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(Updated since Saturday -- changes marked with [ * ])
The market continues its post-storm drift, although there was a bit of technical momentum trading to keep the market moving higher on Friday. NASDAQ closed a moderate +10.47 points higher.
NASDAQ is in a near-term up-leg, but it's difficult to sense whether this is simply a short-term technical move or will lead to a strong break-out above the August 2 peak.
As usual, the economic data remains mixed. Unfortunately, it could be another month or two before we get some stable readings on the post-storm economy.
NASDAQ trading volume was light (1.68 billion shares), and breadth was moderately positive, with 1.50 gainers for each loser.
The Personal Income and Outlays report for August registered a slight decline (-0.1% vs. +0.3% last month) in personal income, a moderate decline (-0.5% vs. +1.0% last month) in personal consumption expenditures, a slight decline (-0.1% vs. +0.4% last month ) in disposable income, a moderate decline (-0.5% vs. +0.1% last month) in real disposable income, and a sharp decline (-1.0% vs. +0.9% last month) in real personal consumption expenditures. This was a negative report. Personal saving as a percentage of disposable personal income was a negative 0.7% in August, compared with a negative 1.1% in July. It's difficult to say what the trend is and whether it really improved. It's unclear how much of an effect Katrina was. September will be a aberrant month as well. We'll have to wait until the end of November to get a clean, post-storm month. Even then, we may have to wait until December to get a clean month-to-month measure of the overall economy.
The Chicago Business Barometer (Chicago PMI) report for September registered a sharp rise, and now suggests a relatively robust expansion of economic activity compared to a contraction in August. This was a positive report. The Production index rose sharply, and is moderately positive. The New Orders index rose sharply, and is showing a moderate expansion. The Order Backlogs index rose sharply, and is showing a modest expansion. The employment index fell moderately, and is now showing a modest contraction. Please note there is a lot of volatility and that this report covers only one region of the country.
The final University of Michigan Consumer Sentiment report for September registered no change from the preliminary September reading (76.9), and a sharp decline from the final August reading (89.1). This was a negative report. Please note that there is no significant link between consumer confidence reports and future consumer spending.
The ECRI Weekly Leading Index registered a sharp rise (+1.5 vs. -0.4 last week), but the six-month smoothed growth rate registered no change (vs. -0.5 last week) but remains modestly above neutral. This was a positive report but continues to suggest that the economy is "fluttering", undecided about whether to weaken or reaccelerate. I would expect the ongoing recovery to continue to limp along in the coming months (and years). We are still in a relative "soft patch", at least in the sense that the economy is not accelerating at a significant pace. We've seen a modest weakening lately, but that may simply be a minor "zag" fluctuation in this "zigzag" recovery. I'd wait a month or so to see how any post-Katrina (and post-Rita) spending stimulus shapes up. This one report was good news, but is insufficient to confirm a change of trend.
The AAA Daily Fuel Gauge Report registered a very sharp rise of +2.8 cents since Wednesday (from $2.815 to $2.843) in the retail price of a gallon of unleaded gasoline, a second rise after a decline after two rises after twelve consecutive daily declines. This was a negative report. Regular unleaded gasoline is now +23.9 cents above the level of a month ago, +78.9 cents above its May 2004 peak of $2.054, and -21.4 cents below its September peak of $3.057. It will take a couple more weeks for prices to settle into a post-Katrina/Rita range. Using the rule of thumb that retail prices will tend to converge about 60 to 65 cents above the front-month NYMEX futures price (the so-called "wholesale price"), we could see $2.69 to $2.74 regular unleaded within a couple of weeks if the wholesale price were to remain steady, followed by an 8-cent decline in October and another 4-cent decline in November. All of that is subject to dramatic change on a daily basis. Any net impact from Rita will become clear only as the details of the impact and recovery process incrementally become more clear. As of Friday morning, prices were mixed out here in Boulder, Colorado, with some stations still not showing any evidence of any Rita premium, but one station jumping 8 cents, another 10 cents, and another 14 cents, for a range of $2.85 to $2.99.
[ * ] Saturday: The Wal-Mart (WMT) Weekly Sales Summary for the week ending Friday, September 30 indicated that "For the September reporting period, comparative sales for the U.S. are estimated to be approximately 3.8 percent as compared to our guidance of 2 to 4 percent." This was a positive report, considering the turmoil or the recent storms. For the week, demand for general merchandise was greater than demand for food. The report noted that "For the period, we saw higher than forecast sales in the Sam's Club division due to increased gasoline prices. Without gasoline, the estimated total U.S. comp percent would have been approximately 60 basis points less [3.2% vs. the actual 3.8%]. Because of the combined impacts of Hurricanes Katrina and Rita, we have excluded from comp sales 5 locations which will remain closed for an extended period of time. At the peak, we had 126 locations closed due to Hurricane Katrina and 155 locations closed due to Hurricane Rita, and all but the 5 remained in our sales calculations." Commenting further on the impact of the storms, the report noted that "As of this morning, Saturday, October 1st, we have 3 Supercenter locations closed due to Hurricane Rita. We also have 12 locations closed due to Hurricane Katrina. This includes 7 Wal-Mart Supercenters, 3 SAM'S CLUBS, and 2 Discount Stores." The September reporting period extended from Saturday, August 27th, through Friday, September 30th.
[9/24/05] I've made my travel plans for the Dow Jones Emerging Ventures conference in Boston in October. $227 roundtrip on JetBlue ($99 + $109 + taxes and fees) and $380 for three nights at the Hyatt Harborside at Logan Airport via Priceline ($109 per night plus taxes and fees). The hotel is a truly great deal. I called Hyatt and the best deal they could offer was $289 per night. I stayed there last year and it's quite nice other than having to spend 45 minutes (walking and the T train) getting to the conference in Boston. The price on JetBlue is okay, but the schedule is the pits, with a red-eye into Boston at 5:15 a.m. and a late flight that arrives into Denver after the last bus to Boulder has departed.
[9/17/05] I suspect that we've worked through most of the more intense euphoria and despair over Katrina and now the focus will be on simple optimism and pessimism over the pace of progress on a day-to-day basis during the recovery phase. This is the land of the mythical half full/empty glass. Some people won't be satisfied with any degree of progress while others will be overjoyed with even trivial steps forward. Overall, a dramatic level of progress will be made in the coming days, weeks, and months, but a lot of people will end up focusing on the vast magnitude of the remaining work. Some incremental real progress will be made this week on the energy production, refining, and distribution fronts, as well as incremental restoration of electric power and the ports. An open question will be the extent to which other regions of the country will or won't pick up any remaining slack from the Gulf area. My opinion is that there is enough slack capacity around the country that can be exploited, but others will disagree with that assertion.
[ * ] I saw virtually no news on the weekend concerning either damage reports or recovery progress for the impact of Katrina and Rita on Gulf area energy facilities. That may be good news, or bad news depending on your point of view. My perception is that crews are simply slogging through the work to be done or simply waiting for the power to be turned back on, but energy traders and speculators may take a dimmer and gloomier view of the lack of news. I presume that a flurry of status reports will hit the wires overnight and then during the day.
There was a little profit-taking for front-month crude oil and gasoline futures on Friday, but some of that was simply profit-taking ahead of the weekend. There will be plenty of volatility in the coming week as we get quite a few specific damage details and specific recovery details. Trying to net all of that out on a minute-by-minute basis will be quite a fool's errand.
Only the two front-month crude oil futures contracts declined on Friday; all the rest rose modestly. I suspect that that buying was short-covering. All gasoline futures contracts declined.
For a good example of the kinds of problems and progress being made, check out Marathon Oil's (MRO) Rita Update #4. It's more than a little more enlightening than the mindless and exaggerated chatter of a lot of traders and speculators.
Although trading quite bullishly in recent weeks, gold seems to have hit a wall and is losing its luster once again. I suspect it will lose even more of its luster as post-Rita reports continue to stream in about the recovery of the energy sector. Also, the rebuilding after Katrina and Rita will be more gradual and prolonged than a lot of people had been expecting and promoting, further lessening the inflationary impact of the storm recovery. Simply put, the gold-bug story of dramatically rising inflation just isn't going to happen.
The euro remains virtually pinned at the lower end of its usual trading range. All bets are off as to whether speculators will be able to reverse it and push it up, or whether the dollar-bears and euro-bulls will cave in and let the dollar continue to rise as it economically should.
[9/27/05] The next two months could in fact be the "moment of truth" for the commodities boom. Crude oil's inability to break out above $70, even after two "body blows" is quite telling.
[9/21/05] Some of the intense interest in commodities is driven by something call the Asset Allocation Clock. A fair number of people have the misguided belief that the U.S. is on the verge of a recession or significant economic contraction, and the Asset Allocation Clock diagram tells them that commodities are the place to be when a business cycle is well beyond its peak and about to roll over.
[4/15/05] The commodities markets remain "loopy". That's the most charitable thing I can say. There's simply too much "hot money" chasing a lot of unrealistic, concocted "stories", not unlike the old dot-com boom. Tears to follow for anyone who sincerely buys into any of those cockamamie stories as other than very short-term trading plays.
[6/25/05] Ongoing anxiety: One potentially significant factor to consider for oil prices is the potential for a supply disruption as a result of the ongoing saber-rattling between the U.S. government and Iran, especially now that a new hard-liner has been elected. I don't have any information to suggest that a disruption might be likely, but there could be some chatter to that effect that is spooking traders and speculators.
The May 2006 crude oil futures contract has the highest price ($67.16), giving us seven months of "contango" (rising prices for consecutive contracts). All contracts after December 2006 are priced below the November 2005 contract. This "backwardation" of longer-term contracts strongly suggests that elevated oil prices are primarily a speculative "bubble" due to deep-pocket investment funds rather than due to actual or prospective supplies or demand. The proposition that elevated oil prices are due to long-term demand growth and long-term supply shortages is simply not born out by futures contracts for outlying years ($60.18 for December 2011). Figure another week or two before the market settles down with respect to the intermediate-term impact of Katrina and Rita.
Unleaded gasoline futures remain quite erratic. They fall through March, then rise for April 2006, and then fall through September 2006. The September 2006 contract is priced about 14.04 cents below the November 2005 contract. The bottom line is that there is no evidence of a market expectation of dramatically rising gasoline prices over the long term, but there is plenty of evidence of lots of confusion and possibly even some mischief in the near term. It could take more than another week for the market to properly price in the effects of Katrina and Rita.
[8/4/05] Disclosure: I actually have some very small positions in some oil and gas production limited partnerships (Geodyne), less than $1,000 total, dating from the early 1980's. I've hung on to them merely because there isn't a liquid market for trading them, so I'd have to take a bath to sell them. The total return plus residual value since the early 1980's is probably significantly less than if I had invested in rolling T-bills for that period. These positions are small because they were actually quarterly payments (from a larger position that I dumped long ago) that were made in the form of fractional units of whatever their latest limited partnership was.
There was a modest rise in the odds of a Fed interest rate hike to 4.00% in November, a moderate rise in the odds of a hike to 4.25% in December, and a sharp rise in the odds of a hike to 4.50% in February or beyond. The market is now pricing in a hike to 4.00% in November, a hike to 4.25% in December, and a hike to 4.50% somewhere in February through November. The latter, and possibly even the hike in December, may merely be insurance hedges rather than outright bets. I continue to forecast a pause at 4.25% in December, but I'm almost ready to consider a hike to 4.50% in February, as soon as I see a few bullish post-storm economic reports.
[9/27/05] I'm actually beginning to warm up to the possibility that the Fed could hike up to 4.50% or even 4.75%, or maybe even 5.00%, given the impressive resilience of the overall economy in the face of persistently high oil prices and two major storms. It all depends on whether the national economy shows any signs of buckling over the next two months.
[9/17/05] Pimco bond fund honcho Bill Gross reaffirmed his belief that the Fed will pause at 4.00%.
[6/25/05] Persistently higher oil prices make it very difficult to judge the pace of economic growth for the coming months. Nobody has any visibility as to whether oil will be significantly higher or significantly lower in a few months, and what the economic impact might be.
[9/21/05] I remain sitting on the fence as to whether the Fed pauses at 4.00% or 4.25%. There seems to be a fair amount of economic strength even in the face of high energy prices, and the Katrina recovery effort will provide the economy with some significant fiscal stimulus. Since 4.00% seems like a popular bet, I'll go out on a limb and suggest a pause at 4.25% in December. After all, there is likely to be little difference in short-term effects of pausing in November as opposed to December and the higher interest rate gives the Fed an additional increment of flexibility. A short rate of 4.25% would have a better chance of nudging long rates higher. Besides, the higher interest rate will serve as a disincentive for people who are on the fence as to whether to rotate some more of their money out of their commodity speculation funds.
[10/1/05] The fed funds futures market suggests a quarter-point hike (to 4.00%) at the November 1 FOMC meeting, a quarter-point hike (to 4.25%) at the December 13 FOMC meeting, a quarter-point hike (to 4.50%) at the January 31 - February 1, 2006 FOMC meeting, no hike at the March 28, 2006 FOMC meeting, no hike at the May 10, 2006 FOMC meeting, no hike at the June 28/29, 2006 FOMC meeting, no hike at the August 8, 2006 FOMC meeting, no hike at the September 20, 2006 FOMC meeting, and no hike at the October, 24 2006 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. Futures are normally quite accurate in the short-term, so a hike to 4.00% at the November 1 FOMC meeting is fairly likely. Bets on hikes beyond November are most likely insurance hedges rather than outright bets.
[9/21/05] The Fed is not likely to raise short interest rates all the way to the middle of a so-called ‘neutral’ stance (somewhere in the 4.50% to 5.50% 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, technology, and manufacturing sectors). Rather, the Fed will simply remove the ‘excess’ stimulus (call it the ‘deflation hedge’) so that only a modest level of ‘accommodation’ remains. The initial ‘campaign’ will likely end at a target fed funds rate of 4.00% to 4.50% 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. My best estimate is that the Fed hikes to 4.00% in November or 4.25% in December and then 'pauses' for at least a year or two before hiking to the middle of the full-neutral range (5.00%).
American Airlines will be cutting back its schedule due to high fuel prices. This is great news. Sure, it sucks if you're a consumer, but the crazy idea of flying planes with lots of empty seats was always truly for the birds. JetBlue only flies a red-eye from Denver to Boston, but that makes it absolutely packed full and hence the lowest possible fuel cost per passenger. That means that JetBlue has more flexibility on pricing and can offer better deals. Other airlines are considering similar schedule cutbacks. This is a start, but we need to see a lot more dramatic progress before the U.S. airline sector is finally back to health. It could take another two or three or even five years, but high fuel prices only help to accelerate the process of weeding out the deadwood.
[1/26/05] For the most recent rumors about companies that are laying people off, going out of business, shuffling management, or otherwise restructuring, check out F****dCompany.com.
[9/20/05] I hope to be attending the new Dow Jones VentureWire Emerging Ventures conference in Boston on October 11 and 12 which is billed as "Fifty chief executives from the most promising technology start-up companies have been invited to present their business plans to an audience of venture capitalists, analysts, chief technology officers, and corporate development executives at the inaugural Emerging Ventures Conference-produced by Dow Jones VentureWire-Oct. 11 and 12, 2005, at the Ritz-Carlton Boston." Every other year the conference name changes, but the concept remains the same: a collection of hopeful entrepreneurs give short presentations on their nascent businesses and a collection of venture capitalists prowl around either looking to sign on additional investors for their "presenters" or to latch on to promising new presenters. There are also service providers (legal, accounting, marketing, HR, etc.) hoping to sign up new ventures as clients. They also run workshop sessions on topics of interest to new ventures, venture capital, technology trends, marketing, etc. Here's a preliminary list of the new technology companies scheduled to be presenters at the conference: Accentus, Akimbi Systems, Akoya, Azima, Blueshift Technologies, BOA Communications, Breach Security, CenterPoint, CorEdge Networks, Cymphonix, Demandware, Eloqua, Emida Technologies, Everypoint, Expresso Fitness, Fidelis Security Systems, GraniteEdge Networks, HyperQuality, i-Vision, Inlet Technologies, InnerSell, Integrien, Intruguard Devices, Jookster Networks, Kiddix Computing, Leverage Software, LogicBlaze, Lusora, Mercent, mFoundry, Nellymoser, Neoxen Systems, Nextreme Thermal Solutions, Novinium, Ortiva Wireless, PeerMe, Pivot Solutions, Plethora Technology, POWERPRECISE Solutions, Inc., Preclick, Rave Wireless, Right Media, Ruckus Wireless, SemiSouth Laboratories, Simply Hired, Smartphish, Spectralus, Tehuti Networks, TravelPost.com, TxFS, Univa, UXComm, Veoh Networks, VideoEgg, VoiceAge Networks Corporation, Volicon, WiDeFi. Many of these companies will never become widely known or even marginally successful, but a handful could well become high-fliers within the next few years. I personally only recognized one company on the list, Simply Hired, and they happen to be based in Silicon Valley. Past conferences were mostly regional in nature.
[7/26/05] The Ernst & Young LLP/VentureOne Quarterly Venture Capital Report for Q2 registered a sharp gain (+14.1% vs. -7.7% last quarter) from last quarter, but a moderately sharp decline (-6.4% vs. -13.6%) from a year ago in investment in companies who have received at least one round of investment from professional venture capital firms. This was a mixed, but reasonably positive report. Information technology (IT) continues to get the lion share of investment (59%) compared to distant second healthcare (24%). Computer software continues to be the largest sub-sector, with 20.1% of the money invested in Q2, but declined 18.2% from Q1 and declined 26% from a year ago. The bottom line is that a healthy amount of money is being invested in new ventures, but it's not what could be called a "boom". The top ten states in terms of amounts invested were California (44.8%), New York (9.4%), Massachusetts (9.0%), New Jersey (6.1%), Washington (4.3%), Texas (4.0%), Georgia (2.6%), Colorado (2.4%), North Carolina (1.5%), and Maryland (1.5%). The top ten deals were Integro ($320 million), provider of global, independent insurance services, Vonage ($200 million), provider of residential and small-business phone services using voice over Internet protocol (VoIP) technology, FleetCor Technologies ($75 million), provider of fleet card and related information services for business fleets and petroleum retailers, Entrisphere ($75 million), provider of multi-service access platform (MSAP) solutions that offer controlled evolution from current overlay architectures to simple converged designs, Somaxon Pharmaceuticals ($55 million), developer of products for the treatment of neuropsychiatric disorders, Caspian Networks ($55 million), developer of flow-state IP QoS systems, Creditex ($50 million), provider of market-supported B2B global electronic trading and information platform for the credit derivatives market, Omniture ($40 million), provider of a Web site analytics solution, Phenomix ($40 million), developer of physiologically relevant models for the identification and validation of novel drug targets in major human diseases, and T-RAM ($40 million), developer of a memory cell based on thin-capacitively-coupled-thyristor (TCCT) technology, which combines existing SRAM and DRAM memory technologies.
[Maybe by] Monday: Read my trip report for the Dow Jones Private Equity Analyst Limited Partner Summit East conference that was held on June 28 & 29, 2005 in New York City. Sorry for the delay, but I've been distracted by various matters.
[4/27/05] There has been a lot of chatter that the venture capital investment numbers are misleading since they don't cover investments in "stealth startups", but that's what the chatter is anytime there is a down quarter. Sure, some fraction of investment is not disclosed, but that fraction is not likely to change dramatically from quarter to quarter relative to overall disclosed investment.
[4/26/05] The VentureOne/Ernst & Young LLP Quarterly Venture Capital report for Q1 registered a moderately sharp decline (-7.03% vs. +3.15% last quarter) from last quarter and a sharp decline (-15.53% vs. -7.10%) from a year ago in investment in companies who have received at least one round of investment from professional venture capital firms. This was a negative report. Some blame the decline on a weak IPO market, but I don't buy that. I attribute the decline to the ongoing shutdown of weak companies from the 2000-2002 timeframe and simply a lack of appealing business prospects among the newcomers. The weak outlook for corporate IT spending is certainly a damper on investment in startup companies focusing on that sector.
[10/11/04] For some background information on venture capital, click here.
[9/24/05] I've started to think about starting up a new small investment plan once my bankruptcy case finally gets discharged in early December. I may just restart my previous small plan. I really haven't given it any intensive thought yet, and won't until I really am free and clear. I also need to give thought to resuming a Roth IRA plan as well. Unfortunately, I won't have a lot of money to work with anyway. My priorities right now are 1) getting back onto a sane, balanced budget, and paying down my back taxes over the next four years, 2) accumulating some money in a classic rainy day fund, part cash and part stock, 3) bulking up my Roth IRA, and 4) accumulating a little money I can speculate with.
[6/23/05] I'm out. As advertised, I did in fact liquidate my year-long dollar-cost averaging experiment with ShareBuilder. My net taxable gain since last July was 1.43%, which was not much better than a money market and a whole lot more volatile. It wasn't my intention to liquidate so soon, but being cut back to part-time work and back taxes (and buying a new notebook PC) forced my hand.
[6/23/05] My decision to sell was not in any way an attempt to "time" the market. I had expected to sell on the anniversary of starting the plan (July 6, 2004), but I'll be traveling and going to a venture capital conference next week and I just wanted to get it off my list of things to do over the next two weeks. And, I had also used my July rent money to buy the new notebook PC, and I just signed the lease for my new apartment in Boulder, so there was a confluence of factors that made Wednesday a very convenient time to sell.
[6/23/05] I continue to have a very, very modest portfolio in two rollover IRA accounts, but not enough to be worth speaking about.
We're still in a correction off the August 2 peak, but the bounce on Thursday, September 22 was the start of a new up-leg. Unfortunately, that doesn't tell us whether we will truly break out of the correction.
[9/27/05] The market will continue to struggle as the impact and recovery outlook for Rita incrementally trickle in over the coming couple of weeks.
[9/22/05] People are suffering from a modest degree of delayed post-Katrina exhaustion. Give them another week or two to recuperate and once again they'll focus more on the longer-term economic outlook and prospects for business revenue and profit.
[9/17/05] There is a chance that Katrina could put additional downwards pressure on the stock market as people may need to sell stock in their retirement plans to raise cash to meeting storm-related needs. A new loan exemption for retirement plans may alleviate at least some of the need to liquidate retirement portfolios.
[4/26/05] Overall market outlook: quite confused and susceptible to volatile swings, but a gradual drift up, over time.
[9/30/05] The fact that there was a net outflow from domestic equity mutual funds for eight weeks after five weeks of inflows after an outflow after five weeks of inflows after a week of outflow and inflows for 23 of the past 35 weeks, suggests that the market will continue to be quite volatile, but likely to maintain a gradual upwards drift.
[1/1/05] Click here for Market Outlook for 2005.
[10/1/05] NASDAQ is very modestly bullish over a one-month timeframe and very modestly bearish over a 10-day period.
The major advance off of the NASDAQ October 2002 low is now in a correction, 42 days off its closing high of 2,218.15 of Tuesday, August 2, 2005, and 41 days off its intra-day peak of 2,219.91 on Wednesday, August 3, 2005.
The sharp gain of 29.16 points on Wednesday, May 4, 2005 confirmed the new up-leg of the October 2002 advance for NASDAQ that began with the intra-day low of 1,889.83 on Friday, April 29, 2005. This up-leg is now 108 days old, 42 days off its closing high of 2,218.15 of Tuesday, August 2, 2005, and 41 days off its intra-day peak of 2,219.91 on Wednesday, August 3, 2005. The key signal to watch for now is a day on which the market opens sharply higher but closes sharply off the intra-day peak, which could indicate a "market top".
The sharp gain of 37.22 points on Friday, July 8, 2005 confirmed the new up-leg of the Spring advance that began with the intra-day low of 2,039.69 on Monday, June 27, 2005. This up-leg is now 66 days old, 42 days off its closing high of 2,218.15 of Tuesday, August 2, 2005, and 41 days off its intra-day peak of 2,219.91 on Wednesday, August 3, 2005. The key signal to watch for now is a day on which the market opens sharply higher but closes sharply off the intra-day peak, which could indicate a "market top".
The sharp gain of 25.82 points on Thursday, September 29, 2005 confirmed the new up-leg of the Spring advance that began with the intra-day low of 2,093.06 on Thursday, September 22, 2005. This up-leg is now 7 days old, at its closing high of 2,151.69 of Friday, September 30, 2005, and at its intra-day peak of 2,151.69 of Friday, September 30, 2005. The key signal to watch for now is a day on which the market opens sharply higher but closes sharply off the intra-day peak, which could indicate a "market top".
[8/3/05] NASDAQ closed at 2,218.15 on Tuesday, August 2, 2005 at its highest closing level since it closed at 2,264.00 on June 7, 2001. The intra-day peak of 2,219.00 on Tuesday, August 2, 2005 was its highest intra-day peak since the peak of 2,263.75 on June 8, 2001.
[10/1/05] Short-term (1-day): Moderately bullish.
[9/30/05] Short-term (2-day): Moderately strongly bullish.
[9/30/05] Short-term (5-day): Moderately strongly bullish.
[9/30/05] Short-term (10-day): Very modestly bearish.
[10/1/05] Short-term (1-month): Very modestly bullish.
[9/22/05] Short-term (2-months): Moderately bearish.
[9/30/05] Medium-term (3-months): Moderately bullish.
[9/30/05] Medium-term (6-months): Moderately bullish.
[9/15/05] Year-to-Date: Modestly bearish. [NASDAQ closed 2004 at 2,175.44]
[9/28/05] Medium-term (9-months): Modestly bearish.
[9/27/05] Longer-term (1-year): Moderately strongly bullish.
[9/24/05] Longer-term (2-years): Moderately strongly bullish.
[7/14/05] Longer-term (3-years): Moderately strongly bullish.
[9/15/05] Longer-term (4-years): Moderately bullish.
[12/23/04] Longer-term (5-years): Strongly bearish.
[4/23/05] Longer-term (6-years): Moderately bearish. This was the big run-up for the "boom" in 1999.
[10/15/04] Longer-term (7-years): Modestly bullish.
[10/15/04] Longer-term (8-years): Modestly bullish.
[10/15/04] Longer-term (9-years): Modestly bullish.
[10/15/04] Longer-term (10-years): Modestly bullish.
[1/1/05] The NASDAQ "bubble" (above the 3,000 level, including intra-day "flirtations") lasted from November 2, 1999 through December 13, 2000, a year and six weeks.
[ * ] Some supposedly competent economists are now actually chattering about the prospects for a recession. Sorry guys, but the odds of a recession over the next year are close enough to zero to suggest that it's not a topic worthy of discussion. These recession-mongers crawl out of the woodwork every time there is even a slight bit of stress on the economy and they are almost always wrong. This time is no different. What these guys do know with certainty is that if they even bring up the "R" word, they get lots of press attention, and that's all they're really after anyway
[9/29/05] It will take some time for the net economic impact of Katrina and Rita to become clear, but my view is that we will lose no more than about 0.5% to 1.0% from GDP in Q4, but possibly 0.25% to 1.5% loss from Q3 GDP depending on the quirky statistical process. The advance report for Q3 won't even include a fair amount of the data from September, so the "adjustments" could be all over the map. Q1 of 2006 will be an interim quarter, with some significant strength tempered by any lingering "outages", so it could be normal or well above par, but possibly a little weak as well.
[9/27/05] The pace of the economy over the next two months is a big question mark. We'll need to wait at least two weeks after Rita has passed and then listen carefully to the anecdotal reports about how business seems to be shaping up in October.
[9/23/05] The economy continues to be in a gradual zigzag recovery mode, so it's not unexpected to see some modest weak patches mixed in with evidence of real strength. Sad to say, but we have another three years of this meandering in front of us.
[9/22/05] Rita may or may not impact the economic outlook. We'll have to wait Saturday or even Monday or Tuesday to see what happens as Rita passes through Texas Gulf oil country.
[9/19/05] The latest economic data continues to support the thesis that the U.S. economy remains in the early stages of a protracted recovery. Some people are talking as if the economy is nearing the end of a business cycle, when we are really only in the early stages of a protracted business cycle. It will be another THREE years before the economy is fully back on track. Unemployment will decline only gradually. Creation of new businesses which will be the titans of tomorrow has yet to even commence, let alone take off. The bankruptcy rate will decline off recent highs (after a temporary blip for the October 17 deadline before the law changes go into effect), 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 to three years as well. The sad thing is that a number of them don't yet know it or are afraid to admit it. Cost cutting and head count reductions will be ongoing mantras for the next two to three years. That said, there will be plenty of corporations that see increasing profits over the next few years as consolidation boosts their efficiency.
[9/17/05] Despite any short-term slump due to Katrina, the intermediate-term economic outlook will be significantly brighter than if Katrina had not struck. Note that a lot of people had been expecting the economy to slow even before Katrina appeared. There is a modest risk of higher inflation, but no significant risk of accelerating, runaway inflation.
[9/15/05] The bulk of economic reports over the coming weeks and through mid-November will not give us much in the way of clues for how the economy will perform in the coming post-Katrina months. For example, we won't have clean, post-Katrina retail sales and industrial production reports until the middle of November.
[9/12/05] I'm raising my expectations for the economy over the coming months and year. Katrina will result in a lot of near-term volatility, but will be a strongly positive catalyst for the next couple of years. Even after the Gulf area energy infrastructure is restored, the recent disruption will be a strong incentive for additional investment to meet growing demand and to reduce risk for future disruptions.
[4/2/05] For the record, we simply are not going to see consistently large payroll employment rises (200K/month or 2.4 million per year) until the vast bulk of "old economy" companies have finally worked their way through the restructuring process, which could be another two or maybe even three years. We still have quite a number of companies "hanging in there", resisting further (and inevitable) restructuring as they wait for the economy to turn up more strongly. This includes the old major airlines, the car companies, retailers, a fair number of technology companies, etc.
[2/18/05] Clearly higher interest rates will have some negative impact on the economy, but the extent of the impact is not so certain. First, the Fed is not trying to constrain demand, but simply getting rid of excessively cheap money that has the potential for causing speculative excesses. In other words, raising interest rates to roughly "neutral" won't cause normal economic demand to decline significantly, but could, for example, help to curb speculation on commodities and foreign exchange. Second, the Fed essentially sets only some short-term interest rates, but the market and the law of supply and demand set longer-term rates. The key factor right now is that there remains a credit glut; corporations remain more interested in trimming their debt load rather than expanding it.
[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.
[5/21/05] I heard that Greenspan says oil prices may be taking 0.75% off of GDP, but prices have risen significantly since last August.
[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.
[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.
[3/12/05] A continuing big wildcard in 2005 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 02, 2005 09:08:24 PM -0400
Copyright © 2005 John W. Krupansky d/b/a Base Technology