Skip to comments.Tuesday, 7/9, Market WrapUp (This is not your ordinary market)
Posted on 07/09/2002 4:18:25 PM PDT by rohry
Tuesday's Stock Market WrapUp
Support Levels Questionable
However, bear market rallies usually occur when the news is dismal and prospects are grim. It appears that the only trend is downward for stock prices. It is usually at these key junctures that rallies occur. What is still missing right now is the general level of pessimism has not reached a critical level. You hear the word "capitulation" thrown out quite frequently. Capitulation would be a heavy down-day in the markets supported by heavy volume on the downside. Those days dont seem to happen, and when they do, it is believed there is wide-scale intervention into the markets by the authorities, otherwise known as the Plunge Protection Team.
Holding On To Hope
The alternatives to investing in stocks arent as attractive with money market yields at 1.3%, t-bills at 1.7%, and CDs at a little over 2%. Most investors are still thinking about returns on capital instead of a return of capital. After nearly two decades of double-digit returns in either the fixed income markets in then 80s or the stock market in the 90s, it is hard to get used to annual returns of 2%, much less negative returns. What I believe has happened is faith in the markets is evaporating as a result of the accounting scams of the 1990s boom. Most investors are holding on, not because they believe in a new bull market, but holding on in the hopes of recouping some of their losses. Maybe they wont break even, but they hope to recoup some of those losses.
Isn't The Party Over?
I find those who have been through a few bear markets, such as we had during the late 60s and 70s, recognize the trend. They are more willing to take steps to protect capital, especially those who remember The Great Depression, or at least understand what happened during that period. Others remain in denial, believing that perhaps a 20-30% drop in the market is all that we will get and the markets will eventually bounce back. This is what investors are told each day in the financial press, cable financial shows, and on financial talk radio. Authority figures in Washington and Wall Street, along with prominent TV anchors tell them times are getting better. If you want to get a glimpse of what Im talking about, head down to your local Barnes & Noble or Borders book store. Go directly to the financial section of the magazine rack and tell me what you see. Look at the whole gamut of publications from Money, Kiplingers, and Worth to Smart Money and you will find one theme only which mutual funds or stocks to buy now! Very few talk about how to protect capital, short the market, bear market strategies, what to look for in a gold stock, or why having money in low-paying cash instruments such as T-bills is a good idea.
No, dear reader, the theme is still decidedly bullish. Most publications dont even acknowledge that a bear market exists, much less talk about bear market strategies. Try to find regular coverage of gold or silver stocks or gold mutual funds. Maybe a few say that having as little 5% in gold isnt such a bad idea. But do they really think having 5% in gold is going to protect a stock portfolio that is heavily-weighted towards stocks at 70%? Or if they recommend a heavy portion of a portfolio to be invested in bonds, they forget the last time we had a dollar crisis back in 1985-87 when we had rising interest rates that led to a stock market crash.
The Three "A"s
Even though the President took steps today to restore confidence in the financial markets by outlining a 10-point program that will remove the incentives to stop those that cheat and inflict greater punishment on those that do cheat, the President cant restore value to the financial markets. Only the markets can do that. Trying to prop up the financial markets, and flooding the financial system with money, as so many on Wall Street are recommending, will only make the situation much worse than it already is today. In fact, meddling with the markets could cause grosser distortions that could lead to even bigger problems. The risk of moral hazard has never been greater for those who speculate and take large risks, especially if they are large financial institutions believing they will be bailed out by government. This only encourages greater risk taking, such as we now have in the derivatives market, something that is worth keeping your eyes on.
Japan's Nikkei 225 stock average rose to a three-week high after the finance minister suggested the government may sell yen to stop a stronger currency from reducing exporters' profits. Sony Corp. led gains. The Nikkei added 1.8% to 10,960.25, while the Topix index rose 1.6% to 1050.14.
© Copyright Jim Puplava, July 9, 2002
It's the poor fools who are buying into the no-dividend, so-called "growth" stocks who are going to get fleeced. If a company doesn't pay you a dividend, then why own it, after all?!
Good evening, rohry. Thanks for posting the stock market wrap up.
The quote here is really misleading concerning bank CD rates. I'm getting this from the August 2002 copy of MONEY magazine, page 139:
6 Month CDs Average 1.82% Highest 3.25%
One-year CDs Average 2.25% Highest 3.30%
Five-year CDs Average 4.41% Highest 5.45%
There are banks with money-market accounts at 3%. Yet nobody is saying the prudent thing. For people nearing retirement, the money they will absolutely need is best off in bank-insured CDs. That's what I do with my Roth and SEP, and I don't have to pay taxes on the interest, and I don't risk a down year where I'm sheltering a loss...there will be a lot of that going around this year.
I really think it's unethical that brokers aren't telling people on the cusp that they really should have that 100% necessary money be 100% safe. When I signed up for my trading account last year, I got lectured and treated like an idiot because I explained my real money was bank accouts, and I was using my brokerage account for knowledge. I can't imagine the effect this attitude has on people who aren't, well, smarter in Math that fools like this broker. (yes, I complained)
On another note. For the last two weeks, I did a lot of research and kept up on prices and made some moves that I'm pleased with. I caught two stocks that were simply undersold...there just weren't buyers out there. I bought a few hundred shares of each, but I held back. Why...in the back of my mind I was thinking "Maybe there's a scandal that insiders know about". They are both up this week...but I don't like the feeling that I'm at a disadvantage because of dishonest practices.
(If anyone wants the names of those banks from Money, I'll send them via mailbox...they're as of June 4)
The immigration boom is putting incredible pressure on the property markets.
I have been and remain on the sideline watching. The muni's and CD's are low but seem the only game and they are not safe from some senarios. There are other corporate frauds awaiting, Chaney's problems with Judicial Watch will hurt and another major terrorist strike here will generate vastly inflated losses.
Although I agree with most of what Puplava says, I don't agree with this. I believe that they do recognize the problem, but they sure as heck aren't going to say so. Can you imagine a large cap mutual fund portfolio manager going on TV and telling everyone to buy gold, German bonds or raising cash. Kind of like a used car salesman telling you that the piece of junk you about to buy really is a piece of junk. How are all those guys going to make their million dollar bonuses and be able to afford the summer Hampton home if they don't have other people's money to "manage"?
Puplava is right. It's capital preservation time, unless one wants to chance investing in precious metals, mining stocks or commodities. Apparently, much of the big money has exited this bear market.