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
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.
Holy class action lawsuit Batman! Unreal...yet unsurprising.
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.
Thanks for your nightly Market Wrap-up postings. Makes for a good read.
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.
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.
I wonder what congress is going to do to mess it up (further)?
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%