The Fed says, as of 3/31/02, total US indebtedness is 287% of GDP!!! The 50-year mean is 180.8%!!! Its the debt, stupid! Debt, not accounting standards or Wall St. mores, is the principal drag on the economy and stocks. Increasing debt service by businesses will reduce future earnings. PS- Total debt is now >$30 trillion, and will rise sharply this year in both the public and private sectors.
Debt is almost 3X GDP. GDP growth must equal 3X (interest rates + debt growth) to just service the debt. The ratio of debt to GDP keeps increasing because GDP growth pales compared to debt formation. This totally and irrefutably debunks Easy Als productivity miracle hokum. The bubble was, and always will be, build on debt. That debt is now the yoke on corporations and consumers necks.
The FT: US and Euro banks and bondholders lent an estimated $500B to the crippled US gas and power sector, new research commissioned by the Financial Times reveals. The figure raises fears that a further string of corporate failures in the wake of the Enron scandal would expose lenders to heavy losses.
A hallmark of perceived or real intervention in the markets is the 1-day super rally followed by a couple of days of ennui and drifting. Operators are fearful of being caught short but are reluctant to get exuberant due to the artificial stimulus. Thats what occurred on Thursday and Friday.
Barrons Alan Abelson says talk last week had US Treasury Sec ONeill asking Wall St. bigwigs to do some strategic buying in return for Ws silence on the markets Merrills recent poll of 279 global managers shows 84% say stocks will be higher 1 year from now. Is that capitulation and pessimism?
The predictive power of the stock market for the short to intermediate term continues to diminish. After July 4th, there was a 40-80% rally in tech stocks. Inexplicably, this occurred just prior to earnings releases. One would infer, like we did with LU, that someone knew earnings or guidance would be good. That was not so. It was only wise guys over-anxiousness for a buy opportunity. The increasingly faster and violent pace of trading impels wise guys to exacerbate the problem by seeking to implement action sooner and sooner. Now, wise guys are anticipating the anticipation. Its that ridiculous, and it will continue until stocks fall to fundamental buying levels, or a requisite number of wise guys implode The best bet for a significant tech bottom could be Q4 on portfolio purging, bankruptcies, etc.
Incredibly, Goldmans semiconductor equipment analyst put out a buy recommendation the day after Taiwan Semiconductor announced a reduction in capex and issued a pessimistic view of the industry. When quizzed on CNBC about the buy, the analyst admitted that the fundamentals for the group look awful for the next 6 months, but the stocks have fallen so much theyre a buy. Pisanti then interjected that sources told him that some people heard the call Thursday. When pressed by Maria, the analyst denied leaking his call early. What did they expect the poor guy to say yeah, I called the hedge funds that pay us the most commissions and told them tomorrow blah blah blah?
For the past 24 years, thereve been regular banking crises: 1/80 the Hunts; 7/82 Mexico; 84 Contilly, Maryland and Ohio S&L crisis, Penn Square; 86 Texas ban collapse; 87 crash; 89 S&L crisis; 90-91 money center banks at the abyss; 94 Mexico again; 97 Asian Contagion; 98 Russia and LTCM; November 00 after Thanksgiving, dollar tanks, Fed starts juicing the money supply, JPM rumors commence. The Fed has papered over each crisis, save the money center crisis. Al used the carry trade to reliquidify the banks, but created Frankenstein-like hedge funds. Volcker prudently removed the punch bowl after each crisis was mollified. Al just kept on pumping. Now, pumping has lost its effectiveness. What can Al do now, if and when the system is threatened?
Few want to admit it, or even address it, but the odds are higher now than at any time in over 70 years that the US could have a DEPRESSION Rubin, Gore, other Dems are advocating a tax hike. This is a replay of 1930. The political conventional wisdom was the US budget deficit caused the stock market collapse and receding economy so Hoover raised taxes and later FDR raised them again.
AP reports, Shortfalls in private companies' pension plans soared to $111 billion last year, the highest level ever reported by the Pension Benefit Guaranty Corp.
Hershey has put itself up for sale. According to Bloomberg, HSY is 8.33 times book value; 27X earnings; and 19X cash flow. The only available financing is equally [or more] overvalued stock.
House Republicans, trying to inoculate themselves from charges of business coziness for November, said they would introduce legislation that will allow the seizure of mansions, yachts, and other personal property from corrupt corporate executives. This cant be good for stocks or reported earnings.
The SF Chronicle notes state budges are plunging in part because they became overly depended on capital gains taxes. California had $17B in capital gains taxes in 00, but only $6B in 01. Any guess for 02?
Paul Sperry (Worldnetdaily.com) notes exec stock options proliferated after Slick and Congressional Dems removed the corporate deduction for executive pay over $1m (94).
Weve been waiting for the inevitable shakeout in gold that normally occurs in nascent bull markets after the first initial strong rally. This occurred in 1984 for stocks. Gold and gold shares peaked in June, about a month after cyclical stocks. In June, copper and industrial commodities started a collapse that continues to this day. Gold fell in concert. When JPM and Citigroup concern threatened to go nuclear, gold was hammered, giving JPM relief from its purported onerous gold derivative book. Of course that coincided with the dollar rally. Contributing to golds decline last week is forced hedge fund selling. Hedge funds that are hemorrhaging from picking too many stock bottoms the past few months are now selling winning positions such as gold, euros, etc. This is very common during unexpected moves, and is a cardinal mistake selling winners to support losers. Gold should fall to, and probably below, $300 in the near future. But as we opined weeks ago, after whatever summer rally occurs, autumn will bring renewed and intensified concerns about the economy and the rumored Iraq excursion. Enjoy the summer respite; unfortunately it will be brief.
Today Operators will try the upside. Figure rally attempt today, Turnaround Tuesday tomorrow.
Start with a low level supersonic flyby by single jet to get them looking up...followed immediately by jet #2 dropping full load of Napalm.
Next I would open up with two orbiting AC-130 Spectres starting with an interlocking circle of fire beginning about 500 yards from the center and constricting slowly--thereby herding all the goat-humpers into a nice neat pile before final ventillation.
Could it be in preparation for an invasion of Lebanon? p> There has been a massive Israeli buildup along the border and maybe they are going to go get the Hezbollah idiots who have been shelling the northern part of Israel.
I sure hope so from the good versus evil perspective--although if true the US stock market is going to tank big time!