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Tuesday, 7/9, Market WrapUp (This is not your ordinary market)
Financial Sense Online ^ | 7/9/2002 | James J. Puplava

Posted on 07/09/2002 4:18:25 PM PDT by rohry

Weekday Commentary from Jim Puplava

Looking For Mr. Supportbar
in all the wrong places?

Brady Willett
and Sinclair/Schultz

 Tuesday's Market Scoreboard
 July 9, 2002
 Dow Industrials 178.81 9096.09
 Dow Utilities 7.91 252.99
 Dow Transports 39.22 2576.57
 S & P 500 24.15 952.83
 Nasdaq 24.49 1381.12
 US Dollar to Yen 118.09
 US Dollar to Euro


 Gold 4.0 316.5
 Silver 0.08 5.058
 Oil 0.02 26.09
 CRB Index 1.78 211.09
 Natural Gas

0.05 2.991

All market indexes
The Week in Graphs
Storm Watch
Geopolitical News in Focus
Energy Resource Page

Precious Metals

07/09 07/08


  HUI (Amex Gold Bugs Index)



52week High 147.82


52week Low 59.86


  XAU (Philadelphia Gold & Silver)



52week High 88.65


52week Low 49.23


 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 ( 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 hasn’t 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 don’t 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 isn’t 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 aren’t 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 80’s or the stock market in the 90’s, 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 1990’s 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 won’t 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 90’s 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 I’ve talked to are in denial, failing to recognize those losses. It is difficult to tell people those boom days aren’t coming back again for a very long time. Most people simply don’t 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 60’s and 70’s, 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 I’m 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, Kiplinger’s, 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 don’t 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 isn’t 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 don’t hear it, or if you do, it is rare. Typical of the advice given is a quote from today’s financial press. The money manager interviewed thinks investors should ignore the bad news and quit the fixation on the negative. In this manager’s 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% doesn’t 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 can’t 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.

Today's Market
On Wall Street today a string of bad news coming from the corporate sector caused markets to fall, taking back all of Friday’s 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.

Overseas Markets
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 today’s 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.

Treasury Markets
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
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To: cgbg
"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...
21 posted on 07/09/2002 5:57:49 PM PDT by rohry
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To: rohry
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?
22 posted on 07/09/2002 6:13:54 PM PDT by d4now
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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.
23 posted on 07/09/2002 6:15:03 PM PDT by razorback-bert
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To: rohry
Also have you seen the latest concerning the S&P?

From Aaron Task at 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.
24 posted on 07/09/2002 6:16:39 PM PDT by d4now
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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 won’t 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.

I’m 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 doesn’t have a chance.

25 posted on 07/09/2002 6:18:59 PM PDT by disclaimer
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To: razorback-bert
"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!
26 posted on 07/09/2002 6:21:18 PM PDT by rohry
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To: disclaimer
"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...
27 posted on 07/09/2002 6:32:08 PM PDT by rohry
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To: cgbg
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.

28 posted on 07/09/2002 6:36:22 PM PDT by Wyatt's Torch
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To: rohry
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.

29 posted on 07/09/2002 6:38:49 PM PDT by razorback-bert
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To: rohry
Market WrapUp is delivered...

Thanks for your nightly Market Wrap-up postings. Makes for a good read.

30 posted on 07/09/2002 6:39:21 PM PDT by disclaimer
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To: rohry
Another choice:

The Liberty Dollar  
Returning America to Value - One Dollar at a Time!

31 posted on 07/09/2002 6:49:11 PM PDT by razorback-bert
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To: razorback-bert
Please explain, before I go to bed...
32 posted on 07/09/2002 6:52:15 PM PDT by rohry
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To: Southack
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.
33 posted on 07/09/2002 7:12:51 PM PDT by noloveforlibs
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To: rohry

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.

34 posted on 07/09/2002 7:28:04 PM PDT by razorback-bert
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To: disclaimer
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 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.

35 posted on 07/09/2002 7:33:11 PM PDT by grania
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To: razorback-bert
Too late, I've gone to bed...
36 posted on 07/09/2002 7:34:50 PM PDT by rohry
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To: rohry
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)?

37 posted on 07/09/2002 7:36:50 PM PDT by Tauzero
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To: razorback-bert
Downgrades always come too late to help anyone who relies on them, but the trend is highly intelesting.
38 posted on 07/09/2002 7:48:36 PM PDT by Tauzero
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To: rohry
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.
39 posted on 07/09/2002 7:57:20 PM PDT by RightWhale
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To: rohry

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%

40 posted on 07/10/2002 1:43:02 AM PDT by sarcasm
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