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NOTE: I've added the "Market Trend" section to highlight the current market trend over various time scales. NOTICE: I'm doing a lot of software consulting work these days to pay my bills, so my daily column will be a bit shorter for the next period of time, but I will endeavor to write at least something each day. The last full column was for Wednesday, September 15, 2004. |
(Updated since Saturday -- changes marked with [ * ])
Nasdaq continues to bounce around in a relatively narrow trading range. Although the high price of oil is a concern, it really isn't a major driving force for the economy anymore. Traders and speculators will continue to push the market around is a seemingly random manner, but we're still in a moderate, albeit choppy uptrend since the second week of August.
Nasdaq trading volume was light (1.65 billion shares). Breadth was moderately positive.
The Producer Price Index (PPI) report for September was fairly tame, but didn't include the recent run-up in the price of oil.
The Retail Sales report for September was quite strong.
The Industrial Production and Capacity Utilization report showed only a slight increase in production and no change in capacity utilization. The economy is inching forward, neither booming nor busting.
The New York Empire State Manufacturing Survey report for October continues to indicate decent growth, but at a slower pace.
The Manufacturing and Trade Inventories and Sales report for August showed a moderate rise in sales as well as a moderate rise in inventories, and a modest decline in the Inventories/Sales ratio. This is still looking good.
The Michigan Consumer Sentiment report showed a moderate decline in consumer confidence. People really need to see more jobs created and a steep fall-off of layoffs before confidence really takes off.
Sprint (FON) will be cutting 700 jobs. The restructuring of problematic businesses continues.
[ * ] Friday: The ECRI Weekly Leading Index registered a moderate decline and the six-month smoothed growth rate fell modestly, and is modestly below neutral. This was a somewhat negative report, but still suggests that the economy will continue to limp along for the next few months, neither booming nor busting. The WLI is sitting exactly were it was at the end of August and the third week of July. It's not unusual to see the initial burst of growth early in a recovery peter out before the bulk of the recovery really kicks in. We're basically in a "watching paint dry" economy.
[ * ] Saturday: The weekly Wal-Mart (WMT) Sales Outlook is still on track for 2-4% year-over-year growth for the four weeks ending October 29 (which excludes Halloween this year, but Halloween was included in October sales last year) and sales will "probably be up" from September. The best-selling categories were bedding, boys' wear, food, health and beauty products, and pet supplies. Customer traffic declined, but the average "ticket" was higher. Wal-Mart says that people are tending to hold off purchases until they get their mid-month paychecks, suggesting that many people are living "paycheck to paycheck."
[ * ] Saturday: US Airways got court permission to slash the pay of its union workers by 21%. The bankruptcy judge referred to the company's financial situation as a "ticking fiscal time bomb." He's got that right. Even with this involuntary "concession", I have serious doubts about the company. In my opinion, at least two if not three of the major airlines need to go away before the industry can even begin to stabilize. United Airlines says it also needs more pay cuts as well. And even former high-flyer Delta says that it is weeks away from being forced to file for bankruptcy. In any case, the dire straits of this sector are certainly a "headwind" for the economy (only only a minor one) and the upcoming cuts in pay and jobs will continue to be a drag for another two years or so. The best thing to happen would be for some bold judge to simply order liquidation so that true market forces can be used to do the needed consolidation. That, plus some kind of federal government "giveaway" to cushion the shock for all those employees who are absolutely certain to lose their jobs no matter how much their pay is cut in the near-term. The current problems are not the result of higher fuel costs or the effects of 9-11, but merely the result of trends that were in place well before the boom of the late 1990's which helped to mask the underlying trends and gave management and investors a false sense of confidence that that the airlines could somehow survive intact if they just hung in there a few more years and got a few concessions. In truth, the twin biggest challenges facing the airlines are to dramatically cut labor costs (per passenger mile) and to dramatically increase fuel efficiency. Those are do-or-die requirements, not lofty "nice to have" goals.
New York City is a wonderful place even when it's raining. I walked all the way from my apartment (near the UN on East 42nd Street) down to the World Financial Center (WFC) to talk with some people about some potential consulting work. I walked back as well, stopping for dinner along the way. There is always something (or somebody) interesting going on just about everywhere. I ran across a new "high-end affordable" home furnishing store called "west elm" that just opened a week ago on the same block as my usual Friday dinner restaurant (Le Madri on 18th Street at 7th Avenue). The store is a brand of Williams-Sonoma, but has absolutely no references to Williams-Sonoma. The focus seems to be on furnishings for the living room, bedroom, and bathroom, but not the kitchen (where the W-S store excels). The prices seemed almost reasonable, especially considering how expensive the store looks from the street.
Just to give you an idea of how economical New York City can be if you look around, a street vendor was selling hot dogs for $1 just two blocks south of the WFC.
It's amazing how much progress they've made on the rebuilding of 7 World Trader Center. There is much work to be done, but seeing 40-some stories of steel up in the sky next to the "pit" of the WTC site is extremely impressive.
I love using Priceline.com for hotel reservations. I'll be spending next Monday and Tuesday nights at the Hyatt Harborside hotel (four stars) near Boston's Logan Airport for the incredibly low rate of $90 per night. The rate on Expedia.com was $189. Orbitz had it for $250. Hotwire seems like it might have been offering this hotel at $110, but it's not possible to tell for sure since they don't identify the hotels. The special conference rate for the airport Hilton, where the VentureOne conference will be held, was $169.
[ * ] I'll be traveling to Boston on Monday (by Greyhound bus for $40 roundtrip), attending the VentureOne conference on Tuesday and Wednesday, and traveling back to New York City Wednesday evening, but I still expect that I'll put out at least a minimal column each day, plus some highlights for the conference.
[10/11/04] I'll be attending the VentureOne Exchange venture capital conference up in Boston on Tuesday, October 19 and Wednesday, October 20. Click here for my write-up of last year's conference.
[10/11/04] For some background information on venture capital, click here.
[10/12/04] Since my consulting income has picked up a bit recently, I'm going to up my monthly investment, by at least a factor of three, as of my November investment.
[6/29/04] As an experiment, I have set up a new account with ShareBuilder and will be making a modest dollar-cost averaging investment each month. At a cost of $4 per month I will be buying a fixed dollar amount of the S&P 500 Tech Sector ‘Spider’ (XLK). The money for the investment will be automatically taken from my bank checking account. My purchases will be made on the first Tuesday of each month, beginning on July 6, 2004.
[10/16/04] Short-term (10-day): Moderately bearish.
[10/15/04] Short-term (1-month): Flat, volatile trading range.
[10/15/04] Short-term (2-months): Moderately bullish.
[10/15/04] Medium-term (3-months): Flat, trading range.
[10/15/04] Medium-term (6-months): Moderately bearish.
[10/15/04] Medium-term (9-months): Moderately bearish.
[10/15/04] Longer-term (1-year): Flat, volatile trading range.
[10/15/04] Longer-term (2-years): Moderately strong bullish.
[10/15/04] Longer-term (3-years): Modestly bullish.
[10/15/04] Longer-term (4-years): Strongly bearish.
[10/15/04] Longer-term (5-year): Moderately bearish.
[10/15/04] Longer-term (6-year): Modestly bullish.
[10/15/04] Longer-term (7-year): Slightly bullish.
[10/15/04] Longer-term (8-year, 9-year, 10-year): Modestly bullish.
[10/15/04] Overall outlook: confused and volatile, but with a modest upwards trend. The economy is neither "booming" nor "busting", but making modestly positive progress at restructuring problematic industries.
[8/23/04] Clearly the elevated price of crude oil has to have some negative impact on the economy, but the big question is how much impact. Overall, the economy is less sensitive to the price of oil and “oil shocks” than in past decades, but some sectors (such as airlines and chemical companies) are significantly more sensitive, whereas most sectors are only modestly sensitive. The current price escalation in fact has not been caused by any supply shortage or any excess demand by end users, but is merely due to a dramatic level of speculation in crude futures. The bad news is that we don’t know how much longer that speculative ‘bubble’ will continue to grow. The good news is that oil at these prices is not as attractive an ‘investment’, so the speculation will be increasingly susceptible to profit-taking and renewed interest in short-selling. Besides, if oil really were expected to rise dramatically from here, we’d see it in the price of futures in coming years, and we don’t. In fact, futures ‘predict’ that the price of crude will decline in coming years. In any case, elevated oil prices will be a moderate drag on the economy, but not so much as to spur accelerating inflation or to trigger a recession. Maybe it will trim a quarter to half-point off GDP, but that’s about it. Besides, people and businesses will adjust their lives and operations to further reduce their dependence on expensive oil. And finally, high-efficiency hybrid-electric vehicles are beginning to debut and anxiety over the price of gasoline will simply accelerate the development and introduction of such innovative products, which will dramatically moderate the demand for oil a few years from now.
[8/7/04] The latest economic data continues to support the thesis that the U.S. economy is solidly into a gradual, zigzag, underappreciated, stealth recovery. It will be another two years before the economy is fully back on track. Unemployment will decline only gradually. The bankruptcy rate will decline off recent highs, but remain at a fairly high level for another two years. There are still quite a number of businesses (and entire sectors) that will need to be restructured over the next two years as well.
[7/3/04] A major uncertainty is the state of the economy in Q4 and the first half of 2005. We currently have enough momentum to do well in the current quarter (Q3), but nobody really has even a halfway decent handle on how that momentum will play out towards the end of the year and into next year. We have the looming specter of rising interest rates, but the Fed would certainly back off if the economy started to sputter. The bottom line is that the economy is likely to be doing “okay”, but probably not a lot better than “okay”, in Q4 and early 2005.
[7/6/04] Some people are protesting that company profits could suffer as companies run out of costs that they can cut. That’s complete nonsense. First, companies will never run out of costs to cut. But more importantly, one of the factors that has been holding back growth of business revenues (and profits) over the past three years is the fact that companies have been dramatically cutting costs and the cutting of a cost for one company is the cutting of the revenue of one or more other companies. That cost-cutting binge was exerting a distinct headwind on businesses, but that headwind will in fact fall off as the cost-cutting moderates. And as revenues begin to grow more strongly, companies will begin to reverse the process and both spend more and hire more workers. Continued technological advances will spur further cost-cutting, but on a more moderate basis.
[3/13/04] A major uncertainty that will begin to loom over the economy and the financial markets is the impact of the outcome of the Presidential election. Although the political rhetoric can get very intense, the fairly even split in Congress makes it very unlikely that either party in the White House will be able to dramatically change federal economic policy significantly over the next four years. Besides, both parties are interested in reducing the federal budget deficit. The proposals from both parties will be hotly debated, but I can’t see that either side is either a clear winner or a clear loser for the economy and the markets.
[12/29/03] The two key factors driving the pace of the recovery will continue to be the ongoing process of shutting down or restructuring ‘problem’ businesses and the pace of the formation of new businesses which will create new jobs.
[12/29/03] A big wildcard in 2004 will be the possibility of a new wave of corporate cost-cutting as companies burn through the easy part of revenue growth and are forced to revert to cost-cutting to keep up earnings growth. The problem is that one company’s cost is another company’s revenue or an employee’s income, so more cost-cutting can boost earnings in the near-term but risk putting intense downwards pressure on business spending and employment. This cost-cutting process will moderate once companies begin to build up a deep enough backlog of unfilled orders so that they can keep revenue growth at a consistently strong pace to keep earnings growth up. The economy will survive this process, but the zigging and zagging of the pace of the recovery will continue.
[9/1/03] Our Tech Stock ‘Safe’ Signal is still stuck at 0.00 (no safety) since none of the big tech companies are even hinting that they are seeing any significant improvement in demand. There does seem to be some sense of stabilization and a modest hint of improvement, but no clear and decisive indication of a dependable ramp up in revenues and earnings.
[5/25/02] DISCLAIMER: I cannot and do not offer any recommendations of stocks to buy or sell. I may on occasion discuss companies that I am considering or myself have bought or sold, but the reader must do their own research before making their own purchase or sale decision. It is never a good idea to buy a stock just because someone else tells you to or even merely mentions a company in a favorable light.
Jack Krupansky -- The Unrepentant Optimist (Click here for Jack's Bio)
Updated: October 18, 2004 12:02:41 AM -0400
Copyright © 2004 John W. Krupansky d/b/a Base Technology