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Once again, we saw volatile trading on Wednesday that was much more technical in nature than based on economic or business fundamentals. Speculators took a very negative tone on Tuesday after NASDAQ faltered at trend-line resistance, and that negative tone persisted as technical speculators wait for significant buying to materialize that will challenge their negative bias. NASDAQ closed down a very sharp -36.34 points (-1.70%), a new closing low for the recent up-leg, but remaining modestly above the intra-day low from Thursday, September 22, 2005 which marked the start of the current up-leg. Traders and speculators will have to push NASDAQ down another 10 points to invalidate this leg. At a minimum, this is a good test of the leg.
This was a classic "throw in the towel" sell-off, causing short-term momentum speculators to dramatically dump long positions and switch to opening short positions. Sometimes this is an indication of a larger sell-off to come, but just as often it's an indication that the selling pressure is close to running out of steam.
The economic data was rather mediocre, helping to boost negative sentiment on Wednesday, but the current economic mode of mixed data means that we are bound to see some lousy days mixed in with the better days. The weak ISM Services report will most likely have been a one-off event, especially as the Gulf Coast recovery swings into higher gear over the next couple of months.
NASDAQ trading volume was almost heavy (1.96 billion shares), and breadth was very strongly negative, with 4.03 losers for each gainer. This was almost a heavy sell-off, but volume still wasn't quite there.
The ISM Report on Business for Non-Manufacturing for September registered a sharp decline in the pace of business activity, and now indicates only a modest level of growth. This was a negative report. New orders are growing moderately, but at a sharply slower pace. The backlog of orders continues to grow modestly, at an unchanged pace. New export orders continue to grow at a moderate, but sharply slower pace. Employment continues to grow at a moderate, but moderately slower pace. Obviously this report reflects the impact of Katrina and Rita. We'll have to wait a month and see what kind of post-storm impact can be seen.
The weekly Mortgage Applications report registered a modest decline (-1.1% vs. -6.6% last week) for the week ended September 30. This was a negative report, but there does tend to be a lot of volatility. Refinancing applications rose very slightly (+0.04% vs. -10.5% last week), and applications to purchase fell modestly (-1.9% vs. -3.4% last week). The volatility will probably remain quite high from here on out, especially as the Fed continues to raise interest rates and demand for housing gradually (eventually) begins to revert to a more normal pace. Katrina and Rita could in fact raise mortgage applications due to relocation of displaced households.
The DOE EIA Weekly Petroleum Status Report registered a slight decline (-0.1% or -0.3 million barrels to 305.4 million barrels) in the inventory level of crude oil, but it remains above the upper end of the average range for this time of year. This was a mixed report, but still indicates that we have plenty of crude oil and that the lofty price level is due primarily to speculation rather than real supply or demand. The crude oil inventory level is +11.8% above a year ago, and well above the level which would indicate a shortage or tightness of supplies (250 million barrels). The Strategic Petroleum Reserve (SPR) fell modestly (-0.3% or -2.2 million barrels to 693.3 million barrels). The gasoline inventory level fell very sharply (-2.2% or -4.3 million barrels to 195.5 million barrels), and is -4.6% lower than a year ago. The heating oil (distillate fuel oil) inventory level fell very sharply (-4.2% or -5.6 million barrels to 128.0 million barrels), and is +3.7% above a year ago. Note: It may take a few more weeks for reports to accurately reflect the impact of Katrina and Rita. What these weekly reports do make quite clear is that there is no shortage of oil, gasoline, or heating oil at the overall, national level. As the EIA report puts it, "Total commercial petroleum inventories plummeted by 9.9 million barrels last week, but are in the upper half of the average range for this time of year." That doesn't sound like a very particularly bad place to be, unless you're an energy and commodities bull.
The Challenger, Gray & Christmas Announced Layoffs report for September registered a modest rise (+1.79%) in the number of announced layoffs, 33% less than a year ago. This was a mixed report. The good news is that announced layoffs remain well below 100K (72K). The report notes that "More Katrina and Rita-related job losses may come in the months ahead as companies decide to close or relocate their operations out of the Gulf region. It may be difficult to track, however, as some employers could quietly fade out of the picture."
The AAA Daily Fuel Gauge Report registered no change since Monday ($2.941) in the retail price of a gallon of unleaded gasoline, after five rises after a decline after two rises after twelve consecutive daily declines. This was a neutral report. Regular unleaded gasoline is now -11.6 cents below the level of a month ago, +88.7 cents above its May 2004 peak of $2.054, and -11.6 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 $2.50 to $2.55 regular unleaded within a couple of weeks if the wholesale price were to remain steady, followed by a 4.5-cent decline in November and another 2.5-cent decline in December. 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 Wednesday morning, I noticed a couple of stations drop from $2.92 to $2.89 and one from $2.99 to $2.89, with the range being $2.89 to $2.99.
[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.
There was a little rotation in commodities from energy to the euro and yen.
I suspect that some hedge funds rotated from long energy to short stocks.
It seems a bit odd that speculators would be bailing out of energy commodities when the Gulf Coast energy sector is in such disarray, but maybe it's more of an intermediate-term call that energy commodities were overbought. My suspicion is that it's more of a short-term technical move designed to suck in short-sellers who will then be crushed on the next energy rally. On the other hand, hedge funds and other shrewd speculators may be attempting to engineer a more dramatic drop over a longer period of time to dramatically boost their trading profits on higher volatility.
It was rather interesting that gold was so lackluster on Wednesday when inflation was such a hot topic, but this simply emphasizes that the recent rallying in gold was more of a short-term speculative and technical move rather than based on true long-term economic and business fundamentals. One Fed official did try dispel the notion of an inflation "surge", so that could have helped to keep the gold bugs under control, but I suspect that they had already run out of steam anyway.
[10/5/05] Recovery from Katrina and Rita continues to slog along. Your can read for yourself what BP has to say in their press release entitled "BP Resuming Operations Along US Gulf Coast." And you can read what the Department of Energy's Energy Information Administration has to say each day. We have a ways to go, but progress is occurring every day.
[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 ($64.12), giving us seven months of "contango" (rising prices for consecutive contracts). All contracts after May 2007 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 ($58.33 for December 2011). Figure another week or two before the market settles down with respect to the intermediate-term impact of Katrina and Rita. Interestingly, December crude was priced below November crude for a second day, which is not normally the case. We'll have to see how this erratic behavior evolves.
Unleaded gasoline futures remain quite erratic. They fall through March, then rise for April 2006 and May, and then fall through October 2006. The October 2006 contract is priced about 17.57 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.
As a result of the weak ISM Services report, there was a moderately sharp decline in the odds of a Fed interest rate hike to 4.50% in February or beyond. The market is still pricing in a hike to 4.00% in November, a hike to 4.25% in December, and a hike to 4.50% in February or March. The latter may merely be an insurance hedge rather than an outright bet. 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 some more definitive evidence of economic strength.
[10/4/05] Bill Gross of PIMCO has a new, October 2005 Investment Outlook essay out, but it doesn't give a revised fed funds target interest rate. He focuses on the so-called "housing bubble", concluding that "If real housing prices decline in the U.S. in 2006 or 2007, a recession is nearly inevitable. If higher yields simply slow the pace of appreciation to a more rational single digit number, then we could escape with a 1-2% GDP economy. In either case, however, our Fed with its new Chairman will likely be in the enviable position of lowering rates come mid-year 2006." Of course, that doesn't tell us if interest rates will be higher or lower next year, especially since the Fed doesn't set longer-term interest rates such as the yield on the 10-year Treasury note anyway. I feel like I should be deferring to Gross' deep knowledge and bond expertise, but his analysis simply seems rather tentative and subject to change and subject to such a huge margin of error as to render it rather meaningless.
[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 December 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%).
Motorola (MOT) says it will cut 1,900 jobs globally, but their headcount will remain unchanged since they'll be adding staff in engineering and marketing.
Viacom (VIA.B) is going to spin off CBS as a separate company. While this does help to rationalize Viacom, there is still more consolidation of the media sector needed. How to do it rationally is an open question.
[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.
It remains to be seen whether the market declines on Tuesday and Wednesday were a trend change or simply a test to be followed by a resumption of the advance. Flip a coin.
[10/1/05] 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.
[10/6/05] NASDAQ is moderately strongly bearish 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, 45 days off its closing high of 2,218.15 of Tuesday, August 2, 2005, and 44 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 111 days old, 45 days off its closing high of 2,218.15 of Tuesday, August 2, 2005, and 44 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 69 days old, 45 days off its closing high of 2,218.15 of Tuesday, August 2, 2005, and 44 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 10 days old, 2 days off its closing high of 2,155.43 of Monday, October 3, 2005, and 2 days off its intra-day peak of 2,162.79 of Monday, October 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". This leg is looking almost terminally stressed, but that's a good test to see how well it will hold up over the long run. The shorts may be on a run or maybe past their peak. Flip a coin.
[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.
[10/6/05] Short-term (1-day): Very strongly bearish.
[10/6/05] Short-term (2-day): Strongly bearish.
[10/6/05] Short-term (5-day): Modestly bearish.
[10/6/05] Short-term (10-day): Very modestly bearish.
[10/6/05] Short-term (1-month): Moderately strongly bearish.
[10/6/05] Short-term (2-months): Moderately strongly bearish.
[10/6/05] Medium-term (3-months): Modestly 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]
[10/4/05] Medium-term (9-months): Flat, trading range.
[10/6/05] Longer-term (1-year): Moderately 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.
[10/5/05] The Fed seems to think that inflation is in the upper end of the acceptable range. That will keep the Fed interest rate hike campaign active for at least a couple more months. The Fed is vigilant enough that dramatic inflation simply won't be an issue at all. On the other hand, a little inflation really does help to grease the skids of the economy and offers everybody incentives to buy and invest now rather than to wait.
[10/3/05] 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 05, 2005 06:33:35 PM -0400
Copyright © 2005 John W. Krupansky d/b/a Base Technology