and swap old greenbacks for crisp new appreciating Euros, rather than consider holding on to our new pretty pink $20 and $50 dollar bills.
Think for a moment of all that cash in German Marks, French Francs, and Italian Lire that came out from under the mattresses to be converted into Euros. Now, consider that as much as two-thirds of all U.S. currency is still held outside the 50 states. Every foreign citizen who holds dollars should pray that their central bank will buy even more bad dollars at current levels so that they can get out without further loss.
The real problem for dollar investors is that as soon as it is realized that dollars will get spent – meaning significant dollar inflation – it is clear that the dollar can no longer be a stable store of value. So, even before our dollars come marching home anyone holding dollars can see there is a light at the end of the tunnel, but it’s a train! He who swaps out of the dollar first, loses the least!
Foreign central banks hold about 75 percent of their total foreign exchange reserves in dollars, yet the financial markets have only vaguely acknowledged the problems associated with the spending of these dollar credits. As an investor, you should expect a further decline in the value of the dollar and the beginning of significant long-term U.S. inflation.-- Posted Thursday, December 2 2004
- Richard Benson, SFGroup, is a widely published author on securitization and specialty finance, and a sought after speaker at financing conferences on raising equity for mid-market companies. Prior to founding the Specialty Finance Group in 1989, Mr. Benson acted as a trading desk economist for Chase Manhattan Bank in the early 1980's and started in the securitization business in 1983 at Bear Stearns, and helped build the early securitization businesses at Citibank and E.F. Hutton. Mr. Benson graduated from the University of Wisconsin in 1970 in the Honors Program in Math, and did his doctoral work in Economics at Harvard University. Mr. Benson is a member of the Harvard Club of New York and Palm Beach. The Specialty Finance Group, LLC is a Florida Limited Liability Company and is registered with the NASD/SIPC as a Broker/Dealer.
Thursday, December 02, 2004
Tuesday, November 30, 2004
from recent Comstock.Partners
This is particularly true at the current time when the economic recovery has been sub-par and has been so dependent on bubbling asset values rather than rising employment and income from wages and salaries. In this environment we believe that the economy is likely to be even more sensitive than usual to rising rates. In this context we also think that too much has been made of the outwardly strong employment number that, upon examination, has a number of underlying weaknesses. This is the first strong report after four straight months in which expectations were not met even with the recent upward revisions. It is also only the third month of 35 in the present recovery to record more than 300,000 new jobs when, going by past recoveries, we should have averaged more than 300,000 additional jobs per month. In addition, of the 337,000 new jobs in October, 47,000 were temps, 41,000 were government and 71,000 construction, probably mostly hurricane-related. Without these, the jobs increase wouldn’t have even reached 200,000. Furthermore, in the household survey, 85 percent of the increase was in part-time jobs while the so-called augmented unemployment rate that adds back those not looking for work but would take it if offered, jumped from 8.4 percent to 8.8 percent, the highest in 12 months.
In sum, we still think this is an unsustainable economic recovery, and the Fed’s continued tightening along with the winding down of fiscal stimulation and the far lower level of mortgage refinancing are likely to create strong headwinds against growth.
In sum, we still think this is an unsustainable economic recovery, and the Fed’s continued tightening along with the winding down of fiscal stimulation and the far lower level of mortgage refinancing are likely to create strong headwinds against growth.
LEI and GDP
"BEAUTY in the EYE of the BEHOLDER"
• Index of Leading Economic Indicators (LEI or ILEI): The Conference Board provides this index every quarter. It consists of 11 economic reports, such as initial unemployment claims, stock-market activity, building permits, new orders for consumer goods, plant and equipment orders and sensitive material prices.
Since the LEI consists of so many varied economic reports, it is generally considered to be a helpful gauge of future economic activity. In fact, three consecutive increases in the LEI suggest the economy may be on the threshold of a sustained period of expansion.
**Now, all I ask of you is to take the GDP report in context to the description for the LEI, and know that we have had FIVE consecutive DECLINES in it and 6 of the last 7.
• Index of Leading Economic Indicators (LEI or ILEI): The Conference Board provides this index every quarter. It consists of 11 economic reports, such as initial unemployment claims, stock-market activity, building permits, new orders for consumer goods, plant and equipment orders and sensitive material prices.
Since the LEI consists of so many varied economic reports, it is generally considered to be a helpful gauge of future economic activity. In fact, three consecutive increases in the LEI suggest the economy may be on the threshold of a sustained period of expansion.
**Now, all I ask of you is to take the GDP report in context to the description for the LEI, and know that we have had FIVE consecutive DECLINES in it and 6 of the last 7.
Weaker $$$$ only brings PAIN
http://www.briefing.com/Silver/Calendars/EconomicReleases/gdp.htm
Look at chart showing net exports....since dollar made its highs....the exports have crumbled along with value of dollar!!!!This is because CHinese dollar policy and our low interest rates have helped to build China as world engine as instead of goosing domestic spending and consumption in our country for OUR goods, we have stimulated others at OUR expense.Crouching tiger no more.
With YUAN dollar peg.....this will not change.Going forward we depend even more of the kindness of strangers.And WE are the worlds economic engine? WIth an already HISTORIC above 1929 total debt to GDP %?
As I continue and will exhort til my last breath....NOTHING in place in 1980 at beginning of GREAT longest bull is in place now....it is turned upside down on its head!The 3.9 GDP is PURE fiction as the US is ONLY country to report in HEDONIC INFLATED make believe numbers.
Earnings growth decelerating....stimulus over.....deficits soaring, debt exploding....just to pay INTEREST on DEBT mind numbing.....pay the piper day of reckoning Greenspan style never to come......those of us NOT alseep know the damage done and the price to be paid.....sooner or later.
With some measures of stock market bullishness ABOVE what was found in 2000??!!! Make you emind up as to whether there is still VALUE to be found, and that years ending in FIVE being positive with NO foundation for that will AGAIN be true.
D
http://www.briefing.com/Silver/Calendars/EconomicReleases/gdp.htm
Look at chart showing net exports....since dollar made its highs....the exports have crumbled along with value of dollar!!!!This is because CHinese dollar policy and our low interest rates have helped to build China as world engine as instead of goosing domestic spending and consumption in our country for OUR goods, we have stimulated others at OUR expense.Crouching tiger no more.
With YUAN dollar peg.....this will not change.Going forward we depend even more of the kindness of strangers.And WE are the worlds economic engine? WIth an already HISTORIC above 1929 total debt to GDP %?
As I continue and will exhort til my last breath....NOTHING in place in 1980 at beginning of GREAT longest bull is in place now....it is turned upside down on its head!The 3.9 GDP is PURE fiction as the US is ONLY country to report in HEDONIC INFLATED make believe numbers.
Earnings growth decelerating....stimulus over.....deficits soaring, debt exploding....just to pay INTEREST on DEBT mind numbing.....pay the piper day of reckoning Greenspan style never to come......those of us NOT alseep know the damage done and the price to be paid.....sooner or later.
With some measures of stock market bullishness ABOVE what was found in 2000??!!! Make you emind up as to whether there is still VALUE to be found, and that years ending in FIVE being positive with NO foundation for that will AGAIN be true.
D
Thursday, November 25, 2004
I Have been to the mountain top.....
.....and I can see into the valley
....http://tinyurl.com/5fr9u This ratio as a tool for timing is not so good as you don't know how low or high it will go until it REVERSES.WHat do have is 10 years of data (limit of my chart) to look BACK on to make "observations".WHat I observe is that during the BEST of the GREAT BULL MKT this ratio stayed at or BELOW the median range, hardly going above 60 (McHUgh posts that 68 is "crash levels")....until late 1999 into 2000 a reading of 80 then 91 was seen...it was over.After several spikes of fear and doom....the ratio plunged to low 20's, once after 911 which helped spur a long multi month rally, then twice more in late 2002 and early 2003 (bottom of last bear market to date).The reading now stands at above 92 the highest reading ever recorded. This ratio and the VIX tell the true story of how much fear and greed is in market, IMHO WHen anything gets to very extreme readings IMHO it should be taken seriously, especially when its relationship to market action is so well documented.The top in 2000 was painful to predict for Bears, so is this one, to millions who stayed long unaware of any portending problems....even more painful.We have TRansports at 6 yr highs, only 2 reading ever higher!We have Dow STILL below its 2004 high! We have NAZ 60% below highs of 2000, SPX 20% below.Now you might say look how far they can rally. But a market diverging is not healthy.....and when you consider some readings like 10 sentiment readings are at historical highs, and so is the SPX/VIX ratio.....but we remain well below their index highs.....should bring alarm.Lots of things could happen to keep it going....low rates.....seasonality, year ending in FIVE (no rational reason), potential influx of year end contributions, wall street managers HUMPING it higher for better bonuses.....funds piling into the good performers to make them look better....etc.YET, I get the profound feeling ALL IS NOT RIGHT. MY company acct., has a diverse list of clients, most of which are struggling or breaking even.I see 6 of LAST 7 LEI readings DECLINED!? I see TOPPED out COnsumer Sentiment readings.I see MORE capacity and LOWER capacity utilizations (in chips esp.)I see NO gains in Help Wanted Index.I see NO wage growth and NO savings.I see NO end to deficits and trade imbalances.I see pressure on FED to continue RAISING interest rates, this will hit hard those on revolving credit....a rising rate environment not usually condusive to rising stock prices.UNLIKE before, when we slow down, housing prices may collapse....and housing is where most have stashed their wealth....and is most ILLiquid.Inflation, weaker dollar, rising gold to 16 yr highs......soaring deficits...etc....have NOT caused a significant rise in longer term rates??!!This can ONLY be the case of CHINA and JAPAN stepping in??Again...most trades...derivitives have to unwound at some time.Historical highs in gold bulls and euro and lows for dollar bulls.....the stuff of trend reversals...IMHO, for near term only a shocking rise in rates....fall in dollar....or Terrorist action will derail this cyclical bull.What is obvious is the stats I listed on bullishness....what is not is how high those readings will go until they reverse.....and what will JOG investors out of their complacency....irregardless of the "side bets"....money laying long hasn't felt this good since....I don;t know...1999?If a K-WAVE really exists other than in the minds of its creator and those who interpret it.....a LASTING TOP in credit expansion is quickly nearing an end....those who follow and believe in the K know what MUST come next.....illiminate debt and speculation...Too much triptifan....making me grouchy! LOL
....http://tinyurl.com/5fr9u This ratio as a tool for timing is not so good as you don't know how low or high it will go until it REVERSES.WHat do have is 10 years of data (limit of my chart) to look BACK on to make "observations".WHat I observe is that during the BEST of the GREAT BULL MKT this ratio stayed at or BELOW the median range, hardly going above 60 (McHUgh posts that 68 is "crash levels")....until late 1999 into 2000 a reading of 80 then 91 was seen...it was over.After several spikes of fear and doom....the ratio plunged to low 20's, once after 911 which helped spur a long multi month rally, then twice more in late 2002 and early 2003 (bottom of last bear market to date).The reading now stands at above 92 the highest reading ever recorded. This ratio and the VIX tell the true story of how much fear and greed is in market, IMHO WHen anything gets to very extreme readings IMHO it should be taken seriously, especially when its relationship to market action is so well documented.The top in 2000 was painful to predict for Bears, so is this one, to millions who stayed long unaware of any portending problems....even more painful.We have TRansports at 6 yr highs, only 2 reading ever higher!We have Dow STILL below its 2004 high! We have NAZ 60% below highs of 2000, SPX 20% below.Now you might say look how far they can rally. But a market diverging is not healthy.....and when you consider some readings like 10 sentiment readings are at historical highs, and so is the SPX/VIX ratio.....but we remain well below their index highs.....should bring alarm.Lots of things could happen to keep it going....low rates.....seasonality, year ending in FIVE (no rational reason), potential influx of year end contributions, wall street managers HUMPING it higher for better bonuses.....funds piling into the good performers to make them look better....etc.YET, I get the profound feeling ALL IS NOT RIGHT. MY company acct., has a diverse list of clients, most of which are struggling or breaking even.I see 6 of LAST 7 LEI readings DECLINED!? I see TOPPED out COnsumer Sentiment readings.I see MORE capacity and LOWER capacity utilizations (in chips esp.)I see NO gains in Help Wanted Index.I see NO wage growth and NO savings.I see NO end to deficits and trade imbalances.I see pressure on FED to continue RAISING interest rates, this will hit hard those on revolving credit....a rising rate environment not usually condusive to rising stock prices.UNLIKE before, when we slow down, housing prices may collapse....and housing is where most have stashed their wealth....and is most ILLiquid.Inflation, weaker dollar, rising gold to 16 yr highs......soaring deficits...etc....have NOT caused a significant rise in longer term rates??!!This can ONLY be the case of CHINA and JAPAN stepping in??Again...most trades...derivitives have to unwound at some time.Historical highs in gold bulls and euro and lows for dollar bulls.....the stuff of trend reversals...IMHO, for near term only a shocking rise in rates....fall in dollar....or Terrorist action will derail this cyclical bull.What is obvious is the stats I listed on bullishness....what is not is how high those readings will go until they reverse.....and what will JOG investors out of their complacency....irregardless of the "side bets"....money laying long hasn't felt this good since....I don;t know...1999?If a K-WAVE really exists other than in the minds of its creator and those who interpret it.....a LASTING TOP in credit expansion is quickly nearing an end....those who follow and believe in the K know what MUST come next.....illiminate debt and speculation...Too much triptifan....making me grouchy! LOL
Thursday, November 18, 2004
Wednesday, November 17, 2004
Common Sense from John Hussman and my 2 C
http://www.hussman.net/wmc/wmc041115.htm
WHat is fueling the current bull market rise IMHO is exessive speculation and the relaxation of reality. A RISE which goes unabated (3% correction) can then also correct unabated when over.
WE have reached no new era of investment, old rules still apply. And IF you buy an overvalued stock, your ONLY hope is that someone else is willing to pay you MORE for it. Like ANY PYRAMID scheme, it will end.
Sometime in 2005 I think reality will return to the stock market and so will the bear market. With the Governments inability to do much about it, having spent ALL their ammo digging us out of the last bubble that burst, the end result could be much more painful.
WHen a country and its citizens lack savings, then the investment goes to other nations, and so does our wealth and manufacturing base, any just see this as a sign of the times.
BIG BOX stores rule the landscape, and bring in deflated goods from China (WMT), only offering low paying jobs in its wake.
I see benefits to lower consumer prices, but I also see our inventiveness going out the window. China is trying to slow down its economy, but investment keeps pouring in. SO I don't see how our manufacturing capacity can recover sitting at decades low of utilization.
Yesterday we saw a 14 year high jump in the PPI as INFLATION is a real threat. Raising interest rates is one way to deal with that should the dollar weaken appreciably.
AS of right now, the gambit has been to KEEP rates SO LOW that savers be damned! And that money has flowed into stocks. There is NO equilibrium. And we depend on foreign governments tobuy almost $2 Billion a DAY! of our DEBT to subsidize our thrist for consumption. WE are SELLING out country off in pieces. There is NO PRIDE IN BUY AMERICA.....as in buy what?
MILLIONS upon MILLIONS of young Chinese and Indian, Pakastani children well educated and willing towork for PEANUTS are entering the workforce, and will be competing with yours and mine children for a job.......WHO will win?
MOST BIG corporations are setting up shop and hiring in those countries.
MOST BIG corporations are giving back dividends or buying back stock with excess cash.......INSTEAD of investing here!
Dividend yields on SPX stocks are STILL only 1.7% EVEN with the new tax status lowering taxes on them to shareholders. HISTORICAL NORM is 4% !!!!!!!!!! AT MARKET TOPS AVG IS 3%!!!! AT BOTTOMS NEAR 6%!!!!!!
This comparison data goes IGNORED by Wallstreet and now Mary MEEKER and company (goosn who screwed investors during bubble with idiotic advice and hype) have re-emerged from the dust of the bursted bubble.
This rebirth of the BULL does not come from a SOLID GROUND (typical bear mkt bottoms of 6% yields and SPX PE of single digits...at OCT bottom it was SPX PE of 30!!!).
"Castles made from sand drift into the sea.........eventually" Even under LSD...Jimi knew!
Tread lightly my friends....and keep those stops tight, IMHO
Duratek
WHat is fueling the current bull market rise IMHO is exessive speculation and the relaxation of reality. A RISE which goes unabated (3% correction) can then also correct unabated when over.
WE have reached no new era of investment, old rules still apply. And IF you buy an overvalued stock, your ONLY hope is that someone else is willing to pay you MORE for it. Like ANY PYRAMID scheme, it will end.
Sometime in 2005 I think reality will return to the stock market and so will the bear market. With the Governments inability to do much about it, having spent ALL their ammo digging us out of the last bubble that burst, the end result could be much more painful.
WHen a country and its citizens lack savings, then the investment goes to other nations, and so does our wealth and manufacturing base, any just see this as a sign of the times.
BIG BOX stores rule the landscape, and bring in deflated goods from China (WMT), only offering low paying jobs in its wake.
I see benefits to lower consumer prices, but I also see our inventiveness going out the window. China is trying to slow down its economy, but investment keeps pouring in. SO I don't see how our manufacturing capacity can recover sitting at decades low of utilization.
Yesterday we saw a 14 year high jump in the PPI as INFLATION is a real threat. Raising interest rates is one way to deal with that should the dollar weaken appreciably.
AS of right now, the gambit has been to KEEP rates SO LOW that savers be damned! And that money has flowed into stocks. There is NO equilibrium. And we depend on foreign governments tobuy almost $2 Billion a DAY! of our DEBT to subsidize our thrist for consumption. WE are SELLING out country off in pieces. There is NO PRIDE IN BUY AMERICA.....as in buy what?
MILLIONS upon MILLIONS of young Chinese and Indian, Pakastani children well educated and willing towork for PEANUTS are entering the workforce, and will be competing with yours and mine children for a job.......WHO will win?
MOST BIG corporations are setting up shop and hiring in those countries.
MOST BIG corporations are giving back dividends or buying back stock with excess cash.......INSTEAD of investing here!
Dividend yields on SPX stocks are STILL only 1.7% EVEN with the new tax status lowering taxes on them to shareholders. HISTORICAL NORM is 4% !!!!!!!!!! AT MARKET TOPS AVG IS 3%!!!! AT BOTTOMS NEAR 6%!!!!!!
This comparison data goes IGNORED by Wallstreet and now Mary MEEKER and company (goosn who screwed investors during bubble with idiotic advice and hype) have re-emerged from the dust of the bursted bubble.
This rebirth of the BULL does not come from a SOLID GROUND (typical bear mkt bottoms of 6% yields and SPX PE of single digits...at OCT bottom it was SPX PE of 30!!!).
"Castles made from sand drift into the sea.........eventually" Even under LSD...Jimi knew!
Tread lightly my friends....and keep those stops tight, IMHO
Duratek
Tuesday, November 16, 2004
Saturday, November 13, 2004
Frontline THoughts
http://www.frontlinethoughts.com/printarticle.asp?id=mwo111204 Mauldin always a worthwhile read.
When the BULLS run this, it is hard to see forrest for the trees. Could be headed MUCH higher, but a breather would be healthy, much more vertical climbing and it could be a nasty correction rather than just a bullish correction...which would be healthy.
NO market goes in straight line or it could come back SAME path. We don't want that, we like order.
Action has been SO strong I am inclined to think higher is way we do go, but a retrace of at least .382 Fib ratio is needed, IMHO
Best to all. Always good to keep open mind to any potential outcome.
Must keep some CASH in portfolio so you can buy into the lower lows like in 2002 when market bottomed.....if fully invested and your LTBH, you go down and up with ship.
A GOOD financial planner able to rebalance your portfolio would be great start.
Had you exited any tech in 2000, and bought gold/gold shares, BONDS......you have weathered the storm andmade a great deal of money. FED tipped hand with speed of rate cuts.
But it took 13 rate cuts to 45 yr lows to KICK START economy.....how often in history do you think that has ever happened.
WE have had only 2 months since Recession officially ended, where the jobs data added more than 300K jobs. Making this believe it or not the weakest recovery in history.
Enjoy the Bush re-election rally while it lasts....but keep both eyes open
D
When the BULLS run this, it is hard to see forrest for the trees. Could be headed MUCH higher, but a breather would be healthy, much more vertical climbing and it could be a nasty correction rather than just a bullish correction...which would be healthy.
NO market goes in straight line or it could come back SAME path. We don't want that, we like order.
Action has been SO strong I am inclined to think higher is way we do go, but a retrace of at least .382 Fib ratio is needed, IMHO
Best to all. Always good to keep open mind to any potential outcome.
Must keep some CASH in portfolio so you can buy into the lower lows like in 2002 when market bottomed.....if fully invested and your LTBH, you go down and up with ship.
A GOOD financial planner able to rebalance your portfolio would be great start.
Had you exited any tech in 2000, and bought gold/gold shares, BONDS......you have weathered the storm andmade a great deal of money. FED tipped hand with speed of rate cuts.
But it took 13 rate cuts to 45 yr lows to KICK START economy.....how often in history do you think that has ever happened.
WE have had only 2 months since Recession officially ended, where the jobs data added more than 300K jobs. Making this believe it or not the weakest recovery in history.
Enjoy the Bush re-election rally while it lasts....but keep both eyes open
D
Wednesday, November 10, 2004
DELTA AIRLINES NEWS
Delta to cut 6,000-6,900 jobs, issue 75 mln sharesWed Nov 10, 2004 08:27 AM ET CHICAGO, Nov 10 (Reuters) - Delta Air Lines (DAL.N: Quote, Profile, Research) on Wednesday said it plans to eliminate between 6,000 and 6,900 jobs during the next 18 months, implement a 10 percent across-the-board pay reduction and reduce employee benefits.
Delta said it would issue as much as 75 million shares of common stock as part of its restructuring plan.
A committee of its board of directors said any delay in shareholder approval could "seriously jeopardize" its financial viability.
***Stock dilution, job cuts and pay cuts....whoopie!
D
Delta said it would issue as much as 75 million shares of common stock as part of its restructuring plan.
A committee of its board of directors said any delay in shareholder approval could "seriously jeopardize" its financial viability.
***Stock dilution, job cuts and pay cuts....whoopie!
D
PFE News and Trade Deficit News
http://www.thestreet.com/_yahoo/stocks/biotech/10193568.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
http://www.forbes.com/markets/2004/11/10/cx_ab_1110video1.html?partner=yahoo&referrer=
Yes Trade deficit may have lessened due to rise in exports led by dollar weakness (making OUR goods cheaper), HOWEVER (can't I just take good news? LOL) this is not much improvement in deficit which is still near RECORD numbers.
Any further sharp declines in dollar could lead to a SPIKE in interest rates.
FED meets today and is expected to increase interest rates by predicted 25 basis points, the rate given to Banks. Carry trade play basically wiped out here. Not sure which side of coin HEDGE FUNDS are on as they were record long rates early summer and could have been hurt by any sharp rise in long term rates.
During this economic rebound, the FED telegraphed they would HOLD DOWN rates, and the carry trade PILED ON long bond positions, which helped reduce long term rates.
At some point you would assume they would unwind those positions.
Duratek
http://www.forbes.com/markets/2004/11/10/cx_ab_1110video1.html?partner=yahoo&referrer=
Yes Trade deficit may have lessened due to rise in exports led by dollar weakness (making OUR goods cheaper), HOWEVER (can't I just take good news? LOL) this is not much improvement in deficit which is still near RECORD numbers.
Any further sharp declines in dollar could lead to a SPIKE in interest rates.
FED meets today and is expected to increase interest rates by predicted 25 basis points, the rate given to Banks. Carry trade play basically wiped out here. Not sure which side of coin HEDGE FUNDS are on as they were record long rates early summer and could have been hurt by any sharp rise in long term rates.
During this economic rebound, the FED telegraphed they would HOLD DOWN rates, and the carry trade PILED ON long bond positions, which helped reduce long term rates.
At some point you would assume they would unwind those positions.
Duratek
PIMCO Strategic Global Fund
http://stockcharts.com/def/servlet/SC.web?c=RCS,uu[w,a]wallyiay[pc20!c5][vc60][iut!Ub14!La12,26,9]&pref=G
MACD just gave a sell signal on the weekly. Is this fund telling us something about the global economy?
D
MACD just gave a sell signal on the weekly. Is this fund telling us something about the global economy?
D
FED Warns on Government Spending
Greenspan, Fed Governors Warn on Government Spending (Update1)
Nov. 10 (Bloomberg) -- Federal Reserve Chairman Alan Greenspan says the growing U.S. budget deficit could destabilize the economy. Fed Governor Susan Bies says Congress spends like it's dipping into a ``a cookie jar.'' St. Louis Fed President William Poole says Social Security is in jeopardy.
In the last two months, Greenspan and at least seven other Fed officials have warned lawmakers about tax and spending policies that have led to record budget and current account gaps.
As Greenspan, 78, in January begins his last year atop the central bank, the comments suggest Fed members are concerned his successor will have less room to guide an economic expansion should they have to raise interest rates to counter a plunging dollar or surge in spending. Fed policy makers are likely to raise the benchmark rate by a quarter point to 2 percent when they meet today in Washington, a Bloomberg News survey shows.
The policy making Open Market Committee began meeting at 9 a.m. Washington time, a Fed spokesman said. The committee's decision on interest rates is expected around 2:15 p.m.
``If you get to a point of fairly significant long-term structural budget deficits, it begins to impact on the level of long-term interest rates,'' Greenspan told the House Budget Committee on Sept. 8. That means the government must pay higher rates to borrow money, leading to even higher deficits, he said.
``If you get into that sort of debt maelstrom, it is a very difficult issue to get out of,'' he said.
Record Deficits
The Open Market Committee has already raised rates three times since June to restore its benchmark rate to a level that neither slows growth nor sparks inflation. All 89 economists surveyed by Bloomberg predicted Greenspan and the FOMC would increase the overnight rate again at today's meeting because a more-than-expected gain of 337,000 jobs in October signals the economy is starting to use up spare capacity.
Budget surpluses from 1998 to 2001 helped Greenspan orchestrate the longest economic expansion in U.S. history. When the boom ended in 2001, low inflation allowed the Fed to cut the benchmark rate to 1 percent, the lowest since 1958, limiting the recession to just eight months.
Then the surpluses evaporated. President George W. Bush, who will choose the next Fed chairman, won passage of $1.85 trillion in tax cuts and raised spending for wars in Iraq and Afghanistan. Defense spending rose 12.4 percent in fiscal 2004 to $437 billion, the Congressional Budget Office said.
The budget deficit widened to a record $413 billion in the fiscal year ended Sept. 30, with government spending rising 6.2 percent from the previous year. The deficit amounted to about 3.6 percent of the country's $11.8 trillion gross domestic product, the highest percentage since 1993.
Policy `Out of Whack'
Social Security, the main government-funded retirement program, will spend more money than it takes in starting in 2018, according to a report by the program's trustees. Unless taxes are increased or benefits cut, trust-fund assets for retirees, now at $1.4 trillion, will fall to zero by 2042. A report by trustees of Medicare, a federal health-insurance program, shows their hospital insurance fund spending will exceed income by 2012.
``There are a number of things that are just extraordinary, beginning with the fiscal imbalance,'' said Representative Jim Leach, an Iowa Republican and former head of the House Financial Services Committee, which oversees the Fed. ``The Fed has less credible discretion the more out of whack fiscal policy gets.''
Possible Successors
Bush, 58, who won re-election on Nov. 2, hasn't mentioned a likely successor to Greenspan, whose nonrenewable term as governor ends Jan. 31, 2006, after a tenure spanning four presidents.
Alan Blinder, a Fed vice chairman from June 1994 to January 1996, said possible successors include Harvard University economist Martin Feldstein, 64, a Bush adviser on Social Security, and John Taylor, 57, Treasury undersecretary for international affairs.
Blinder, a 59-year-old Princeton University economist who was an adviser to Democratic nominee John Kerry, also named Fed Governor Ben Bernanke, 50, and former Fed Governor Lawrence Lindsey, 50, as potential candidates, at a Sept. 28 meeting of the Council on Foreign Relations in Washington.
Greenspan's successor must steer the economy through the effects of deficits, high oil prices and global terrorism, Leach, 62, said.
``These are extraordinary times,'' he said. ``Virtually all the risks in the world economy are on the downside.''
Crude oil for December delivery reached a record $55.67 a barrel in New York on Oct. 25. While prices have since slipped to $47.37 a barrel yesterday, oil is still 53.4 percent higher than a year ago.
$88.5 Billion Tax
San Francisco Fed Bank President Janet Yellen, 58, said the surge would result in a temporary boost in broad inflation and, as long as prices stay high, a tax on U.S. consumers. Greenspan said that tax amounted to about $88.5 billion this year, equal to 0.75 percentage points of GDP.
Former Dallas Fed President Robert McTeer flagged the record $166.2 billion deficit in the U.S.'s current account, the broadest measure of trade, as a threat to stability.
The current-account shortfall was equal to 5.7 percent of the economy in the second quarter, up from 5.1 percent in the first three months. The U.S. needs to attract about $1.8 billion a day from overseas to plug the gap. If other nations sour on U.S. securities, the value of the dollar may plunge.
``The current account deficit is going to cause problems,'' said McTeer, 62, who resigned Nov. 4 from the Fed to run Texas A&M University in College Station, Texas. ``Flows will turn against us, and there will be a crisis that will result in rapidly rising interest rates and a rapidly depreciating dollar that will be very disruptive,'' he said on Oct. 7 at a New York event sponsored by Market News International.
Dollar Drop
Bush's pledge to make his tax cuts permanent also has traders predicting the dollar will continue to fall. The currency may fall to its lowest level ever against the euro for a second consecutive week after Bush signaled he would expand policies that fueled the deficits and the dollar's decline of about 20 percent against a basket of currencies since he took office in 2001, according to a Bloomberg News survey. Bush will also seek more funding for the war in Iraq.
Sixty percent of the traders, strategists and investors questioned on Nov. 5 from Tokyo to New York advised selling the dollar against the euro.
``A second term for Bush doesn't bode well for the dollar,'' said Samarjit Shankar, director of global foreign-exchange strategy at Mellon Financial Corp. in Boston, which manages $625 billion. ``There's no way of convincing the market additional spending on the war can be paid for if you have a lower tax base. It's a fundamental mismatch between spending and revenue.''
Can't Go On
Greenspan urged Congress on Sept. 8 to rein in spending and return to the ``pay-as-you-go'' system that was in place during President Bill Clinton's administration, whereby all new expenditures or tax cuts needed to be offset by reductions in other programs or higher fee income from government services.
``We cannot continue to just go on without saying, `We can have this, but not this,' and pay-go embodies that mechanism,'' the chairman said.
The costs of Social Security and Medicare are likely to balloon as the 84 million members of the baby-boom generation -- those born between 1946 and 1964 -- begin to retire in 2010, pushing federal government obligations higher, even as the taxpaying workforce shrinks.
``If we have promised more than our economy has the ability to deliver to retirees without unduly diminishing real income gains of workers, as I fear we may have, we must recalibrate our public programs so that pending retirees have time to adjust through other channels,'' Greenspan said in an Aug. 27 speech in Jackson Hole, Wyoming. ``If we delay, the adjustments could be abrupt and painful.'' Greenspan was chairman of the Commission on Social Security Reform from 1981 to 1983.
`Cookie Jar'
Since then, Poole, 67, of the St. Louis Fed, has made two speeches advocating an increase in the retirement age as a way to reduce the cost of Social Security.
Fed Governor Bies blamed lawmakers for sometimes spending taxpayers' money for political gain during the past four years.
``The part of it that has gotten me so upset is that in this whole election debate, nobody's been talking about the spending side,'' Bies, 57, said after a speech to investors in Rosslyn, Virginia, on Oct. 23, 10 days before the presidential election.
``If you take out Homeland Security and Defense, it has been a cookie jar over the last four years,'' she said. ``Everything has gotten loaded in. Money has gone into these appropriation bills that are funding everything under the sun.''
Another challenge facing Greenspan in his final year is the behavior of the labor market. The economy has created just 814,000 net payroll jobs since the end of the last recession in 2001, even with average annualized GDP growth of 3.3 percent. That's the slowest pace of any expansion of the last 60 years.
Presidential Pressure
Presidents and Congress have sought to influence Fed chairmen throughout the central bank's 90-year history to try to promote their own economic policies. Low interest rates can help finance budget deficits, stimulate economic growth and help offset the negative impact of tax increases.
Harry Truman, the 33rd president, invited Federal Reserve policy makers to the White House in January 1951 to try to persuade them to continue to keep yields on Treasury securities low to help finance the Korean War.
Former President Richard Nixon said he respected Arthur Burns's independence when he appointed Burns to the Fed chairmanship. Then Nixon said: ``I hope that independently he will conclude that my views are the ones he should follow,'' Fed historian Allan Meltzer, a political economy professor at Carnegie Mellon University in Pittsburgh, wrote in a recent paper.
Too Accommodating
Lyle Gramley, who worked as Burns's speechwriter before becoming a Fed governor, said: ``He'd talk to the president, and the president was concerned about where the economy was going. There was evidence of a good bit of pressure directly on him. He clearly in retrospect ran a too-expansive monetary policy.'' Gramley is now an adviser to Schwab SoundView Capital Markets in Washington.
Greenspan also faced political pressure early in his term. Former Treasury Secretary Nicholas Brady criticized the Fed for not lowering interest rates fast enough in 1992, when George H.W. Bush ran for a second term and lost to Bill Clinton.
Economic Hurdles
Greenspan's successor is likely to feel that kind of political pressure as long as there are economic hurdles to overcome, said Senator Richard Shelby, an Alabama Republican.
``Whoever is in there is going to face a lot of challenges,'' said Shelby, chairman of the Banking Committee, which has oversight authority on the Federal Reserve. ``There will always be political pressure, whoever the Fed chairman is, unless the economy is just robust.''
``It is going to be a period when the president will need someone who is going to work closely with the executive branch,'' said James Galbraith, an economist at the University of Texas at Austin who worked with the framers of the Full Employment and Balanced Growth Act of 1978, which reiterated the Fed's goals.
``Is there going to be a problem in getting an adequate growth rate and turning the next administration into a political success?'' Galbraith said. ``Yes.''
Nov. 10 (Bloomberg) -- Federal Reserve Chairman Alan Greenspan says the growing U.S. budget deficit could destabilize the economy. Fed Governor Susan Bies says Congress spends like it's dipping into a ``a cookie jar.'' St. Louis Fed President William Poole says Social Security is in jeopardy.
In the last two months, Greenspan and at least seven other Fed officials have warned lawmakers about tax and spending policies that have led to record budget and current account gaps.
As Greenspan, 78, in January begins his last year atop the central bank, the comments suggest Fed members are concerned his successor will have less room to guide an economic expansion should they have to raise interest rates to counter a plunging dollar or surge in spending. Fed policy makers are likely to raise the benchmark rate by a quarter point to 2 percent when they meet today in Washington, a Bloomberg News survey shows.
The policy making Open Market Committee began meeting at 9 a.m. Washington time, a Fed spokesman said. The committee's decision on interest rates is expected around 2:15 p.m.
``If you get to a point of fairly significant long-term structural budget deficits, it begins to impact on the level of long-term interest rates,'' Greenspan told the House Budget Committee on Sept. 8. That means the government must pay higher rates to borrow money, leading to even higher deficits, he said.
``If you get into that sort of debt maelstrom, it is a very difficult issue to get out of,'' he said.
Record Deficits
The Open Market Committee has already raised rates three times since June to restore its benchmark rate to a level that neither slows growth nor sparks inflation. All 89 economists surveyed by Bloomberg predicted Greenspan and the FOMC would increase the overnight rate again at today's meeting because a more-than-expected gain of 337,000 jobs in October signals the economy is starting to use up spare capacity.
Budget surpluses from 1998 to 2001 helped Greenspan orchestrate the longest economic expansion in U.S. history. When the boom ended in 2001, low inflation allowed the Fed to cut the benchmark rate to 1 percent, the lowest since 1958, limiting the recession to just eight months.
Then the surpluses evaporated. President George W. Bush, who will choose the next Fed chairman, won passage of $1.85 trillion in tax cuts and raised spending for wars in Iraq and Afghanistan. Defense spending rose 12.4 percent in fiscal 2004 to $437 billion, the Congressional Budget Office said.
The budget deficit widened to a record $413 billion in the fiscal year ended Sept. 30, with government spending rising 6.2 percent from the previous year. The deficit amounted to about 3.6 percent of the country's $11.8 trillion gross domestic product, the highest percentage since 1993.
Policy `Out of Whack'
Social Security, the main government-funded retirement program, will spend more money than it takes in starting in 2018, according to a report by the program's trustees. Unless taxes are increased or benefits cut, trust-fund assets for retirees, now at $1.4 trillion, will fall to zero by 2042. A report by trustees of Medicare, a federal health-insurance program, shows their hospital insurance fund spending will exceed income by 2012.
``There are a number of things that are just extraordinary, beginning with the fiscal imbalance,'' said Representative Jim Leach, an Iowa Republican and former head of the House Financial Services Committee, which oversees the Fed. ``The Fed has less credible discretion the more out of whack fiscal policy gets.''
Possible Successors
Bush, 58, who won re-election on Nov. 2, hasn't mentioned a likely successor to Greenspan, whose nonrenewable term as governor ends Jan. 31, 2006, after a tenure spanning four presidents.
Alan Blinder, a Fed vice chairman from June 1994 to January 1996, said possible successors include Harvard University economist Martin Feldstein, 64, a Bush adviser on Social Security, and John Taylor, 57, Treasury undersecretary for international affairs.
Blinder, a 59-year-old Princeton University economist who was an adviser to Democratic nominee John Kerry, also named Fed Governor Ben Bernanke, 50, and former Fed Governor Lawrence Lindsey, 50, as potential candidates, at a Sept. 28 meeting of the Council on Foreign Relations in Washington.
Greenspan's successor must steer the economy through the effects of deficits, high oil prices and global terrorism, Leach, 62, said.
``These are extraordinary times,'' he said. ``Virtually all the risks in the world economy are on the downside.''
Crude oil for December delivery reached a record $55.67 a barrel in New York on Oct. 25. While prices have since slipped to $47.37 a barrel yesterday, oil is still 53.4 percent higher than a year ago.
$88.5 Billion Tax
San Francisco Fed Bank President Janet Yellen, 58, said the surge would result in a temporary boost in broad inflation and, as long as prices stay high, a tax on U.S. consumers. Greenspan said that tax amounted to about $88.5 billion this year, equal to 0.75 percentage points of GDP.
Former Dallas Fed President Robert McTeer flagged the record $166.2 billion deficit in the U.S.'s current account, the broadest measure of trade, as a threat to stability.
The current-account shortfall was equal to 5.7 percent of the economy in the second quarter, up from 5.1 percent in the first three months. The U.S. needs to attract about $1.8 billion a day from overseas to plug the gap. If other nations sour on U.S. securities, the value of the dollar may plunge.
``The current account deficit is going to cause problems,'' said McTeer, 62, who resigned Nov. 4 from the Fed to run Texas A&M University in College Station, Texas. ``Flows will turn against us, and there will be a crisis that will result in rapidly rising interest rates and a rapidly depreciating dollar that will be very disruptive,'' he said on Oct. 7 at a New York event sponsored by Market News International.
Dollar Drop
Bush's pledge to make his tax cuts permanent also has traders predicting the dollar will continue to fall. The currency may fall to its lowest level ever against the euro for a second consecutive week after Bush signaled he would expand policies that fueled the deficits and the dollar's decline of about 20 percent against a basket of currencies since he took office in 2001, according to a Bloomberg News survey. Bush will also seek more funding for the war in Iraq.
Sixty percent of the traders, strategists and investors questioned on Nov. 5 from Tokyo to New York advised selling the dollar against the euro.
``A second term for Bush doesn't bode well for the dollar,'' said Samarjit Shankar, director of global foreign-exchange strategy at Mellon Financial Corp. in Boston, which manages $625 billion. ``There's no way of convincing the market additional spending on the war can be paid for if you have a lower tax base. It's a fundamental mismatch between spending and revenue.''
Can't Go On
Greenspan urged Congress on Sept. 8 to rein in spending and return to the ``pay-as-you-go'' system that was in place during President Bill Clinton's administration, whereby all new expenditures or tax cuts needed to be offset by reductions in other programs or higher fee income from government services.
``We cannot continue to just go on without saying, `We can have this, but not this,' and pay-go embodies that mechanism,'' the chairman said.
The costs of Social Security and Medicare are likely to balloon as the 84 million members of the baby-boom generation -- those born between 1946 and 1964 -- begin to retire in 2010, pushing federal government obligations higher, even as the taxpaying workforce shrinks.
``If we have promised more than our economy has the ability to deliver to retirees without unduly diminishing real income gains of workers, as I fear we may have, we must recalibrate our public programs so that pending retirees have time to adjust through other channels,'' Greenspan said in an Aug. 27 speech in Jackson Hole, Wyoming. ``If we delay, the adjustments could be abrupt and painful.'' Greenspan was chairman of the Commission on Social Security Reform from 1981 to 1983.
`Cookie Jar'
Since then, Poole, 67, of the St. Louis Fed, has made two speeches advocating an increase in the retirement age as a way to reduce the cost of Social Security.
Fed Governor Bies blamed lawmakers for sometimes spending taxpayers' money for political gain during the past four years.
``The part of it that has gotten me so upset is that in this whole election debate, nobody's been talking about the spending side,'' Bies, 57, said after a speech to investors in Rosslyn, Virginia, on Oct. 23, 10 days before the presidential election.
``If you take out Homeland Security and Defense, it has been a cookie jar over the last four years,'' she said. ``Everything has gotten loaded in. Money has gone into these appropriation bills that are funding everything under the sun.''
Another challenge facing Greenspan in his final year is the behavior of the labor market. The economy has created just 814,000 net payroll jobs since the end of the last recession in 2001, even with average annualized GDP growth of 3.3 percent. That's the slowest pace of any expansion of the last 60 years.
Presidential Pressure
Presidents and Congress have sought to influence Fed chairmen throughout the central bank's 90-year history to try to promote their own economic policies. Low interest rates can help finance budget deficits, stimulate economic growth and help offset the negative impact of tax increases.
Harry Truman, the 33rd president, invited Federal Reserve policy makers to the White House in January 1951 to try to persuade them to continue to keep yields on Treasury securities low to help finance the Korean War.
Former President Richard Nixon said he respected Arthur Burns's independence when he appointed Burns to the Fed chairmanship. Then Nixon said: ``I hope that independently he will conclude that my views are the ones he should follow,'' Fed historian Allan Meltzer, a political economy professor at Carnegie Mellon University in Pittsburgh, wrote in a recent paper.
Too Accommodating
Lyle Gramley, who worked as Burns's speechwriter before becoming a Fed governor, said: ``He'd talk to the president, and the president was concerned about where the economy was going. There was evidence of a good bit of pressure directly on him. He clearly in retrospect ran a too-expansive monetary policy.'' Gramley is now an adviser to Schwab SoundView Capital Markets in Washington.
Greenspan also faced political pressure early in his term. Former Treasury Secretary Nicholas Brady criticized the Fed for not lowering interest rates fast enough in 1992, when George H.W. Bush ran for a second term and lost to Bill Clinton.
Economic Hurdles
Greenspan's successor is likely to feel that kind of political pressure as long as there are economic hurdles to overcome, said Senator Richard Shelby, an Alabama Republican.
``Whoever is in there is going to face a lot of challenges,'' said Shelby, chairman of the Banking Committee, which has oversight authority on the Federal Reserve. ``There will always be political pressure, whoever the Fed chairman is, unless the economy is just robust.''
``It is going to be a period when the president will need someone who is going to work closely with the executive branch,'' said James Galbraith, an economist at the University of Texas at Austin who worked with the framers of the Full Employment and Balanced Growth Act of 1978, which reiterated the Fed's goals.
``Is there going to be a problem in getting an adequate growth rate and turning the next administration into a political success?'' Galbraith said. ``Yes.''
Wall Street Journal "Cisco Adds to High-Tech Worries"
Cisco Adds to High-Tech Worries
Profit Matches Estimates,But Revenue Falls Short And Outlook Is Cautious
By SCOTT THURM Staff Reporter of THE WALL STREET JOURNALNovember 10, 2004; Page A3
Computer-networking titan Cisco Systems Inc. offered new causes for worry about the strength of the high-tech recovery, with middling fiscal first-quarter results and a tepid outlook for coming months.
Cisco of San Jose, Calif., reported first-quarter revenue slightly below analysts' expectations. Orders trailed shipments. A key profit measure declined. And Cisco failed to reduce inventories that had grown rapidly in recent quarters.
Chief Executive John Chambers declared it a "good" quarter for Cisco, but said the company continues to face challenges, ranging from the hesitancy of corporations to buy technology gear to a rising wave of low-cost Asian competitors.
For the three months ended Oct. 30, Cisco said net income increased 29% to $1.4 billion, or 21 cents a share, from $1.09 billion, or 15 cents a share, a year earlier.
Revenue rose 17% to $5.97 billion from $5.1 billion a year earlier. But revenue increased less than 1% from the preceding quarter. That was consistent with Cisco's forecast, but about $50 million shy of analysts' expectations.
Profit matched expectations because Cisco held down expenses better than it projected. But even that silver lining came with a cloud: some of the decrease was the result of lower-than-projected commissions to salespeople. Chief Financial Officer Dennis Powell said he expects operating expenses to rise slightly in the current quarter ending in January, compared with the just-completed quarter.
Cisco's results add to a growing body of evidence that the strong rebound in tech spending that began about a year ago has begun to weaken. Other tech giants, including Intel Corp. and Microsoft Corp., also have felt the impact of slowing growth in corporate purchases.
Reinforcing the concerns, Cisco projected that revenue in the current quarter would increase 12% to 14% from a year earlier, slightly less than analysts had expected. Mr. Chambers said he doesn't expect customers to increase spending at the end of the year to exhaust unused technology budgets. "I expect people will be a little more conservative," he said.
CATCH OF THE QUARTER
See how 12 big companies fared during the fall earnings season.
Tim Luke, an analyst for Lehman Brothers Holdings Inc., called Cisco's forecast "somewhat uninspiring," although he noted that Cisco projected orders would outpace shipments in the current quarter.
The company reported its results after regular trading hours. In 4 p.m. Nasdaq trading, Cisco shares fell 22 cents to $19.75. In after-hours trading, Cisco shares dropped to $19.27.
Despite concerns, Cisco continued to be a cash machine, generating $1.5 billion in cash from operations. Cisco reported holding roughly $17.7 billion in cash and liquid investments, down from $19.3 billion three months ago, because of its aggressive share-repurchase program.
Cisco's gross profit margin, or sales minus the cost of producing goods sold, slipped to 67.2% of revenue, compared with 68.4% in the prior quarter. Mr. Powell said the decline was the result of increased sales of low-cost Linksys home-networking products and the introduction of new switches that direct computer traffic across corporate networks. Mr. Powell said Cisco typically introduces new products at lower-than-normal profit margins and then modifies the products to reduce production costs -- and increase profits.
Mr. Powell said inventories didn't decline, as many analysts expected, because Cisco is keeping more spare parts to support new products in areas such as security and Internet telephony. Mr. Powell said the company had reduced, by $106 million, the parts it has ordered from suppliers to keep pace with its more subdued forecast.
Profit Matches Estimates,But Revenue Falls Short And Outlook Is Cautious
By SCOTT THURM Staff Reporter of THE WALL STREET JOURNALNovember 10, 2004; Page A3
Computer-networking titan Cisco Systems Inc. offered new causes for worry about the strength of the high-tech recovery, with middling fiscal first-quarter results and a tepid outlook for coming months.
Cisco of San Jose, Calif., reported first-quarter revenue slightly below analysts' expectations. Orders trailed shipments. A key profit measure declined. And Cisco failed to reduce inventories that had grown rapidly in recent quarters.
Chief Executive John Chambers declared it a "good" quarter for Cisco, but said the company continues to face challenges, ranging from the hesitancy of corporations to buy technology gear to a rising wave of low-cost Asian competitors.
For the three months ended Oct. 30, Cisco said net income increased 29% to $1.4 billion, or 21 cents a share, from $1.09 billion, or 15 cents a share, a year earlier.
Revenue rose 17% to $5.97 billion from $5.1 billion a year earlier. But revenue increased less than 1% from the preceding quarter. That was consistent with Cisco's forecast, but about $50 million shy of analysts' expectations.
Profit matched expectations because Cisco held down expenses better than it projected. But even that silver lining came with a cloud: some of the decrease was the result of lower-than-projected commissions to salespeople. Chief Financial Officer Dennis Powell said he expects operating expenses to rise slightly in the current quarter ending in January, compared with the just-completed quarter.
Cisco's results add to a growing body of evidence that the strong rebound in tech spending that began about a year ago has begun to weaken. Other tech giants, including Intel Corp. and Microsoft Corp., also have felt the impact of slowing growth in corporate purchases.
Reinforcing the concerns, Cisco projected that revenue in the current quarter would increase 12% to 14% from a year earlier, slightly less than analysts had expected. Mr. Chambers said he doesn't expect customers to increase spending at the end of the year to exhaust unused technology budgets. "I expect people will be a little more conservative," he said.
CATCH OF THE QUARTER
See how 12 big companies fared during the fall earnings season.
Tim Luke, an analyst for Lehman Brothers Holdings Inc., called Cisco's forecast "somewhat uninspiring," although he noted that Cisco projected orders would outpace shipments in the current quarter.
The company reported its results after regular trading hours. In 4 p.m. Nasdaq trading, Cisco shares fell 22 cents to $19.75. In after-hours trading, Cisco shares dropped to $19.27.
Despite concerns, Cisco continued to be a cash machine, generating $1.5 billion in cash from operations. Cisco reported holding roughly $17.7 billion in cash and liquid investments, down from $19.3 billion three months ago, because of its aggressive share-repurchase program.
Cisco's gross profit margin, or sales minus the cost of producing goods sold, slipped to 67.2% of revenue, compared with 68.4% in the prior quarter. Mr. Powell said the decline was the result of increased sales of low-cost Linksys home-networking products and the introduction of new switches that direct computer traffic across corporate networks. Mr. Powell said Cisco typically introduces new products at lower-than-normal profit margins and then modifies the products to reduce production costs -- and increase profits.
Mr. Powell said inventories didn't decline, as many analysts expected, because Cisco is keeping more spare parts to support new products in areas such as security and Internet telephony. Mr. Powell said the company had reduced, by $106 million, the parts it has ordered from suppliers to keep pace with its more subdued forecast.
Tuesday, November 09, 2004
"Pictures Of a Stock Market Mania"
http://www.cross-currents.net/charts.htm
Most recent "free" edition. Tobin's Q discussed near end of essay, very important ratio IMHO.
My best guess, is that we a reaching at VERY least a short term top. Last few rallies during previous months were met with SCEPTICISM by the bears and some bulls as represented by the Put Call Ratio, meaning it was high as a fair amount of puts were bought for downside protection and or speculation. NOT SO this time. LOW VIX again (volatility index) below 14.
I expect more volatility to surround WED FED meeting decision around 2:15 PM. This week is a turn window for markets if STILL active. With no pull back and VERY OVERBOUGHT indicators, I must assume a high would be in place. No guarantees of that because of strength, but some kind of retracement seems due.
This is NOT a market about values, this is about MOMO and hedge funds, about buying because stocks are going up and the idea that will continue.
Weeks end money supply numbers will be interesting. I have pointed out that in recent months they have been declining, not a good sign for economy dead ahead. The numbers for the 2 weeks prior to today were UP about $38 Billion. BUT the 2 weeks prior to that, the money supply was DOWN near $80 Billion!!!
Where else do you read about this? Is why my opinion and site is important IMHO, because it is easy to see things just one way if that is all you are coming into contact with, meaning mainstream media.
Timing can be elusive, but the facts are on my side IMHO.
Well, again, if I wanted to establish some kind of LONG position, should I do it with such overbought conditions?
Duratek
Most recent "free" edition. Tobin's Q discussed near end of essay, very important ratio IMHO.
My best guess, is that we a reaching at VERY least a short term top. Last few rallies during previous months were met with SCEPTICISM by the bears and some bulls as represented by the Put Call Ratio, meaning it was high as a fair amount of puts were bought for downside protection and or speculation. NOT SO this time. LOW VIX again (volatility index) below 14.
I expect more volatility to surround WED FED meeting decision around 2:15 PM. This week is a turn window for markets if STILL active. With no pull back and VERY OVERBOUGHT indicators, I must assume a high would be in place. No guarantees of that because of strength, but some kind of retracement seems due.
This is NOT a market about values, this is about MOMO and hedge funds, about buying because stocks are going up and the idea that will continue.
Weeks end money supply numbers will be interesting. I have pointed out that in recent months they have been declining, not a good sign for economy dead ahead. The numbers for the 2 weeks prior to today were UP about $38 Billion. BUT the 2 weeks prior to that, the money supply was DOWN near $80 Billion!!!
Where else do you read about this? Is why my opinion and site is important IMHO, because it is easy to see things just one way if that is all you are coming into contact with, meaning mainstream media.
Timing can be elusive, but the facts are on my side IMHO.
Well, again, if I wanted to establish some kind of LONG position, should I do it with such overbought conditions?
Duratek
Monday, November 08, 2004
'Smell The Coffee' editorial
http://www.baltimoresun.com/news/opinion/bal-ed.econ08nov08,1,2830789.story?coll=bal-opinion-headlines
'Smell the coffee'
November 8, 2004WHAT ARE global currency traders telling Americans?
Last week, as President Bush, flush with electoral victory, confidently outlined his agenda for his second term, support for the dollar sank.
The president talked of remaking the U.S. tax code, while vowing not to raise taxes.
He talked of halving this year's record federal deficit by 2009, but didn't mention that that projection doesn't include the potential cost of the wars in Iraq and Afghanistan or scaling back an arcane but increasing important levy, the Alternative Minimum Tax - which alone could cost $500 million.
He talked of solving the looming Social Security crisis by creating private accounts, while not offering any way to offset the cost of the transition, estimated to start at $1 trillion.
And by week's end - despite good news in the latest U.S. jobs report Friday - the dollar hit a record low against the euro.
The dollar has lost more than 20 percent of its value since Mr. Bush took office, and it has fallen by more than 8 percent since its last high toward the end of April.
Said one London currency trader quoted by Bloomberg News after the favorable jobs report failed to spark a dollar rally: "There is something seriously wrong with the dollar. If you can't smell the coffee on this, I don't know what's wrong with you."
For currency traders, the strong smell comes from the record U.S. budget deficits resulting from the president's reckless cutting of taxes but not of spending.
Federal spending is $400 billion higher this year than when Mr. Bush took office, while federal tax revenue is $100 billion lower. Even if Mr. Bush does markedly lower federal deficits by 2009, they're expected to soar again - particularly if he makes permanent his tax cuts, adding another $1 trillion in debt by 2014.
Absent tax increases, there's little reason to believe that cuts in discretionary federal spending can fill the fiscal hole. Nor can economic growth. It's just much too big.
What currency traders see is a country living way beyond its means now and - President Bush's confidence aside - way into the future, a nation borrowing billions of dollars each day from foreigners and their governments to keep its government afloat and balance its trade deficit with the world.
A moderate, carefully managed decline in the dollar could help the U.S. economy's competitiveness, or at least stabilize America's growing indebtedness to the world. But the all-too-real fear is of suddenly reaching a tipping point beyond which world investors stampede from the dollar and America - resulting in a sharp dive in the dollar, harsh spikes in U.S. inflation and interest rates, and a deep plunge into recession.
In his first term, Mr. Bush appeared blind to mounting deficits. At the start of his second term, his concern does not appear appreciably heightened. Instead, Mr. Bush is offering a radically large ambition - simultaneously overhauling the tax code and Social Security. The nation must respond cautiously, lest he break its bank.
Copyright © 2004, The Baltimore Sun
'Smell the coffee'
November 8, 2004WHAT ARE global currency traders telling Americans?
Last week, as President Bush, flush with electoral victory, confidently outlined his agenda for his second term, support for the dollar sank.
The president talked of remaking the U.S. tax code, while vowing not to raise taxes.
He talked of halving this year's record federal deficit by 2009, but didn't mention that that projection doesn't include the potential cost of the wars in Iraq and Afghanistan or scaling back an arcane but increasing important levy, the Alternative Minimum Tax - which alone could cost $500 million.
He talked of solving the looming Social Security crisis by creating private accounts, while not offering any way to offset the cost of the transition, estimated to start at $1 trillion.
And by week's end - despite good news in the latest U.S. jobs report Friday - the dollar hit a record low against the euro.
The dollar has lost more than 20 percent of its value since Mr. Bush took office, and it has fallen by more than 8 percent since its last high toward the end of April.
Said one London currency trader quoted by Bloomberg News after the favorable jobs report failed to spark a dollar rally: "There is something seriously wrong with the dollar. If you can't smell the coffee on this, I don't know what's wrong with you."
For currency traders, the strong smell comes from the record U.S. budget deficits resulting from the president's reckless cutting of taxes but not of spending.
Federal spending is $400 billion higher this year than when Mr. Bush took office, while federal tax revenue is $100 billion lower. Even if Mr. Bush does markedly lower federal deficits by 2009, they're expected to soar again - particularly if he makes permanent his tax cuts, adding another $1 trillion in debt by 2014.
Absent tax increases, there's little reason to believe that cuts in discretionary federal spending can fill the fiscal hole. Nor can economic growth. It's just much too big.
What currency traders see is a country living way beyond its means now and - President Bush's confidence aside - way into the future, a nation borrowing billions of dollars each day from foreigners and their governments to keep its government afloat and balance its trade deficit with the world.
A moderate, carefully managed decline in the dollar could help the U.S. economy's competitiveness, or at least stabilize America's growing indebtedness to the world. But the all-too-real fear is of suddenly reaching a tipping point beyond which world investors stampede from the dollar and America - resulting in a sharp dive in the dollar, harsh spikes in U.S. inflation and interest rates, and a deep plunge into recession.
In his first term, Mr. Bush appeared blind to mounting deficits. At the start of his second term, his concern does not appear appreciably heightened. Instead, Mr. Bush is offering a radically large ambition - simultaneously overhauling the tax code and Social Security. The nation must respond cautiously, lest he break its bank.
Copyright © 2004, The Baltimore Sun
The Next Bush Recession
http://www.safehaven.com/article-2171.htm
by John Mauldin. Looks to me the GDP was manipulated HIGHER to make economy appear better than actual, read on.
D
by John Mauldin. Looks to me the GDP was manipulated HIGHER to make economy appear better than actual, read on.
D
Saturday, November 06, 2004
My email to Richard Russell and my Dow observations
http://stockcharts.com/def/servlet/SC.web?c=$INDU,uu[w,a]wallyiay[pb40!f][vc60][iut!Ua12,26,9!Ub14]&pref=G
Richard,
Breaking the prior peak at first might seem as a decent accomplishment, and is as far as the retracement goes......but when looking back as we can, in the context of the greater Bear Market (if we're still in one even though PTI made an alltime high) this feat is NOT that unusual, and has in the past SET UP a greater reversal.
Please note that after making the bull mkt high in 2000, the DOW managed to defeat the 40 WEEK moving average twice in 2000, once in 2001 and once in 2002 BEFORE making SIGNIFICANT DECLINES! (also these spike bettered the highs of the previous declines)
I also observe the "LOOK" of the MACD and RSI are VERY similar when this occurred. And UNLIKE the previous BULL MKT when the 40 WEEK (200 SMA) was RISING, the 40 WEEK during this Bear Market and subsequent corrections (rallies) has been in a declining to flattening projection.
ALSO, only ONE other time since 1995 has the 40 WEEK flattened out, and that was in 2000 when the DOW reached it's all time highs.....to date.
SO far, the DECLINING trendline formed from the TOPS in 2000, 2002 and 2004 is still in play, it crosses not far from where we now lay.
Your point in NOT fighting the tape (even with fundamentals as we know them) is VERY well taken and understood. My exercise was to try and put into context to what has occurred in the past to gain some insight as to what are some of the potentials. Especially since the BULLISH DIN has grown so deafening, sending many indicators not only into overbought readings on the 5 day but VERY overbought, and some on the 5 week readings.
Appreciate your insights and look forward to exploring the future with you.
Duratek
Richard,
Breaking the prior peak at first might seem as a decent accomplishment, and is as far as the retracement goes......but when looking back as we can, in the context of the greater Bear Market (if we're still in one even though PTI made an alltime high) this feat is NOT that unusual, and has in the past SET UP a greater reversal.
Please note that after making the bull mkt high in 2000, the DOW managed to defeat the 40 WEEK moving average twice in 2000, once in 2001 and once in 2002 BEFORE making SIGNIFICANT DECLINES! (also these spike bettered the highs of the previous declines)
I also observe the "LOOK" of the MACD and RSI are VERY similar when this occurred. And UNLIKE the previous BULL MKT when the 40 WEEK (200 SMA) was RISING, the 40 WEEK during this Bear Market and subsequent corrections (rallies) has been in a declining to flattening projection.
ALSO, only ONE other time since 1995 has the 40 WEEK flattened out, and that was in 2000 when the DOW reached it's all time highs.....to date.
SO far, the DECLINING trendline formed from the TOPS in 2000, 2002 and 2004 is still in play, it crosses not far from where we now lay.
Your point in NOT fighting the tape (even with fundamentals as we know them) is VERY well taken and understood. My exercise was to try and put into context to what has occurred in the past to gain some insight as to what are some of the potentials. Especially since the BULLISH DIN has grown so deafening, sending many indicators not only into overbought readings on the 5 day but VERY overbought, and some on the 5 week readings.
Appreciate your insights and look forward to exploring the future with you.
Duratek
Subscribe to:
Posts (Atom)
