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Tuesday, 7/9, Market WrapUp (This is not your ordinary market)
Financial Sense Online ^
| James J. Puplava
Posted on 07/09/2002 4:18:25 PM PDT by rohry
Weekday Commentary from Jim Puplava
Market WrapUp for the Week
Monday l Tuesday l Wednesday l Thursday l Friday
Tuesday's Stock Market WrapUp
Support Levels Questionable
From a technical perspective the market is oversold. The major indexes have hovered around key support levels and bounced back whenever they touch them. The stock market has been going down so long that it is due for a bounce. Ned Davis Research (www.ndr.com) points out that whenever advancing volume exceeds declining volume by over nine times without a similar downside, the market has tended to rally. NDR says this indicator is stronger when another similar-up day follows it in the market. That indicator hasnt happened at this point. What we have gotten instead is two consecutive days on the downside. Elliott Wave analysis indicates key support levels for the Dow at 8897, 934 for the S&P 500 and 1336 for the Nasdaq. If these key support levels are penetrated in the short-term, then a larger bear market trend is in place.
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
This isnt your ordinary market. In fact, there are many things about this market that are extraordinary. Investors, advisors, economists and politicians appear optimistic despite the number of things that have gone wrong in the markets. Investors may have been discouraged by the accounting scandals, frauds and deceit, but overall there is still hope and belief that the authorities, in this case Greenspan & Co. and Washington, will turn things around. Investors are holding on in the hopes of breaking even or recouping some of their losses.
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 have recently received e-mails and have had interviews with many investors who have lost half, if not more of their investment net worth. Some of this loss is actually profits. Those are the fortunate ones who got in early during the 90s and stayed invested in stocks. Others got in late and have lost what little profit they had plus a good deal of their original principle. Many who bought into the popular funds and stocks of the technology mania have suffered the most. Some Ive talked to are in denial, failing to recognize those losses. It is difficult to tell people those boom days arent coming back again for a very long time. Most people simply dont want to hear it. They hold on to hopes that maybe things will improve enough that they can break even and then get out. It is very difficult to tell them that their remaining principle is at even greater risk today than it was back in March of 2000. The second phase of the bear market will be much more devastating on portfolios than the first phase. In other words, the worst is ahead of us and not of behind us. The party is over and "get used to it" is not a message most people want to hear.
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
Very few analysts, advisors, and anchors even recognize the problem. After all, these are the same people still reporting pro forma profits as real numbers. The standard advice is to "invest for the long-term, there will be a second half recovery, ABC company beat estimates by a penny more, buy on dips, dollar-cost-average, and stock returns are superior over the long run." When was the last time you heard an anchor, analyst, or advisor recommend going short the market, buying gold, oil, Euro-denominated government bonds, water or raw materials? You simply dont hear it, or if you do, it is rare. Typical of the advice given is a quote from todays financial press. The money manager interviewed thinks investors should ignore the bad news and quit the fixation on the negative. In this managers opinion, now was a good time for investors to buy top quality companies because they are cheaper today than they were a year ago. Notwithstanding, with his keen grasp of the obvious, he failed to mention that with the S&P 500 selling at 41 times trailing earnings, this stock market remains the most grossly overvalued market in stock market history. Dividends are way below normal -- as much as P/E ratios are far above normal. Just because a stock is down 50% doesnt make it a bargain. It can still drop another 50% and then drop again!
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.
On Wall Street today a string of bad news coming from the corporate sector caused markets to fall, taking back all of Fridays gains. Wall Street firms are busy lowering their second quarter estimates for companies that will shortly report their earnings. This way, companies will be able to meet estimates and analysts will look much smarter when earnings are reported. Chip equipment companies were downgraded today. Drug companies continue to get hammered on bad news, either on the earnings front or on news of clinical trials of new drugs, which have been disappointing. Even Pepsi managed to disappoint. The greatest damage was in the tech sector with software and chip stocks taking a big hit. Drug stocks and biotechs continue to sell off. The only positive sector was in precious metals and select defense stocks, along with shares of pipeline companies. Volume was moderate with 1.34 billion shares traded on the NYSE and 1.70 on the Nasdaq. Market breadth was negative by 20 to 13 on the big board and by 20 to 15 on the Nasdaq.
European stocks fell as an unexpected decline in German industrial production signaled that manufacturers, such as Siemens and BASF, might not perform as well as some investors expected. The Dow Jones Europe Stoxx 50 Index fell for a second day, falling 1.2% to 3035.91. All eight major European markets were down during todays trading.
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.
Government issues headed sharply higher as stock losses piled up. The 10-year Treasury note rallied 17/32 to yield 4.725% while the 30-year government bond climbed 30/32 to yield 5.415%. No economic data was released Tuesday. Wednesday's lineup includes June import and export prices and the May wholesales trade figures.
© Copyright Jim Puplava, July 9, 2002
TOPICS: Business/Economy; Editorial
KEYWORDS: economics; investing; stockmarket
"Very few analysts, advisors, and anchors even recognize the problem. After all, these are the same people still reporting pro forma profits as real numbers. The standard advice is to "invest for the long-term, there will be a second half recovery, ABC company beat estimates by a penny more, buy on dips, dollar-cost-average, and stock returns are superior over the long run." When was the last time you heard an anchor, analyst, or advisor recommend going short the market, buying gold, oil, Euro-denominated government bonds, water or raw materials? You simply dont hear it, or if you do, it is rare."
posted on 07/09/2002 4:18:25 PM PDT
To: sinkspur; bvw; Tauzero; robnoel; kezekiel; ChadGore; Harley - Mississippi; Dukie; Matchett-PI; ...
Market WrapUp is delivered...
posted on 07/09/2002 4:20:12 PM PDT
I've been making good money on my dividend stocks and on my Put contracts (my Merk Puts are looking rather timely right now).
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?!
posted on 07/09/2002 4:22:40 PM PDT
I hate that stupid bull logo of yours but I congratulate you on your Merck puts. Good call!
posted on 07/09/2002 4:25:10 PM PDT
CDs at a little over 2%.
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)
posted on 07/09/2002 4:49:04 PM PDT
I think the stock market is going to stagnate for a long time, but what do I know? P/E's have been too high for too long. The market is clearly cyclical and stocks are out, real estate is in, but it may be too late already to make profits. I expect our markets to mimic the Japanese markets for about 10 years. But, like they say, ya never know.
The immigration boom is putting incredible pressure on the property markets.
What worries me the most is the performance of so called "safe" stocks. They don't seem to have any more bottom than do the others. CL, GM and JNJ have weaknesses but should be attracting som interest. Well, they are not.
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.
posted on 07/09/2002 5:03:49 PM PDT
What a perfectly timed post! I just got off the phone with my dear mother (she is 70 and very active and very savy) and we were discussing money market accounts.
"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 accounts, 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."
Keep doing what you are doing! Don't trust anyone else to tell you what to do with your hard earned money. I tried to tell my mom to go a differnt way with her funds, and she was uncomfortable. I said, it's your money do what you think is best for you. Don't let the "wet-behind-the-ears" stock advisors belittle you. Ask them if they have ever been in a bear market, and I don't mean that little blip in 1987. Tell them that the market went nowhere from 1966 to 1882! That can and will happen again.
posted on 07/09/2002 5:06:10 PM PDT
"Very few analysts, advisors, and anchors even recognize the problem."
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"?
posted on 07/09/2002 5:09:31 PM PDT
Thank you for the post!
'Very few analysts, anchors...even recognize the problem.'
Not a problem: A shake-out. I posted the following on another thread, but it is relevant here.
Please, Freepers, take a look at AAA corporate bond rates for the last, get this, 100 years. The pattern tells the tale. Then, please plot the S&P500, DJIA or any other major equity index since 1970. The retreat from the major market top starting in 1999 is abundantly clear. The phenomenon currently transpiring is largely driven by the massive secular retreat of interest rates since 1981. We have a classic 'head-and-shoulders' pattern of those rates extending over four decades. The two decades of declining rates had two primary effects:
1. Declining coupons on interest bearing instruments caused investors to migrate to equities looking for returns. The 401(k) effect and interest driven migration represented an influx of capital which generated great equity growth.
2. Declining interest rates also lowered the cost of borrowed capital. Again, companies could grow.
Now, the rates are bottoming. All of the 'energy' derived from declining rates is dissipating and the broad equity indices are responding appropriately. I am advising clients not to expect a return to the 1990's bull market...that really was the perfect (positive) equity storm. It is over.
Blessings to Freepers Everywhere.
posted on 07/09/2002 5:12:32 PM PDT
This is an ugly market and is only going to get much
uglier before it turns around. Just look at the graphs at the top. Is there anything to give anybody hope there (except those shorting the markets)?
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.
posted on 07/09/2002 5:27:54 PM PDT
Good post. Next time provide us a chart (for the word-impaired; like me)...
Do you want me to add you to the ping list, or can you find your way here every night without it?
posted on 07/09/2002 5:37:35 PM PDT
posted on 07/09/2002 5:39:50 PM PDT
Please add me to the ping list.
rohry - do you think it's possible they're (the Bush Administration) intentionally trying to deflate the dollar?
posted on 07/09/2002 5:45:36 PM PDT
You have been added...
posted on 07/09/2002 5:46:03 PM PDT
"do you think it's possible they're (the Bush Administration) intentionally trying to deflate the dollar?"
I honestly don't know. They have been giving mixed messages. They are in the same position that Hoover was in in 1930. The bubble is deflating and they cannot control it (the market is bigger than government intervention). Deflating the dollar causes problems and propping it up causes problems. This is a loose-loose proposition.
posted on 07/09/2002 5:52:42 PM PDT
Did you see the press report on Morgan Stanley where they said the lowest rating the analysts were allowed to give any stock was "neutral"?
The senior managers of that firm should go directly to jail and not collect their $ 200!
posted on 07/09/2002 5:52:45 PM PDT
"Did you see the press report on Morgan Stanley where they said the lowest rating the analysts were allowed to give any stock was "neutral"?"
I did not see that but 95% of the recommendations over the two years from 1999 to 2001 carried a positive bias, so I am not surprised...
posted on 07/09/2002 5:57:49 PM PDT
Given our (the U.S') position in a sink hole of debt wouldn't it be a smart thing to do (deflate the dollar and inflate us out of the sink hole) and forgive my ignorance but doesn't that debt put Bush in a different position that Hoover?
posted on 07/09/2002 6:13:54 PM PDT
To: arete; rohry
Shell off and E-bay on the S&P, I am going to only invested in cigars and whiskey from now on.
Also have you seen the latest concerning the S&P?
From Aaron Task at thestreet.com:
...news from S&P that it is removing Royal Dutch, Unilever, Nortel, Alcan, Barrick Gold, Placer Dome and Inco from the S&P 500.
Replacing those (eek) foreign-based firms are UPS, Goldman Sachs, Prudential, eBay, Principal Finanical Group, Electronic Arts and SunGuard Data.
Notably, companies that are domiciled abroad but with U.S-headquarters -- like TYC and Carnival Cruise Lines -- aren't being removed in what S&P is calling an attempt "to make the S&P 500 a better reflection of the large-cap segment of the U.S. equities market."
That's fine and dandy but given that some of those foreign companies have been in the SPX for as long as 60 years, the timing of this moves is going to get the conspriacy theorists in a lather.
posted on 07/09/2002 6:16:39 PM PDT
To: grania; All
For people nearing retirement, the money they will absolutely need is best off in bank-insured CDs.
I have a few comments about your proposition:
1.) Interest rates most likely will rise as the credit crunch tightens. Money locked in long-term CDs will have a poor rate when compared to these high future rates. If your CD were treated as a bond, it would be losing principle in this situation.
2.) Some banks may fail - if you invest through a bank make sure the account is FDIC insured. Avoid banks offering consumer credit cards. Distribute your money across several banks.
3.) Consider short-term Federal bonds. Roll mature bonds into new issues. Almost zero risk of capital loss. Since the bonds are short-term, you will have new issues with competitive interest rates every new purchase, so you wont be exposed to currency inflation losses as you would with a longer term fixed interest instrument.
You won't get rich investing in either CDs or Fed short term bonds, but the idea is to retain your principle during the next couple of rough years ahead.
Im tired of seeing the Wall Street money machine steal retirement money from trusting fellow Americans. I believe in free markets and buyer beware, but when you have an ongoing conflict of interest between brokers, analysts, and the media misrepresenting the facts the average investor doesnt have a chance.
"Shell off and E-bay on the S&P, I am going to only invested in cigars and whiskey from now on."
What are you saying Bert? I don't understand.
If you are invested in something you can't be consuming it! No more whiskey and cigars for you tonight!
posted on 07/09/2002 6:21:18 PM PDT
"Consider short-term Federal bonds."
You receive the "post of the night award." I've been in long term bonds for over two years and recently moved to short-term bonds.
Thanks for alerting the rest of the people...
posted on 07/09/2002 6:32:08 PM PDT
Did you see the press report on Morgan Stanley where they said the lowest rating the analysts were allowed to give any stock was "neutral"?
Holy class action lawsuit Batman! Unreal...yet unsurprising.
Ah, but when you want a drink and a smoke, you will have to give the password, when you knock on my door.
This is a good snapshot of what the oil industry is like today.
Patterson-UTI Energy, Inc. is the largest provider of domestic land-based drilling services to major independent oil and natural gas companies in North America, and is also engaged in pressure pumping, exploration and drilling. For the three months ended 3/31/02, total revenues fell 46% to $128.2 million. Net income fell 89% to $3.9 million. Results reflect a decline in drilling activity, a reduced rig count and increased depreciation and depletion.
When the price of oil is up as it is now, drilling usually picks up, but at present it is very slow.
Market WrapUp is delivered...
Thanks for your nightly Market Wrap-up postings. Makes for a good read.
The Liberty Dollar
Returning America to Value - One Dollar at a Time!
Please explain, before I go to bed...
posted on 07/09/2002 6:52:15 PM PDT
The real problem we have here is that most of the idiot public,(you know, the majority who voted for gore), have no idea what a dividend is! I try to smarten up the people I work with but they are too lazy to care. People seem to be more interested in what Madonna is doing than what their own retirement money is doing. I had a conversation with one guy I work with the other day. He rode 100 shares of Qualcomm stock from $150 all the way down to $28. I asked him why he didn't sell once his losses exceeded 10%. Of course, he gave me the standard answer, "It'll come back some day." The ill educated public will make multiple, idiotic decisions then blame it on Bush when it blows up.
I know nothing about them just found them, while wandering around the net.
This from e-mail;
The downgrade of Bristol Myers Squibb to Aaa by Moody s leaves only 8 AAA-rated companies left. They are GE, UPS, AIG, ExxonMobil, Johnson & Johnson Berkshire Hathaway, and Pfizer & Merck. In 1990 there were 27 AAA companies and in 1979 there were 58.
You won't get rich investing in either CDs
The trick is to have enough principal in CDs by the time of retirement so that the interest can balance one's budget. In the meantime, try to not use that interest (especially if it is earning one of those high interest rates from a few years ago)
Meanwhile, do something to earn some income. If a person over 50 earns $3500 a year, they can transfer that much of savings into a Roth IRA...one might as well pay the taxes, which are pretty close to nothing on a small salary. Once that money is in an IRA, it is tax free interest, forever.
I agree with you that it's important to look for FDIC protection...those money market funds and some of those CDs sold through brokerages aren't directly from the bank, so their is no insurance protection.
And then, for heaven's sake, people have to take charge. Granted, some of this sale stuff and the attitude conveyed that you can trust the mutual fund is pretty sleazy and convincing. But, people who are just going to trust others with their money really don't do themselves any favors by accepting any risk at all.
posted on 07/09/2002 7:33:11 PM PDT
Too late, I've gone to bed...
posted on 07/09/2002 7:34:50 PM PDT
A note about Smart Money
. This year's Smart Money portfolio is health care. That does not bode well for the health care industry.
I wonder what congress is going to do to mess it up (further)?
posted on 07/09/2002 7:36:50 PM PDT
Downgrades always come too late to help anyone who relies on them, but the trend is highly intelesting.
posted on 07/09/2002 7:48:36 PM PDT
No one in the media would dare to recommend selling short. [Why?] They don't recommend buying on margin either. A few might recommend reducing the equity portion of the portfolio before it happens automatically anyway. They don't have much to say about options or commodities, either.
Denver's real estate plunge
Markets with the greatest deterioration comparing the first quarter and fourth quarter of 2001, based on supply and demand.
Denver multifamily -36%
Sacramento office -35%
Denver industrial -27%
Indianapolis industrial -25%
Dallas office -22%
Dallas industrial -20%
New York office -19%
Charlotte office -18%
St. Louis office -18%
Tucson industrial -17%
Denver office -16%
Ft. Lauderdale industrial -15%
posted on 07/10/2002 1:43:02 AM PDT
The stocks for healthcare have been riding high. HCA was as low as 30 two years ago. It has been near 50 lately. The P/E is over 20, however.
posted on 07/10/2002 4:53:23 AM PDT
To: sarcasm; rohry
"New home sales, too, topped the one million annual rate last month for the first time ever, and overall housing turnover is now a record 18 percent of disposable income--significantly above the 13-percent average since the last cycle peak in 1989, and twice the 9-percent low seen in the 1990 property bust."
"Moreover, consider that, if we knew that in a nation the size of, say, France, there had been a median home price increase of 25.5 percent in a year and that this, far from deterring purchasers, had led to a 22.7-percent increase in sales, would you say this represented a Bubble--a good old debt-fueled Bubble--and that this might pose risks to financial stability, especially when so many people involved were dependent for work, whether directly or indirectly, on the most battered industries?"
"In which case, what are we to make of the extraordinary 57-percent dollar year-on-year increase in spending on the California Real Estate Rush?"
"Houses are nonproductive assets, financed with a great deal of leverage. What is more, though they release their services in small increments to the owners, they deliver a large dollop of uncompensated purchasing power up front to their builders or to those cashing out of the market, as well as to the Realtors, who netted around $1,200 for each loan originated in the record $2 trillion total last year."
For the full text of the article written by Sean Corrigan go here:
The Trouble With Debt
posted on 07/10/2002 8:15:31 AM PDT
Good post. I remember 1988-1989 when real estate dropped. People were bidding up the price of houses in November of 1988 and all of a sudden (by February 1989) nobody was selling or buying. It was unbelievable!
posted on 07/10/2002 10:33:42 AM PDT
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