Our daily stock market commentary and views on the economy and geopolitical events are posted weekdays and Saturday by 12:30 a.m. ET.
[ Market Activity | Market Outlook | Market Trend | Economic Reports | Miscellaneous | Commodities | Fed Futures | Restructuring | Venture Capital | My Investments | Economic Outlook | Tech Stock 'Safe' Signal | Disclaimer | Archive | Blog | Books | Resources | Charts | Adages | Glossary | Lore | Search | Reform | Telecom | Technology | Payment | Contact ]
(Updated since Saturday -- changes marked with [ * ])
The market continued its recovery bounce on Friday after the recent sell-off. This may still be a dead-cat bounce, or may be the start of a new up-leg of the underlying four-year advance. NASDAQ rose a moderately sharp +17.61 points.
The market had been heavily oversold on a short-term technical basis, so a bounce was to be expected at some point. Also, there tends to be a bounce on Friday if short-term players had been short during the week, since short-term players tend to close out positions ahead of the weekend when anything can happen, and with Refco twisting slowly in the wind there is no telling what sorts of skeletons are likely to come tumbling out of the closets of Wall Street over the weekend.
The economic data remains mixed and simply isn't giving us any clear indications of where the economy will be headed in the months ahead.
NASDAQ trading volume was light (1.56 billion shares), and breadth was strongly positive, with 2.24 gainers for each loser. This was not a strong rally due to lackluster volume and the less than strong point gain.
The Consumer Price Index (CPI) report for September registered a very sharp rise in consumer prices (+1.2% vs. +0.5% last month), and a slight rise ex food and energy (“core” inflation, +0.1% vs. +0.1% last month). This was a mixed report, with no dramatic evidence of either accelerating inflation or accelerating deflation. A little inflation is a good thing, encouraging people to spend money rather than simply hoard it. The price of oil is a wildcard, but should level out as commodities speculation begins to peter out. It's actually quite amazing that core inflation has held steady at no more than 0.1% for six months now.
The Retail Sales report for September registered a modest rise (+0.2% vs. -2.1% last month), but a sharp rise (+1.1% vs. +1.0% last month) ex autos; sales were 6.5% higher than a year ago. This was a positive report. There's a lot of volatility in these reports and the economy really is poking along on a zigzag path with some strong months mixed with some lackluster months. We'll have to wait until the middle of November to get a clean, post-Katrina retail sales report. A hefty chunk of the ex-autos rise was due to higher gasoline sales.
The Industrial Production and Capacity Utilization report for September registered a sharp decline in production (-1.3% vs. +0.2% last month), and a sharp decline in capacity utilization (-1.2% vs. +0.1% last month). This was a negative report, but there is a lot of volatility. We still have a fair amount of slack in the industrial sector of the economy, so there's no need to be worried about inflation. We'll have to wait until the middle of November to get a clean, post-Katrina industrial production report. One open issue is the extent to which capacity utilization will be temporarily reduced by Katrina and Rita outages that will be reversed within a few months as the recovery progresses. That could make the capacity utilization number rather unreliable for maybe three to six months or even longer. Note that industrial production includes generation of electricity, so electrical outages mean a loss of industrial production in addition to the loss of production which depended on the lost electrical generation.
The preliminary University of Michigan Consumer Sentiment report for October registered a modest decline from the final August reading, from 76.9 to 75.4. This was a modestly negative report, but there does tend to be a lot of volatility. The September storms probably had a lingering effect, but high energy prices get the lion's share of the blame. It is important to note that there is no significant correlation between consumer confidence readings and future consumer spending.
The Manufacturing and Trade Inventories and Sales (Business Inventories) report for August registered a moderate rise in sales (+0.4% vs. +1.1% last month, or +7.1% over a year ago), a moderate rise (+0.4% vs. -0.5% last month, or +3.8% over a year ago) in inventories, and no change in the Inventories/Sales ratio (at 1.26). This was a positive report, but there is a lot of volatility. The low ratio of inventories to sales is bullish for future production.
The ECRI Weekly Leading Index registered no change (vs. -0.4 last week), and the six-month smoothed growth rate registered no change (vs. -0.3 last week) and remains modestly above neutral. This was a neutral report and 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-storm recovery spending stimulus shapes up.
The AAA Daily Fuel Gauge Report registered a very sharp decline of -2.1 cents since Wednesday (from $2.837 to $2.816) in the retail price of a gallon of unleaded gasoline, a ninth consecutive decline. This was a positive report. Regular unleaded gasoline is now -11.9 cents below the level of a month ago, +76.2 cents above its May 2004 peak of $2.054, and -24.1 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 $2.34 to $2.39 regular unleaded within a couple of weeks if the wholesale price were to remain steady. 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, and it is evolving every day. I see that some stations out here in Boulder, Colorado have reduced prices from $2.89 to $2.85. I noticed $2.79 on my way into Boulder from the airport Wednesday night (actually very early Thursday morning). I noticed a station cutting from $2.89 to $2.79 on Friday to match the station across the street.
[ * ] Saturday: The AAA Daily Fuel Gauge Report registered a very sharp decline of -2.4 cents since Thursday (from $2.816 to $2.792) in the retail price of a gallon of unleaded gasoline, a tenth consecutive decline. This was a positive report.
[ * ] Sunday: The AAA Daily Fuel Gauge Report registered a very sharp decline of -2.1 cents since Friday (from $2.792 to $2.771) in the retail price of a gallon of unleaded gasoline, an eleventh consecutive decline. This was a positive report. Regular unleaded gasoline is now -11.6 cents below the level of a month ago, +71.7 cents above its May 2004 peak of $2.054, and -28.6 cents below its September peak of $3.057. The spread between wholesale and retail gasoline prices has widened significantly, suggesting that retail prices could continue to fall.
[ * ] Saturday: The Wal-Mart (WMT) Weekly Sales Summary for the week ending Friday, October 14 indicated that "For the October reporting period, comparative sales for the U.S. are estimated to be within our guidance of 2 to 4 percent" (no change from last week). This was a neutral report. For the week, demand for food was greater than demand for general merchandise. The report noted that "As of this morning, Saturday, October 15th, we have 1 Supercenter closed due to Hurricane Rita. We also have 10 locations closed due to Hurricane Katrina. This includes 7 Wal-Mart Supercenters, 1 SAM'S CLUB, and 2 Discount Stores." That's one less Supercenter closed due to Rita and one less SAM'S CLUB closed due to Katrina. The October four-week reporting period extends from Saturday, October 1st, through Friday, October 28th.
The rush to file for bankruptcy ahead of the October 17, 2005 date of effect for the new bankruptcy law changes is now over. How big a hit this will be to the credit card companies (and securitized credit card debt holders) is quite an open question and a matter of great debate. In many cases, the debtors were probably already in collections and the companies had already written down the debts. For those debts which were still collectible as of the filings, I'm not sure what the trigger event for the write-off really is. It may not be until the debt is officially discharged, but the companies may have to do a preliminary write down of the debt value as of the filing notification. For all these last-minute filers, the final discharge may not be until January or February. The flurry of bankruptcy filing might also help boost federal and state tax revenues over the coming year since back taxes are not typically discharged, and once consumers are freed from their debt load they will have more money available to catch up on back taxes.
[ * ] Since Refco clients had both long and short positions in commodities, it's difficult to say whether unwinding of positions at Refco will be a net gain or loss for any particular commodity. It is fair to expect an excess of volatility until the initial impact of Refco plays out.
Intense chatter about Refco probably had some impact on the commodities markets, but probably more psychologically than financially. But the full story of Refco has yet to play out, so stay tuned.
[10/14/05] Commodities are floundering again, but this could simply be a bout of profit-taking, a breather before a further rise. Or, it could be evidence that commodities really are past their peak.
[10/14/05] The scandal over Refco (RFX) is something to keep an eye on, especially when some customers are being told that they can't access their accounts. Refco is the big dog of the commodities trading and speculation business. The big question is whether the latest problems are simply brief and temporary or symptomatic of even greater difficulties in commodities trading land. My suspicion is that investment funds may be pulling in their horns on the commodities front, and that this reduction in liquidity may be putting extra pressure on the commodities trading firms. And one has to wonder whether smaller commodities firms are really in that much better shape than Refco. There is a distinct possibility that investment funds may cut back their exposure to commodities simply to limit their exposure to Refco and crew.
[10/14/05] It is once again time for short-term speculators to shift out of front-month oil contracts (November) and into the next month (December) which will become the front month after next Friday. Some people may sell long positions and buy new long positions, while others buy to close out short positions and then sell to open new short positions. Expect a lot of volatility. The open question is how many people actually want to take physical delivery of the oil covered by November futures.
Recovery from Katrina and Rita continues to slog along. 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. Another 1% of oil production came back online by Thursday, with 65.4% of Gulf oil production now out of service. Another 2.2% of natural gas production is back, with 56.4% of Gulf natural gas production now out of service.
[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.
[10/7/05] 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. The administration is talking a harder line with Syria as well. I don't have any information to suggest that a disruption might be likely, but at some point there could be some increased chatter to that effect that may spook traders and speculators.
The June 2006 crude oil futures contract has the highest price ($62.66), but that is only 3 cents above the November 2005 contract. The December contract is sharply below the November contract, but then we have seven months of "contango" (rising prices for consecutive contracts). All contracts after July 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 ($56.83 for December 2011). Figure another week or two before the market settles down with respect to the intermediate-term impact of Katrina and Rita, although the "Refco madness" may persist for a while.
Unleaded gasoline futures remain quite erratic. They have suddenly shifted and we now have contango (rising prices) from November through May 2006 and then backwardation (falling prices) through October 2006. The October 2006 contract is priced about 2.72 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, although the "Refco madness" may persist for a while.
[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 moderate rise in the odds of a Fed interest rate hike to 4.25% in December and a moderate rise in the odds of a hike to 4.50% in February or March, and a sharp rise in the odds of a hike to 4.50% by July 2006. There was even some betting on a hike to 4.75% by November 2006. The market continues to price 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. The hike to 4.00 in November is virtually locked in.
Still no recent chatter from PIMCO's Bill Gross about where he thinks the Fed is headed. Almost a month ago he forecast 4.00% as the pause point, but that was before Rita and Refco.
[10/14/05] 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. I'll try to focus on resolving my view within two or three weeks. I'd like to see the weekly jobless claims numbers retreat significantly first, a more dramatic recovery of Gulf Coast energy production and a dramatic pullback in retail gasoline prices, and a recovery in retail sales, including a more buoyant outlook from Wal-Mart (WMT).
[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%).
Of the major internet players vying for a piece of AOL, Yahoo (YHOO) makes the most sense, to me. I don't think Google brings very much to the table in terms of enhancing the average AOL user's connectivity and content experience. I think Microsoft (MSFT) should be trying to get out of the connectivity and content markets. Yahoo's content and expertise with content dovetails very nicely with AOL content. I'm a six-year MSN user, but I also access a fair amount of Yahoo content. If Yahoo can't do a deal, Microsoft would be the next best partner for AOL. A long-shot possibility is for Time Warner to spin AOL off and let it take off on its own. That would be my first choice. My second choice would be for AOL and Yahoo to offer a bundled deal where AOL subscribers get discounted access to Yahoo content. In any case, it makes a lot of sense to do something with AOL rather than simply let it continue to wither on the vine at Time Warner.
[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.
[10/14/05] The Q3 venture capital investment money flow numbers should be out soon. I expected them to be out at the Dow Jones Emerging Ventures conference, but they only had some preliminary numbers since some venture firms haven't yet submitted final Q3 investment data.
[10/11/04] For some background information on venture capital, click here.
I put in a request to reopen my old Roth IRA account at Muriel Siebert. I had withdrawn all assets and closed the account back in December 2003 as I was spiraling into insolvency due to a lack of income, but apparently it was a soft rather than hard close and they said a simple fax should get it reopened. I'm going to try to put at least a little money into both my taxable and Roth IRA accounts at Siebert by the end of November, to at least get started on a new savings program. I may also put a little cash back into my ShareBuilder account just to keep it segregated for yet another rainy day. I don't have to make any payments on back taxes while my bankruptcy is pending, so I'll have at least that cash to start with.
[10/14/05] I continue to struggle with whether or when to dip my toe back into the investing waters, especially with what sort of asset allocation model I should use and whether to take an index approach to try to do some old-fashioned stock picking. I may simply start using my old Muriel Siebert account since it uses Fidelity for its money funds, which pays a fairly decent interest rate, and then incrementally buy the S&P 500 index tracking stock (SPY) or the S&P 500 Tech Sector Spider (XLK) with a relatively small fraction of the cash (maybe 20%), and then buy and sell on a monthly basis to maintain a fixed percentage asset allocation (i.e., sell if the market is up or I have less than 80% cash, and buy if the market is down or I have more than 80% cash). My fixed asset allocation would become more aggressive once I accumulate enough cash to feel that I have a sufficient rainy day fund. I'll also start doing the same with a Roth IRA once I've got a sufficient short-term financial cushion in place. I'm thinking of eventually running my Roth and taxable accounts in parallel with the same strategy, although the Roth could have a much more aggressive stock allocation (maybe 70-85%). My feeling is that individual stocks won't be worth the hassle until I have a large enough portfolio where a 3% position in a stock (that's 3% of the stock allocation) would be at least $1,000, with a 3% position meaning that I could have 20 stocks comprising 60% of my stock allocation, leaving 40% for index investment. That might take me a couple of years since I also have to pay down a lot of back taxes, but at least I'd have a credible plan that can start small and not get too unwieldy as my savings grow.
[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.
[ * ] The three hot topics for the market today will be: 1) Refco, 2) Refco, and 3) Refco. Ultimately Refco is much more an issue for the commodities and foreign exchange markets than the stock and bond markets, but there may be a modest amount of spillover due to uncertainty as to what is really going on within Refco. It's more a question of whether unscrupulous traders and speculators gain enough momentum to put a scare into the markets. Even if there is a sharp negative reaction, it would probably be short-lived. Given that news about Refco has been out for a couple of days, there is a fair chance that any negative reaction may already priced into the markets.
[ * ] There will be a tidal wave of quarterly company reports out this week. The primary issue is not how companies did, but the outlook for the coming year. The outlook for the coming quarter will be clouded by lingering effects of the recent storms. Traders and short-term speculators have difficulty looking out further than their noses, but true, longer-term investors will take a harder look at the quarterly reports and outlooks. As always, major price movement of stocks will continue to be driven more by money flowing in and out of mutual funds than hard analysis of fundamentals.
[10/11/05] We remain at square one, with market participants struggling to decide whether the recent correction has run its course and is ready to head back up, or is just starting to get a head of steam on its way down. From a fundamentals perspective, people are struggling to decide whether the economy and businesses are likely to do worse than were expected last week, or maybe significantly better over the next six to nine months. Unfortunately, if Katrina and Rita victims are continuing to pull back from investing in stock mutual funds, that dramatically increases the odds that the market may be in for a prolonged downdraft, albeit peppered with occasional technical and speculative rallies and corrections.
[10/11/05] The recent little bounce has clearly lost its momentum. That means that traders and speculators will be angling to push the market down, but tells us nothing about whether sellers rally are gaining a stronger upper hand in the market, or whether their strength may be on the verge of evaporating.
[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.
[9/17/05] 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.
[10/14/05] The fact that there was a net outflow from domestic equity mutual funds for a tenth week and we've seen inflows for 23 of the past 37 weeks, suggests that the market will continue to be quite volatile, but likely to maintain a gradual drift upwards.
[1/1/05] Click here for Market Outlook for 2005.
[10/12/05] NASDAQ is moderately strongly bearish over a one-month timeframe and moderately strongly bearish over a 10-day period.
The major advance off of the NASDAQ October 2002 low is now in a correction, 51 days off its closing high of 2,218.15 of Tuesday, August 2, 2005, and 50 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 117 days old, 51 days off its closing high of 2,218.15 of Tuesday, August 2, 2005, and 50 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 intra-day low on Thursday invalidated the leg that began with the intra-day low of 2,039.69 on Monday, June 27, 2005.
We continue to look for confirmation of the start of the next up-leg of the longer-term advance starting with the intra-day low of 2,025.58 on Thursday, October 13, 2005. We now look for a 1% rise on higher volume than the previous day to confirm the new leg, but we ignore what happens on Days 2 and 3 since dead-cat bounces are common then. Friday was Day 2, with a moderately sharp rally, but too little and too weak to classify as a confirmation even if it wasn't on Day 2 or 3.
[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.
[10/15/05] Short-term (1-day): Moderately strongly bullish.
[10/15/05] Short-term (2-day): Moderately strongly bullish.
[10/14/05] Short-term (5-day): Moderately bearish.
[10/12/05] Short-term (10-day): Moderately strongly bearish.
[10/12/05] Short-term (1-month): Moderately strongly bearish.
[10/8/05] Short-term (2-months): Moderately bearish.
[10/12/05] Medium-term (3-months): Moderately bearish.
[10/7/05] Medium-term (6-months): Modestly bullish.
[10/7/05] Year-to-Date: Moderately bearish. [NASDAQ closed 2004 at 2,175.44]
[10/12/05] Medium-term (9-months): Modestly bearish.
[10/6/05] Longer-term (1-year): Moderately bullish.
[10/14/05] Longer-term (2-years): Modestly 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.
Retail sales were okay in September, but I'm not so sure that report is representative of what we will see going forward. We might see a little retrenchment in October, but I suspect we will see some significant renewal of growth in November, if not sooner.
[10/14/05] The economy seems to be booming in Boston, with plenty of tourists and crowded restaurants. I wandered by the Marriott Long Wharf hotel and checked the room rates. $399 per night and no weekend rate. This is a nice hotel and located in a popular, convenient, and pleasant location, but not in the luxury category. I'm amazed that so many people are willing and able to pay that much. I've only stayed there a couple of times years ago, including shortly after they opened back in the early 1980's.
[10/7/05] I don't have great confidence that I have a solid handle on the pace of the economy, but it seems to be hanging in there reasonably well considering the shocks of the recent storms and persistently high energy prices. Q3 GDP will be a statistical mess, but Q4 will most likely show some nice growth.
[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.
[9/19/05] 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 16, 2005 07:26:27 PM -0400
Copyright © 2005 John W. Krupansky d/b/a Base Technology