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| NOTICE: I arrived in Boulder, Colorado Monday evening after spending the weekend in Washington, D.C.. My apologies for not posting an updated column for Monday. |
Traders and speculators once again tried to push Nasdaq down on Monday, but it once again bounced back in their faces, suggesting that there must have been a modest amount of real buying that kept upwards pressure on the market. Unfortunately, a potential problem is that some of these inflows may be "hot money" from hedge funds which could exit the market in the not-too-distant future.
Nasdaq continues to impress, plowing though yet another level of technical resistance (the closing level of 2,089.66 on February 11, 2004), the third consecutive day of blowing right through serious technical resistance.
Unfortunately, Nasdaq didn't spend much time above the February 11 closing level, so we need to see another couple of days above that level..
Nasdaq trading volume was moderate (1.90 billion shares), and breadth was only moderately positive. This was an "okay" day, not terribly impressive, but still reasonably upbeat.
The New York Empire State Manufacturing Survey report for November continues to indicate decent, but not strong, growth, and at a slower pace than earlier this year. This was a modestly positive report.
The AAA Daily Fuel Gauge Report registered a moderate decline of -0.5 cents since Friday (from 1.975 to 1.970), the eleventh consecutive decline after four consecutive days of gains. Regular unleaded gasoline is now 3.5 cents below the level of a month ago, and 8.4 cents below its May peak. Gasoline prices are likely to continue falling until Thanksgiving.
I thoroughly enjoyed my stay at the Renaissance hotel in Washington, D.C. (near the convention center), especially the $59 per night room rate that I got through priceline.com. I was so busy that I never got around to hooking up to the high-speed internet service which cost $10 a night extra.
I was impressed by how full my Frontier Airlines flight from Washington, D.C. to Denver was on Monday afternoon, suggesting that the economy is a bit stronger than I had been estimating.
I attended the press briefing for the semi-annual meeting of the Shadow Open Market Committee (SOMC) at the Cato Institute in Washington, D.C. This is a private group of mostly academic economists, some of whom formerly worked at the Fed. They don’t follow the exact same format as the Fed FOMC, but the general concept is the same. The seven members meet twice a year and discuss position papers that they write related to monetary policy, the financial system, and the economy. They did that at their working session on Sunday afternoon, which I also attended. The topics for this meeting included the overall economic outlook, fiscal budget policy and risks of unfunded Social Security and Medicare liabilities, elevated oil prices, a proposal to privatize the IMF and World Bank, regulatory lapses in monitoring anti-money laundering regulations, free trade, and monetary policy, including the importance of shifting into more of a "rule-based" system rather than the current discretionary approach. The committee doesn’t usually focus on interest rates, but on the size of the monetary ‘base’ (amount of money available). After their discussions on Sunday, they drafted an overall summary which they presented at the press briefing on Monday, along with brief summaries of the papers. Then, the fun part begins when the press asks their questions. The committee approves of the pace of the Fed rate-hike campaign and emphasizes the need to remove more "accommodation" as quickly as possible. There were about 15 people at the press conference (not counting staff). One of the members of the committee is Mickey Levy, Chief Economist for Bank of America, who was interviewed on CNBC about a half hour before the press briefing on Monday. I'm been regularly attending the committee meetings as an observer for over four years now.
[11/13/04] Crude Oil futures continue to be whipsawed by speculators. Traders and speculators are pausing to regroup and figure out if the next big move is up or down. Crude futures may once again be poised to resume their run at $60, but this could once again be a ruse to attract naive long positions that the shorts will then be poised to clobber. Crude oil will be susceptible to sharp moves in either direction, for the next couple of months, until the Fed raises interest rates enough to dampen the attraction of hedge fund speculation in commodities.
[11/13/04] The Dollar appears to be poised to continue declining, but that could also be a ruse to attract naive long positions that the shorts will then be prepared to clobber. Although there may be longer-term pressure for the dollar to cheapen, excessive volatility will remain the norm until the Fed raises interest rates enough to dampen the appeal of foreign exchange speculation. It's normal for there to be a fair amount of profit-taking as the dollar approaches a major support level such as 1.30 to the euro. The dollar will probably soon fall through the 1.30 level and then quickly run down to the 1.35 level, but is unlikely to run down as far as 1.40. On the other hand, a little bit of good economic data (or commentary by the Fed) could cause the dollar-shorts to cover their short positions and once again send the dollar bouncing towards the other edge of its trading range.
Gold futures continue to remain above their prior trading range, but the durability of this new move remains to be proven. Certainly traders and speculators fully intend to push gold up to $450, but that effort is not assured, especially as the Fed remains relentless about raising short-term interest rates.
[11/2/04] The fed funds futures market suggests a quarter-point hike (to 2.00%) at the November 10 FOMC meeting, a quarter-point hike (to 2.25%) at either the December 14 FOMC meeting or the February 1/2 FOMC meeting, a quarter-point hike (to 2.50%) at the March 22 FOMC meeting, and a quarter-point hike (to 2.75%) at either the May 3 FOMC meeting or the June 29/30 FOMC meeting. Fed funds futures are at best accurate no more than six weeks out, so those longer-term moves are purely speculative, at best.
[11/2/04] Personally, I think that the Fed is likely to go ahead with another quarter-point hike (to 2.25%) at the December 14 FOMC meeting unless the economic data at that point is quite "soggy". There would be very little benefit for the Fed to pause at that point in time and the pause would force everybody to second guess the Fed and actually conclude that the Fed paused because they were worried that the economy was deteriorating. My current thinking is that the Fed will maintain quarter-point hikes at each FOMC meeting until they get somewhere in the 2.50% to 3.00% range and then pause until unemployment starts to fall off more significantly, and then resume hikes until a neutral rate is reached.
[6/18/04] The Fed is not likely to quickly raise interest rates all the way to a so-called ‘neutral’ stance (somewhere in the 3-4.5% range) over the coming year, primarily because the recovery is not yet complete (e.g., look at the lingering level of unemployment and the state of the airline, telecom, and manufacturing sectors). Rather, the Fed will simply remove the ‘excess’ stimulus (call it the ‘deflation hedge’) so that only a moderate level of ‘accommodation’ remains. In other words, despite the relatively rapid pace of expected hikes over the coming year, the initial ‘campaign’ will likely end at a target fed funds rate of 1.75% to 2.75% with the remaining rise to the fully ‘neutral’ stance coming only very gradually over the next two to three years as the remaining weakness in the economy gradually dissipates. Also, expect interest rates to be below the full ‘neutral’ level until the lingering geopolitical uncertainty related to the war on terrorism and the situation in Iraq and anxiety over the potential for oil supply disruptions dissipates. And finally, since high energy prices act as a ‘tax’, the Fed may feel pressured to keep interest rates a little lower than otherwise expected to compensate for the drag of that tax if it persists for more than a few months.
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[10/21/04] I attended 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.
[10/21/04] I'll have a write-up on the conference soon, but the simple summary is that venture investment is making a painfully slow comeback. It is coming back, but at a very slow pace. Even worse, companies are raising less money and hence hiring less (or hiring offshore) and spending less. The net effect is that current venture investment is only a very modest boost for the economy, and a much smaller boost than it could be.
[10/11/04] For some background information on venture capital, click here.
[11/3/04] My next dollar-cost averaged investment will occur on Tuesday, December 7.
[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.
[11/16/04] Nasdaq set a new near-term intra-day peak of 2,094.13 on Monday, November 15, 2004 and closed only very slightly below that peak. This is a positive sign.
[11/16/04] Nasdaq set a new near-term closing peak of 2,094.09 on Monday, November 16, 2004 that is above the near-term intra-day peaks. This is a positive sign.
[11/16/04] Now that Nasdaq has cleared the the prior technical resistance at the June and April peaks, the next critical technical milestone staring Nasdaq in the face is the intra-day peak of 2,094.92 on February 19, 2004 and closing peak of 2,089.66 on February 11, 2004. Nasdaq desperately needs to easily clear both of those levels (on a closing basis) to prove that it has broken its 2004 trend of "lower highs", and that needs to happen within the next few weeks or else speculators will lose patience and reverse and attempt to push the market down. Although Nasdaq did technically close above the February 11 closing peak, it spent very little time above that level on Monday. After these milestones, then Nasdaq needs to break out above the 2,100 psychological level and finally the 2004 intra-day and closing peak of 2,153.83 from January 26. And all that does is put Nasdaq on a clear up-trend for 2004 as well as for the post-October 2002 advance. But, this is getting a bit ahead of ourselves. None of these technical milestones will fall except as the economic outlook improves further.
[11/8/04] The market is very clearly heavily overbought on a near-term technical basis, which means that it is quite susceptible to significant profit-taking. The good news is that there are plenty of people who seem committed to the thesis that November through February is the most profitable period to own stocks. The other good news is that any significant correction at this stage would simply be treated as a buying opportunity and lead to further gains in the months ahead.
[11/6/04] Short-term (10-day): Somewhat volatile, but strongly bullish.
[11/3/04] Short-term (1-month): Somewhat volatile, but modestly bullish.
[11/6/04] Short-term (2-months): Somewhat volatile, but moderately strongly bullish.
[10/22/04] Medium-term (3-months): Somewhat volatile, but strongly bullish.
[11/6/04] Medium-term (6-months): Very Volatile, but modestly bullish.
[11/13/04] Medium-term (9-months): Very Volatile, trading range.
[11/5/04] Year-to-Date: Very Volatile, but slightly bullish.
[11/6/04] Longer-term (1-year): Very Volatile, but modestly bullish.
[10/15/04] Longer-term (2-years): Moderately strongly bullish.
[10/15/04] Longer-term (3-years): Very volatile, but modestly bullish.
[10/15/04] Longer-term (4-years): Very volatile, but moderately bearish.
[10/15/04] Longer-term (5-year): Very volatile, but modestly bearish.
[10/15/04] Longer-term (6-year): Very volatile, trading range.
[10/15/04] Longer-term (7-year): Very volatile, but slightly bullish.
[10/15/04] Longer-term (8-year): Very volatile, but modestly bullish.
[10/15/04] Longer-term (9-year): Very volatile, but modestly bullish.
[10/15/04] Longer-term (10-year): Very volatile, but 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: November 16, 2004 01:56:28 AM -0500
Copyright © 2004 John W. Krupansky d/b/a Base Technology