(v. 5, i.9 5/16/03)
This is a very constructive event as it gives us further confirmation that the
long-term trend in prices has finally been reversed (from down to up) and that
this devastating 3 year Bear Market was completed on the October 2002 lows.
This long term trend reversal above our long term price channels does not change
the fact the Market is overbought and in need of a rest or consolidation but it
does remove the more worrisome risk that the Markets were vulnerable to another
Leg down below last year lows.
As the market begins to consolidate step up purchase of top ranked $flow stocks,
Continue to Sell/Avoid now more than ever bottom 3 decile stocks.”
These
errors have in common two sources. The first is a failure to understand the
present in terms of history. The Shia did not rise because of bitter
memories of their betrayal in 1991—a piece of the past that optimistic
forecasters glossed over. And the Arab street did not rise in the 1991 Gulf
war, or when the Taliban were overthrown, when the same hackneyed
predictions were made. The
failure to think historically includes a failure to appreciate discontinuity
too: America's determination had echoes of older, grimmer wars but reflected
also the new sensibility of the world after September 11 2001. The US
military, meanwhile, had continued its relentless technological development.
The second error is that identified by George Orwell shortly after the Second
World War, as he sadly catalogued his own erroneous predictions in that
conflict. ‘In general, one is only right when either wish or fear coincides
with reality – we are all capable of believing things which we know to be
untrue, and then, when we are finally proved wrong, impudently twisting the
facts so as to show that we were right. Intellectually, it is possible to carry
on this process for an indefinite time: the only check on it is that sooner or
later a false belief bumps against the solid reality, usually on a
battlefield.’
As a partial remedy, Orwell suggested keeping a journal and forcing oneself to
look at it and ponder one's frequent errors and scarcer correct predictions.
Having bumped into reality on the battlefield, many of us would do well to open
such a diary and, next time, be wary of our own certainties.”
‘The confines of the DJIA's relationship to the SPX widened a bit as we moved
into the 1990s. But ...the major transformation began in mid-2000 when the DJIA
surged relative to the SPX to levels well beyond the previous upper bounds. The
peak was reached in July 2002, at which point the DJIA reached a level of more
than 22 percent above “baseline” relative to the S&P. There has been a
pullback since this peak, but the DJIA still sits at a whopping 18 percent above
baseline.
Yes, I know – some of this DJIA outperformance was due to its relatively
modest exposure to technology. But some of it was also due to the sheer
levitation of such high-priced names as 3M Company and Procter & Gamble. Is
it a “coincidence” that the highest-priced names in the only index that is
price-weighted performed so well? Perhaps, or perhaps not. But in any event,
there is much work to be done to the downside for the DJIA to begin to seriously
revert back toward baseline, which is my expectation. This only serves to
accentuate my repeated advice since year-end 2002: Avoid the big blue chip
names. Concentrate your long exposure in tech, especially in the small and
mid-caps.’”
Price action suggests the surprises are no longer to the downside under present
conditions. Oddly, in fact, now
that the audience is trained on the bear market and the likelihood per the
experts that this rally will also fail, the higher prices go, the greater the
surprise will be that they can continue on that upward slant.”
As
for Wall Street, reform and all that is well and good in moderation. But
when otherwise sensible people start to complain about the head of the New
York Stock Exchange getting $10 a million a year, things are getting a
little out of hand. Next you know, they'll be asking what the head of the
New York Stock Exchange does. Really.”
You
can do targets in a number of ways-fundamentally by guessing earnings of the
stocks covered by an index, and then guessing at the price-earnings ratio
that the index will be awarded. But guesses are pretty esoteric and involve
many assumptions in their make-up. So
while I’m guessing, I prefer methods used by measuring stock market
action. I have been expecting that a short-covering rally would follow its
normal bull market practice of erasing the downward action of the last
‘capitulation’ decline on its first upward assault.
Just prior to this long drawn-out
bottoming formation that ha lasted from the July 23,
2002 low point to the last correction that
ended on March 13, 2003, that last devastating ‘capitulation’ decline began
on April 1, 2002. My first ‘guess’ for expected targets, therefore, came
from that line of reasoning expecting the ‘short-covering’ rally to take
most indices back to their early April 2002 levels. But
of course, I never forget my Edwards & Magee bible of technical analysis
that revealed the amazing tendency of stocks and indices to form
head-and-shoulders tops and bottoms. Don’t forget, however, that they
cautioned us that the price pattern often produce fake-out ‘patterns,’
and unless they are confirmed by the volume patterns as well you should
totally discount them. But with that aside, when the price index and the
volume produces a ‘confirmed’ reverse head-and-shoulders break-out above
the neckline, you can predict a target by measuring the distance from the
low point of the upside-down head to the neckline, and then extend that same
distance (price differential) above the neckline. In very many cases, this
projection becomes the target that is eventually reached. Last week
witnessed many indices that for the very first time experienced price action
above their ‘rising’ 200-day moving average. It also produced many
indices that have either broken above their ‘neckline’ of the reverse
head-and-shoulders, or very close to doing so. So
when I read the ‘big joke’ in Barrons about Ms. Cohen’s target
in the next 12 months, I wondered just how this compared with this dual
method of target projection. The following table shows the targets for a
wide range of indices using both methods, then averages the two together and
gives the percentage from current levels that the indices would have to
rally in order to reach that target. I think you will be amazed to see how
both methods correlate so closely to each other, and how close the S&P
500’s target is to Ms. Cohen’s.
But still, take my targets and Ms. Cohen’s targets with large ‘grains’ of
salt."
Mr. Purcell glosses over ethical realities of capitalism as if they are a
nuisance. And Mr. O'Neal believes the threat is that investors will learn the
wrong lesson by being recompensed here but offers zero recognition that is [his]
managers who must learn the right lesson; that firms such as his must pay for
the frauds perpetrated upon its own customers. They just don't get it. And you
and I and just about everyone else knows it and understands it. And that's the
best reason why the public is not about to trust Wall Street –for a long time
to come.”
Blair, who has resigned from the New York Times in the face of a scandal over
his serial fabrications, was an intern for the Boston Globe when he wrote the
Williams story.
Five people, including three parents of soldiers who were killed or wounded in
Iraq, have complained that Blair quoted them without ever talking to them. Now,
as first unearthed by a U.S. News & World Report researcher, it appears that
Williams was an early victim.”
Since
then, it’s been nothing but see-saw between about 7800 and 8600. In all of
the favorable season thus far in 2003, we have failed to close above the
8896 registered in November. More problematic, the Nasdaq is rallying, the
Russell and S&P are rallying – and the Dow is stagnant. The
leadership of this rally is in the secondaries, not the quality issues.
That’s why the indicators I follow most closely now all demand that I
slash our exposure to common stocks from their current 70 - 85% to just 40 -
50%. We’ll be selling some great companies here, not because I have any
concerns about the companies themselves, but because I believe that even as
the companies do well, their stocks will decline. I’ve often noted that,
in my opinion, what a company does in its market accounts for no more than
an eighth to a quarter of the stock price; that a quarter to three-eighths
of the price reflects how that company’s industry sector is doing; and
that the biggest determinant, one-half to five-eighths, is determined purely
by the direction of the overall market. No matter how well a company does,
if no one wants to own stocks this month, there will be no buyers and the
price of the stock will drift lower. That’s the environment I believe we
are now heading into.”
This
month’s upgrades in momentum cut across a wide cross-section of economic
sectors The one economic sector that is broadly underperforming the others
and is stuck in negative mode is Consumer Staples.... The
longer the time spent in Stage 1, the greater the likelihood that the
industry will soon upgrade to Stage 2. Stage 2 represents bull market
leadership. With this perspective in mind, we are highlighting the Computer
& Peripheral Industry this month. It, along with Wireless Telecom, Media
and Multi-Utility & Unregulated Power industries, has been in Stage 1
for seven consecutive months. These industries demonstrate the potential to
become market leaders. ...This
month only three, or 5%, of all industries are in Stage 2. •
We use the S&P price momentum model as an objective tool that often
challenges our personal view or biases. The current challenge the model
poses to us is our neutral weighting of Information Technology...Telecom
Services, Information Technology, Utilities and Healthcare [are] the sectors
at the top of Stage 1 and therefore the most likely sectors to lead the
market higher. On January 8, 2003, we upgraded the Telecom Services group
from underweight to neutral (we felt bad news was priced in). On April 2,
2003, we upgraded Info Technology from underweight to neutral (based upon
this model). Our model is now challenging us to upgrade both industries to
overweight, or at least to ‘take it under consideration.’ That is what
an objective model should do. We promise to take it under consideration. But
current high P/E multiples and the risk of earning disappointments in 2003
keep us at a neutral weighting. We will continue to monitor these sectors
closely.”
‘I lied to the people who were my co-workers and cared about me,’ he told
‘60 Minutes’ in an interview airing Sunday to promote a forthcoming novel.
‘I lied to my family. I lied to my editors. I lied to all of the readers, and
I lied to the people I was writing about.’
...In ‘The Fabulist,’ being published by Simon & Schuster, Glass uses
only one real name – his own – in a fictionalized treatment of how he
bamboozled the world as a 25-year-old New Republic writer who always seemed to
have the most colorful scenes and the most perfect quotes. Perhaps fittingly,
the other characters all have fake names.
Leon Wieseltier, the New Republic's literary editor, said yesterday that ‘even
in his reckoning of his crimes, he seems incapable of nonfiction. It's
unbelievable. This may be the first novel ever written for the sole purpose of
avoiding fact-checking.’
‘The publisher and the media are compliant in a callow man's attempt to profit
from some of the worst aspects of American life,’ said Wieseltier. ‘In the
American media, crime is a form of upward mobility, because it makes celebrity
possible. It's really disgusting.’
Charles Lane, the former New Republic editor who fired Glass in 1998, said he
was stunned ‘that someone could do what Steve did and cash in on it, but I
guess that's the way America works these days. If Steve were as contrite as he
purports to be on national television, the more appropriate first step would
have been to contact the numbers of people at the New Republic who were his
close friends and tell them individually and personally how sorry he feels.’
‘That would have really taken courage,’ said Lane, now a Washington Post
reporter."
-
The tech sector may be surging on Wall Street, but it continues to struggle
out in the real world. Hiring projections for IT workers during the next
year are the lowest since 2000, according to the Information Technology
Association of America, and more than a tenth of IT companies are planning
to move jobs to countries with cheaper labor.
-
Maybe tech stock investors have become a tad too optimistic...it wouldn't be
the first time.”
It's
not the unintended consequences that she and Silicon Valley friends are
worried about. It's the fully intended consequences, such as less-inflated
earnings reports, better-justified executive compensation and reduced
corporate obsession with the vagaries of the stock market. The
eagerness of lawmakers to work with Silicon Valley executives on legislation
to control accounting standard-setting is a frightening sight to behold; it
provides more evidence of the need for standard-setting that's out of their
direct political grasp. An independent FASB is the best hope of America's
individual investors, who don't have a well-oiled lobbying machine and
aren't well-represented by elected officials.
...The FASB's 1994 defeat
couldn't have happened without the apathy of investors. Neither institutional
nor individual investors supported the FASB much in its quest to end
dysfunctional accounting for stock- option compensation. If history is to be
kept from rhyming, both kinds of investors must make their voices heard at the
FASB and in Congress.”
Major clouds that had previously hung over the
markets-worries regarding terrorism, military engagement in Iraq,
and the domestic problems involving corporate governance and accounting-have
receded. Our recommended asset allocation was adjusted in early April, reducing
the suggested exposure to bonds to well below the benchmark. We advise an
overweight position in equities. And the model portfolio no longer suggests an
overweight position in Energy, which had been put in place in September 2001 as
a geopolitical hedge.”
In
recent client meetings, I had the impression that few investors realized
that cyclicals were currently outperforming the market indices. Therefore,
when asked in what decade this new leadership will appear, my reply was
‘You are looking at it.’"
Two data points are statistically meaningless, but it is the best we can do with
the data available. But, even though a statistician might scoff, I personally
think this is important evidence that we should consider. An important opposing
point, the 1942 and 1974 bottoms were also accompanied by extremely low
valuations. Nevertheless, there are long-term technical signs that the market
may be headed higher. If the SPX were to decisively break out of the trading
range and above the long-term head and shoulders neckline, it would be the final
technical event needed to cancel the bearish case for the time being. A break
out of the trend channel would not be conclusive by itself.
It does not seem reasonable to me that we are beginning a secular bull market
with valuations in the stratosphere, but a cyclical bull market is not out of
the question.
Looking at intermediate-term indicators (not shown) the market is extremely
overbought, and it seems unlikely that it can power through all that overhead
resistance without consolidating or correcting first.”
Nor is it clear how the money will be spent. More than $430m will be allotted to
independent research, but no one knows what such research might be. Another $80m
is to be spent on investor education. Again, no one knows what this means, or
how the spending will be administered. Most complex of all, the settlement
includes a fund of $387.5m for investor restitution. Even if this is reserved
for losses on stocks mentioned in the complaint, dividing the money fairly looks
impossible. Investors lost billions of dollars on these stocks alone.
The wisest course for investors may be to consider their losses an effective, if
expensive, form of education. Next time they should use the only truly
independent research available: their own.”
The answer is clear: When you do the math in Silicon Valley, the only acceptable
value that an option can have when it is given to an employee is ‘zero.’”
If
/ when the Fed ’s problem is a lack of anti-deflation credibility,
threatening/promising to use the printing press to ‘influence directly
the yields on privately issued securities’ is the right thing to do.
Indeed, if the threat/promise is ‘credible,’ then the Fed never has to
ever actually use the printing press for that purpose!
Bottom
Line:
So far, the Bernanke Put has worked: it
was a clarion call to buy corporate bonds, which haven’t looked back since
(not that Ben deserves all the credit!). The Fed’s anti-deflation credibility
is now in a bull market. The Fed would be wise to solidify and strengthen that
anti-deflation credibility by – you guessed it! – adopting an explicit
inflation target that is higher than today ’s inflation rate. In our
[recent] Financial Times essay, Bill Dudley and I suggested ‘2% or
higher’ for the core PCE deflator, up from the current 11.2% annual running
rate. (Letting the cat out of the bag, Bill wrote ‘2%’; I wrote ‘or
higher.’) I
don’t look for the Fed to adopt an explicit inflation target anytime soon,
even though I believe firmly that the FOMC stealthily plans to ‘let’ the
inflation rate rise to 2% or higher, before it considers tightening policy.
My hope is that Chairman Greenspan uses his last few years to come ‘round
to Governor Bernanke’s advocacy of quantifying just what ‘price
stability’ means, leaving behind a Fed rich in both anti-inflation and
anti-deflation credibility.
If so, I’ll be pounding the table for putting Mr. Greenspan’s name on the
building!"
The
rally that is taking place is not to be confused with a new bull market. The
chances of a new bull market starting from here are very remote. The
valuation levels are much too high, the sentiment figures much too bullish,
and the public participation still much too high, for this to be the
beginning of a new bull market. Please keep in mind that the 1929-1932 bear
market was punctuated by six big rallies with respective jumps of 48%, 16%,
23%, 29%, 35%, and 25%. Each one of these rallies should have been sold or
sold short in order to achieve the maximum returns in that significant bear
market.”
But
net outflow in 8 of last 10 months totals $110 bil., equal to over 4%
avg. total equity fund assets over period. •
U.S. focus equity funds net inflow of $1.6 bil. in Mar.—light, but
surprisingly positive, since we were expecting moderate net outflow of $6
bil. based on March's weekly short-term data. YTD $10 bil. net outflow is
big contrast to 2002 YTD $51 bil. net inflow, and is even bigger contrast to
2000 YTD $100 bil. net inflow. ...Monthly
net inflow total will likely rise in April. Looking for April's total net
inflow to perhaps hit low double digits by month end. Fund
Managers Equity Sellers In March To Boost Cash Levels •
According to the latest ICI data, cash levels at U.S. focus equity funds
rose by about $10 bil. in March. This indicates fund managers
were selling equities in order to boost cash levels. ...Cash
percentage rose to 4.6% of assets, up from 4.15% in February.”
‘The
political and social "isms" of our day preach every conceivable ideal,
but, under this mask, they pursue the goal of lowering the level of our
culture by restricting or altogether inhibiting the possibilities of
individual development.’ Jung adds that the great events of world
history are, at bottom, profoundly unimportant. In the last analysis, the
essential thing is the life of the individual. This alone makes history,
here alone do the great transformations first take place, and the whole
future, the whole history of the world, ultimately spring as a gigantic
summation from these hidden sources in individuals. In our most private and
most subjective lives we are not only passive witnesses of our age, and its
sufferers, but also its makers. We make our own epoch.’”
Advice
for Jittery Investors: Sit Tight Risk
gets rewarded. That’s what the academics tell us. For stock-market
investors, it’s always struck me as being a pretty good bargain. To
earn handsome long-run returns, all you have to do is sit tight
through some nasty market drops. If
you’re saving from retirement or investing in retirement, the
biggest threat to your lifestyle isn’t short-term market gyrations,
but the long-run devastation caused by inflation and taxes. If you
want to fend off that threat, your best bet is to own stocks, to avoid
them. Bubble?
What Bubble? Housing Isn’t That Pricey, So Go Ahead and Buy There’s
a lot of hot air in the real-estate market. But it seems to be coming
from the pundits. Many
homebuyers have been unnerved by all the talk of a real-estate bubble.
But the reality is, most homes aren’t that pricey and, even if they
were, it shouldn’t necessarily deter you from buying.
Warning Flags According
to a Business Week/Harris Poll conducted last December, more people
than at any time in the last seven years predicted ultra-low long-run
returns from stocks…while an increasing number said a stock crash was
‘very likely’…and more said real estate was likely to be a better
investment than stocks. Over 53% of households believe that real estate
is the single best investment choice. That
kind of optimism makes us nervous…very nervous!”
1) The observed excess returns of stocks vs. bonds have recently been
‘extraordinary’ and ‘abnormal’ by historical standards. The authors
attribute this result to ‘important nonrecurring developments’ in the last
quarter of the 20th Century.
2) It is dangerous in the extreme to extrapolate such 'lofty historical
returns.'
3) The objective, historical average equity risk premium is approximately 2.4%
4)The implied U.S. equity risk premium is currently 3%-2.7% (TIPS)=0.3%
5) Assuming then, the premium of 0.3% to shift back to the historical average of
2.4% would require either a reduction of 210 basis points in the real bond
returns to 0.6% or an offsetting reduction in stock valuations (thereby boosting
expected returns by 2.1% or some combination of the two.”
...On March 11th, 2003, 84% of those surveyed by Market Vane were bullish on
bonds. When 84% of investors agree on anything, you know it is a big mistake. As
you would expect, the big mutual fund groups have been peddling bond funds to
their victims (a.k.a. ‘customers’) as fast as they can. True to form they
are pushing last year's winners. This week Schwab is advertising that you should
diversify your assets into stocks, bonds and cash just when equities are clearly
your friends and the other asset classes are not the winning strategy. If you
have lost a bundle, rest assured, you will not make it back any other place than
the equities markets. ...At
the market bottom, investors emphasized companies that pay dividends and are
very fiscally sound. Now the Nasdaq is surging to the fore because the
prices of so many smaller stocks were so beaten down relative to the Blue
Chips. We continue to believe this is a once in a generation opportunity to
buy great companies at great prices. Some of the best-known American companies are selling
at bargain basement prices. Not only is hiding in fear the wrong approach,
it is costing you money and the chance to rebuild your nest egg. We have
been unrelenting in our market call for months now.”
"Our models disagree with the view that we are
about to hit a long-term bottom in US IT capex this year. In fact, we are at the
end of an interim upward spike which occurred during 2002. However, a weaker
dollar coupled with sharp inventory cutbacks during 1Q2003 in a few segments may
prolong the spike in those
segments."
Tatha Ghose
Will 2003 prove a turning point for IT?
Global Economics for Investors
May 14, 2003
tatha.ghose@drkw.com
"The expected recovery rally has
both bulls and bears shaken but not disturbed This
confusion/consternation/complacency is actually symptomatic of an interim or
tactical trading high. Thus we still expect a correction when the market
majority will revert to be-coming Doubters. There are several regime changes
in process: Weaker Dollar, Bullish Commodities and Bullish Equities. While
many will tell you that Fixed Income has also achieved a new plateau of
perpetual positive returns… it is a feint of considerable proportions.
This is a different kind of equity market than we have had in some time.
The rally from June to August will become more easily ‘recognized’ by
the herd. The preponderance of the evidence still suggests an overall
bullish bias."
Woody Dorsey
“Tug of War as Trading Top forms but offers no Immediate Gratification”
Market Semiotics
May 13, 2003
woodydorsey@marketsemiotics.com
“With the exception of the DJIA and the
NDX100, the S&P400, SP500, SP600, Russell 1000, 2000, 3000 and NASDAQ
Composite have all crossed above their own upper Break-out bands (2 standard
deviations vs. 90 day m.a.).
Bob Brogan
Signal Report
May 13, 2003
www.signalreport.com
“It is unlikely in the extreme that there was
any coordination between the Saudi and Chechnyan bombings, besides
like-minded Islamists acting in similar ways. However, the two bombings
drive home the underlying capabilities that al Qaeda and other Islamist
groups have. They might not be able to carry out large-scale operations, but
they can still strike at soft targets, creating the sense of a coordinated
campaign when in fact there is none, simply through the tempo of operations
they maintain.”
George Friedman
Stratfor’s Morning Intelligence Brief
May 13, 2003
www.stratfor.com
“Henry Adams, historian and mordant observer of
the ways of Washington, declared in his autobiography that in all great
emergencies, he ‘commonly found that everyone was more or less wrong’.
There is no greater emergency than war; and once again Adams has been proved
right. Or as Donald Rumsfeld, the US Defense secretary, put it: ‘Never
before have so many been so wrong about so much.’ It is not unseemly to
ask in what ways and why so many were mistaken: indeed, such a review may be
instructive, if unwelcome.
Eliot Cohen
Professor of Strategic Studies at Johns Hopkins' School of Advanced
International Studies
How a war makes fools of experts
May 12, 2003
www.ft.com
“All else the same, a depreciating U.S.
dollar ought to lead to faster U.S. export growth. But, alas, all else is
not typically the same. What if income growth abroad is slowing? This will
cause the demand curve for imports from the U.S. to shift inward toward the
origin. The economic news from the Eurozone and Japan is not good. And China
is now encountering a bit of an economic setback due to SARS. So, before you
adjust your U.S. GDP forecast too much because of the recent swoon in the
greenback, take into consideration that incomes abroad are not growing very
rapidly, which will take some of the edge off the positive dollar impact on
exports. And one other item. Unless the Chinese unhinge the yuan from the
U.S. dollar, a depreciating dollar means a depreciating yuan, too. Because a
lot of our manufacturing business has been captured by Chinese
manufacturers, it is not clear how a weaker dollar is going to help much.”
Paul Kasriel
The Depreciating Dollar And Exports: Don't Forget The Income Effect
Northern Trust Daily Economic Commentary
May 12, 2003
www.northerntrust.com
“Throughout the 1980s, the Dow Jones
Industrial Average tracked the performance of the S&P 500 Index very
closely. ...The DJIA action relative to the SPX was mostly confined to a
band of about five percent, plus or minus, and tended to consistently revert
to the mean.
Bernie Schaeffer
An End to Dow Outperformance?
May 12, 2003
www.schaeffersresearch.com
“The
markets continue to travel a path that is perplexing to many and is not
in line with current ‘fundamentals’. Surely, there are many conflicting data points and more than
enough to keep you from excitedly stepping into the markets—this is normal
for bottoming markets. However,
as you will see in your weekly review, the institutions continue their
steady placement on the buy side of the line in the sand.
This makes roughly 8 weeks that we have seen positive
readings—again the longest period of such movement since the bull market
ended in 2000.
Mike Williams
Genesis Partners Morning Notes
May 12, 2003
mike@genesisfn.com
"‘A vivid illustration of
speculative fever gripping the equity markets was afforded Friday’
as Nvidia soared over 30% on heavy volumes. The company reported a sharp fall in
1q revenues due to falling Xbox sales but countered with a not-to-worry, 2q
revenues would be much better because of rising Xbox sales. Earnings rising from
12c per share in the 1q to 13c per share in the 2q. No cause to cheer. Xbox
fate is in the hands of MSFT and the market, not Nvidia, and surfacing
competitors, will decide its fate. The future iffy. The flipside, and the reason
the share price soared, is that shorts are on the defensive and NVDA had a 12%
short interest. A primary reason why shares in America Air rose as high as $7.
It sported a near 28% short interest. The Dow rose 113 points Friday to push it
over 8600 level. Powered by the NDX up 25 at 1144. Against the reality that the
2 Half GDP growth is being lowered by a panel of blue chip economists.
Corporate capex too weak and job losses simply too high.
Meanwhile junk bonds continue strong for the 11th straight
week. $18b year-to-date. Overseas German March industrial production fell 1.1%,
April business confidence down. Euro strength a burden."
Pravin Banker
The Financial Network Commentary
May 12, 2003
fnetwork@optonline.net
“It's patently time for everyone to
lighten up. If the president wants to play Peter Pan, sit back and enjoy the
show. If Bill Bennett gets his kicks rolling the dice, fade him, don't
hassle him. If the football coach likes to party, it isn't as if he's doing
something awful like forcing a player to go to class.
Alan Abelson
Up And Down Wall Street
May 12, 2003
www.barrons.com
"I read in Barron’s
how the former Queen of Wall Street Strategists,
Abby Cohen’s target for the S&P 500 was set at 1150 for the S&P
500. The writer was obviously making a joke referring to this
‘out-of-sight’ unrealistic target.
I can understand his point, in that Ms. Cohen has projected much higher targets
consistently in the last three years and failed to meet them, but don’t be too
quick to dismiss this one. I have used two thought processes to arrive at a
broad list of targets for several different indices, and both methods come to
very similar targets.
Don R. Hays
Morning Market Comments
May 12, 2003
www.haysmarketfocus.com
“What we have here is an equity market
rising in a consistent seasonal pattern, and the outlook for stocks is once
again being based on flawed fundamental analysis. If the Tech Industry ever
loses out to FASB and financial reporting consistently starts to incorporate
the cost of stock options, the investors who only superficially glance at
headlines will be in a for big surprise. Because after company executives
have taken their compensation via options, there are usually only
breadcrumbs left over for the people who actually bear the ‘enterprise
risk’ - the owners, a.k.a. shareholders. Even media headlines of an
‘earnings turnaround’ recently are based on comps to a period of
accelerated write-offs. Frequently, reported earnings growth is attributed
to better margins, but it’s not due to an improvement in sales. In
most cases, especially in techland sales have been plateaued for years.
[We know from the NIPA reports that profits peaked in
1997, so the ‘profits miracle’ did not happen; it was only the excess cash
sloshing around the financial system due to loose monetary policy which spilled
over into equities and allowed stock prices to go exponential into Y2000. Common
sense also tells us we cannot have a tech boom like the last one anytime soon,
because most tech sectors are not growth businesses anymore.] Therefore,
the Q1 margin improvement is really temporary, because of inventory building
(e.g. in Tech, especially Intel), or because employment has been slashed.
Consequently an expansion of new orders will at some point require rising
costs, and margins will shrink again. So one cannot extrapolate Q1 - 2003
results into the kind of P/E multiples investors are paying lately. It’s a
mirage. And stocks will inevitably revert back to the mean.”
Thomas R. Peterson
Bulls' Eye Research
May 11, 2003
bullseye10@shaw.ca
“The Market Climate for stocks remains
characterized by unfavorable valuations but favorable trend
uniformity. This holds us to a constructive but not aggressive position in
stocks. At present, we remain fully invested in favored stocks, with just
under 30% of the portfolio hedged against the impact of market fluctuations.
The market remains strongly overbought here, so we have to allow for the
possibility of a near-term sell off (as usual, not a forecast). In that
event, relatively low trading volume would be a favorable indication. The
bear market rallies we've seen in the past three years have generally become
dull on advances and active on declines. Market breadth has also been quick
to deteriorate, and new lows quick to expand. The advance we've seen thus
far is showing much different characteristics. It will be encouraging if
volume generally continues to be strong on up moves and rather dull on
declines.”
John P. Hussman
Hussman Research & Insight
May 11, 2003
www.hussman.net
“After some backing and filling, expect
the stock market to continue moving up against commonly held expectations.
Use pullbacks to build up equity positions.”
Rex S. Takasugi
Technical Disciplines
May 11, 2003
RexTak@msn.com
“The true threat to capitalism is Wall
St. itself.
Alan M. Newman
They Just Don't Get It
May 11, 2003
http://www.cross-currents.net/commentary.htm
“The
FOMC’s press release last Tuesday and the minutes of its March 18
meeting published on Thursday rhymed with the communiqué of the G-5 finance
ministers meeting of September 22, 1985, held at the Plaza Hotel in New
York. The Plaza Accord was a profound policy accommodation that, had you
understood it fully at the time (I caught on eventually), would have made
you a lot of money. Then, if you weren’t nimble, you would have given it
all back. The implications of the policy promises implied in last week’s
messages include: Treasury notes, which had lately looked very rich and
risky to me, can now be bought in size; stocks can also be bought
speculatively and, in an echo of the late Nineties’ boom, virtually
without regard to the business fundamentals facing the companies; the dollar
is a great short against the euro; and, last and most important, keep your
broker’s number on your speed-dial.”
Jim Griffin
Aeltus Weekly
May 10, 2003
www.aeltus.com
“Four years before he began making up quotes
involving the Washington sniper case and the war in Iraq, reporter Jayson
Blair faked an interview with D.C. Mayor Anthony Williams.
Howard Kurtz
Disgraced Reporter's Deceptions Date to '99
Washington Post
May 10, 2003
www.washingtonpost.com
“Our Primary Buying Zone has been in effect
since our initial Intermediate Trend buy-signal was registered on Mar 17.
Each new high in Buying Power and new low in Selling Pressure calls for
supplemental buying. Corrections are to be expected from time to time. But
with the Selling Pressure Index near its low, any corrections should be
relatively mild.”
Paul F. Desmond
Lowry's NYSE Market Trend Report
May 9, 2003
www.lowrysreports.com
“Speculation about massive increases in
[IRAQI OIL] production in the near or reasonably near future is completely
exaggerated...the capabilities for that kind of production just doesn't
exist.”
US Energy Secretary Spencer Abraham
quoted in an Associated Press dispatch published in The Guardian
May 9, 2003
www.guardian.co.uk
“We should have had a great rally, if we
were going to, during the seasonally-most-favorable months of November to
April. Instead, we got a ho-hum market from the 7286 closing low of October
9th (which we are proud to say our proprietary indicators called within 2
days!) to the closing top of 8896 on November 30th.
Joseph L. Shaefer
Investor's Edge
May 8, 2003
www.investorsedge.us
“Our S&P industry momentum model
clearly turned more positive this month. There were 24 upgrades and no
downgrades in monthly price momentum. Of the 56 industries and indices in
our model, 71% were demonstrating positive momentum at the end of April, up
from 31% in March and 18% in February. Most of these upgrades were shifts
from ‘negative’ momentum (Stage 0) to ‘negative but improving’
momentum (Stage 1). This shift to Stage 1 is an important building block for
the transition from a bear market to a bull market. This is also the highest
percentage of positive momentum (Stage 1 and 2) since the 75% recorded in
September 1997! However, in 1997, 71% of positive momentum was in Stage 2;
currently 5% is in Stage 2. Stage 2 is a more stable part of the momentum
curve.
Gail Dudack
The Growl Is Fading!
May 7, 2003
Dudack.research@sungard.com
“I suspect the equity-market rally that
commenced off the lows put in last July through October, an advance with
lots of fits and starts along the way, is approaching a potentially stiff
correction. Looking out longer run, however, I believe the rally is not
over. On balance, I think it could have a good deal farther to go in both
duration and magnitude.
As short-term overbought as stocks are at present, I believe the dynamics
exist to get them even more so over the next few to several trading days.
One of these dynamics is next week's expiration.”
Douglas R. Gillespie, Sr.
Stocks: The Approaching Correction?
May 7, 2003
gsrdr@aol.com
“Stephen Glass, who had never uttered a public
word about his repeated fabrications at the New Republic five years ago, is
cashing in on his notoriety.
Howard Kurtz
Stephen Glass Waits for Prime Time to Say 'I Lied'
Washington Post
May 7, 2003
www.washingtonpost.com
“The overall technical indicator profile is now
the most constructive it has been in more than a year, notwithstanding
interim pullbacks. The Nasdaq remains the leader and fits the profile of
small, and mid-cap, more domestic, stocks representing the leadership,
technically (less impacted by dollar fluctuations), while the large-cap
multinationals enjoy even generous kickback rallies in an ongoing structural
bear market environment. Yet we are not throwing caution to the wind.
We continue to raise stop-loss levels and respect any support violations. It
should not come as a surprise (with a weaker dollar) that gold is
consolidating in the early stage of its new structural bull market. Over the
past several months, the price of gold has sharply corrected from a rally
high of $382 per ounce to $319, for a 16% decline, which is technically
definable as a correction...From a short-term perspective, while this
decline represented a steep reversal, if we zoom out to examine where this
two-month decline fits into the structural technical profile for gold, we
discover this pullback may very well represent an opportunity to initiate
and/or add to gold positions.”
Louise Yamada
Market Interpretation
May 7, 2003
louise.yamada@citigroup.com
“Incredibly, the tech sector is
booming once again, buoying the hopes of the long suffering
lumpeninvestoriat who have been hanging on to their tech stock funds through
thick and thin...and thinner. The Bloomberg Silicon Valley High Tech Index
has rocketed 20% in less than 2 months, breathing fresh - albeit temporary -
life into many tech stock mutual funds. We suspect that pain is not over
yet.
Eric Fry
The Daily Reckoning
May 7, 2003
http://www.agora-inc.com
“Doing her part, Senator Barbara Boxer, the
California Democrat, is working on the Senate version of the Dreier-Eshoo
bill and she promises that her version ‘will send this whole matter to the
SEC for review before the proposed rule goes into place and we are dealing
with its unintended negative economic consequences.’
Jack T. Ciesielski
Another Options War
May 5, 2003
www.barrons.com
“Investors should increase
exposure to beta and economic sensitivity. Investor risk tolerance has
improved, appropriately.
Abby Joseph Cohen
Goldman Sachs
abby.cohen@gs.com
May 6, 2003
"When I speak to clients about what I
believe is the emerging market leadership of ‘boring, mundane stocks with
a cyclical flavor,’ I am often asked two questions: ‘Is there anybody
still alive who follows these stocks?' and ‘If this is the new
leadership, what year or decade will this event transpire?’ My report of
April 29 presented the comparison of the Morgan Stanley Cyclical Index
(CYC-462), a composite of 30 diversified cyclical issues, to the S&P 500
Index (SPX-927) over the past five years. It was noted that the Cyclical
Index had outperformed the S&P 500 since October 2000. Of course, this
relative strength reflects the small advance in the CYC Index in 2001 as
opposed to the 13% decline in the S&P 500 and the much smaller decline
in the CYC Index than the S&P 500 in 2002 … the point still being the out performance
of cyclicals. More importantly, a second chart in that report illustrated
the out performance of cyclical issues since the current rally began on
March 12, 2003...
John A. Mendelson
Weekly Market Analysis
Charles Schwab Capital Markets
May 6, 2003
MarketAnalysis.CharlesSchwabCoInc@Schwab.com
“Some 398 of the S&P500 companies having
reported Q1 earnings and 63.5% of results have beaten expectations compared
to 60.4% and 59.4% in Q4 and Q3 last year respectively. Definitely an
improvement. But James Montier tells me that companies are up to their silly
games again. For Q1 saw a unusually heavy spate of negative
pre-announcements. In Q1 the ratio of negative to positive surprises
was a huge 2.9 (versus 1.5 and 1.6 in the previous two quarters). The simple
fact is that after the Q1 2002 recovery in EPS from the Sept 11 induced Q4
2001 dip, profits have tracked broadly sideways (latest estimates suggest Q1
2003 is $12.55 vs. $12.02, $12.28 and $12.35 in the previous 3 quarters).
Big deal!”
Albert Edwards
Not ignoring bullish equity signals
Global Strategy Weekly
May 2, 2003
albert.edwards@drkw.com
“The monthly PMO (Price Momentum Oscillator)
bottomed in April. This is an important long-term technical buy signal. We
note that this is the second lowest monthly PMO bottom in nearly 70 years,
with only two other PMO bottoms that come close to this level – they were
in 1942 and 1974, both of which preceded major secular bull market runs.
Carl Swenlin
Chart Spotlight
May 2, 2003
“Growth both in the US and worldwide is
below trend and without a change in policy bad tends to get worse. US fiscal
stimulus may be sufficient to raise growth to trend, but we suspect that it
will be offset by rising savings by the household sector. We therefore
expect output and profits to disappoint. Even if they don’t, the
longer-term problems of low savings and high debt remain unresolved. With
the US stock market significantly over-valued equities do not look a good
bet.”
Andrew Smithers
Smithers & Co. Ltd.
U.S. Market Update
May 1, 2003
www.smithers.co.uk
“This week's settlement leaves many
questions unanswered. One is the rationale for the scale of the penalties
and other payments. The $1.4 billion is trumpeted by regulators as one of
the largest ever, yet its economic underpinnings are about as sound as those
of analysts' loopy buy recommendations during the boom. It was based on the
$100m fine levied last June on Merrill Lynch. The justification for this was
that it looked bigger than past civil penalties in the securities industry.
The Economist
Unsettling
May 1, 2003
www.economist.com
“Mr. [Craig] Barrett should take a
closer look at his own company's financial statements. When it comes to
determining the fair value of equity options and warrants (which
incidentally, have longer lives than what the Black-Scholes model was
designed to handle), Intel states in its accounting policy footnote that it
uses a Black-Scholes option-pricing model. How can it be inherently
‘inaccurate and unreliable’ and ‘unworkable’ when applied to
employee stock options, yet perfectly fine when valuing financial
instruments held by the company as assets?
Jack T. Ciesielski
Expensing Options Won't Create a Disaster
WSJ Mailbag
May 1, 2003
www.wsj.com
“It was a delicious moment: Ben, who had
pounded the table against targeting asset prices at Jackson Hole in August
1999, preaching the doctrine of inflation-targeting as both necessary and
sufficient to lean the right way against both bubbles and bursting bubbles,
openly embraced targeting private sector debt prices, if necessary,
to arrest deflationary pressures. A foolish consistency is the hobgoblin of
small minds, Emerson told us a long time ago, and Ben Bernanke has got a big
brain.
Paul A. McCulley
I Have Become An Inflation Targeter
April 29,2003
mcculley@pimco.com
“Rallies like these are normal in a bear
market. We expect them, and usually act to benefit from them. However, with
that said, we also make sure that we cover short positions that are breaking
out and futures positions that are breaking out. We can’t take a chance,
that a short position may wind up being the target of a major short squeeze,
will affect our funds too detrimentally. We advise our viewers to also
protect themselves with stop orders for any stock breaking out with good
volume irrespective of the fundamentals. We now have the flexibility to
replace shorts that are breaking out with other shorts that continue to show
a deteriorating pattern.
Charles Minter and Marty Weiner
Comstock Market Commentary
April 29, 2003
www.comstockfunds.com
“All equity funds: March's marginal net
inflow of $0.2 bil. is improvement from February's $10.6 bil. net
outflow.
Eric Bjorgen
Leuthold Fund Flow Recap
April 29, 2003
www.leutholdgroup.com
“A few days ago, I came across some lines by
Carl Gustav Jung which touch on people’s need to identify with a narrow,
pre-set view, especially in times of crisis. Jung penned them on the eve of
World War II. When propaganda of every kind was raging across Europe. Here
is what he had to say:
Peter C. Cavelti
Cavelti Perspectives
Cavelti & Associates Ltd.
April 8, 2003
www.cavelti.com
“As recently as one month ago,
Warren Buffet stated in Berkshire Hathaway's 2002 annual report that
although the stock market has declined significantly, he still hadn't
uncovered any values. Yet, only last week, he spent $1.7 billion to acquire
Clayton Homes, a manufacturer, retailer and financier of manufactured
housing. He paid 35% over book value and about 13.9 times this year's
earnings. This is a fine company with good margins and above average returns
that he bought on the cheap with excellent earnings prospects...”
David S. Wilson
Wilson Capital Management
Quarterly Partner's Letter
April 7, 2003
wilsoncapital@wilsoncap.com
“One humorous development is that many
defenders of the real estate values seem to be the same individuals who
rationalized the stock market values of the late 1990s.
Same Pundits – Different Bubble
Jonathan Clements
Wall Street Journal – April 1997
Jonathan Clements
Wall Street Journal – Feb 2003
James B. Stack
InvesTech Research
April 11, 2003
www.investech.com
“We believe the odds slightly favor
surprise on the upside over the coming year, rather than the downside. We
see large cutbacks in investment spending, which could snap back to more
normal levels in a post-war environment. Also, outside the retail and
debt-financed consumer sector, margins are improving, whether due to a
weaker dollar or a cessation of inventory liquidation. This environment
should favor classic stock picking...”
James F. Barksdale and W. Andrew Bruner
Equity Investment corp.
First quarter commentary
April 2003
www.equityinvestmentcorp.com
“We draw the following conclusions
from the study by Arnott and Bernstein:
Vincent DeCaen
Friedberg's Commodity & Currency comments
March 31, 2003
416-364-1171
“As of the close of trading on
May 6, 2003, the Dow is up around 3% for the year to date. The S&P is up
6.2% and the Nasdaq is up 14%. Our
entreaties that the market bottomed on October 9th mostly fell on deaf ears.
Nobody has wanted to listen, but we were right!
Joan E. Lappin
These Numbers Will Shock You More
Gramercy Capital Mgt Corp.
jhlappin@gramercycapital.com