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| NOTICE: I'll be traveling to Washington, D.C. and New Jersey from Saturday, November 5, 2005 through Thursday, November 10, 2005, so this column may be sporadic during that period. My apologies for any inconvenience. |
Despite the chatter, the modest rally on Thursday was more of a technical move rather than based on true, long-term economic and business fundamentals. People were also positioning ahead of the monthly employment report. NASDAQ rose a moderate +15.91 points.
My strong suspicion remains that the recent gains are due primarily to short-term hot money flows due to market timing rather than long term investments.
There was also a fair amount of "sell into any rally" sentiment on Thursday. That's not a good sign.
It was disappointing that NASDAQ close over 9 points off its intra-day high. That's not a good sign.
There seemed to be a lot of day trading going on, with a lot of volatility.
The economic data was fairly decent, but still somewhat mixed. We still need to get another month past the Gulf storms to get a good feel for where the economy is really going, rather than merely bouncing back from the impact of the storms.
There were net cash outflows from non-ETF domestic stock mutual funds for a thirteenth consecutive week. That's not a good sign, but isn't necessarily an indicator of any future trend. Until we see a number of near-consecutive weeks of inflows, the market will remain under pressure and quite volatile.
NASDAQ trading volume was heavy (2.37 billion shares), and breadth was modestly positive, with 1.23 gainers for each loser. This was not a strong rally.
The weekly Unemployment Claims report registered a moderate decline in initial claims, a modest decline in continuing claims, a sharp decline in the 4-week moving average of initial claims, and a modest decline in the 4-week moving average of continuing claims. This was a positive report. Initial claims are moderately below a year ago. Continuing claims are only modestly above a year ago. Please note that despite traditional rules of thumb, there is no safe extrapolation from jobless claims to payroll employment growth. The data will be incredibly skewed or misleading for another month or so as the economic impact of Katrina and Rita plays out. Wilma will also have an impact for Florida for the next month or even two. What we're looking for now is a stretch of weeks where continuing claims actually decline. This was one.
The ISM Report on Business for Non-Manufacturing for October registered a sharp rise in the pace of business activity, and now indicates a moderate level of growth. This was a positive report. New orders are growing moderately, and at a modestly faster pace. The backlog of orders continues to grow modestly, and at a modestly faster pace. New export orders continue to grow at a moderate, but very modestly slower pace. Employment continues to grow at a modest, but modestly slower pace. We seem to have bounced back nicely from the Gulf storms, but we need to see more than one data point in this series to discern the true trend, since the gains in October may simply have been a "make-up" due to storm recovery rather than sustainable growth.
The Factory Orders report for September registered a sharp decline (-1.7% vs. +2.9% last month) in new orders, a moderate decline (-0.5% vs. +2.1% last month) in shipments, a moderate rise (+0.7% vs. +1.6% last month) in unfilled orders, and a slight decline (-0.1% vs. -0.2% last month) in inventories. This was a mixed report, but does cover the Gulf storm period. Unfilled orders were at their highest level since the data series started in 1992. We need to wait until we get a couple of clean, post-storm reports before we use these reports to extrapolate forward from them. The reports for October and November won't be out until December and January.
The preliminary Productivity and Costs report for Q3 2005 registered a sharp rise in nonfarm business productivity (+4.1% vs. +2.1% last quarter) and a moderate decline in nonfarm business unit labor costs (-0.5 vs. +1.8% last quarter). This was a positive report, with productivity up and labor costs down.
The AAA Daily Fuel Gauge Report registered a very sharp decline of -1.9 cents since Tuesday (from $2.467 to $2.448) in the retail price of a gallon of unleaded gasoline, a twenty-ninth consecutive decline. This was a positive report. Regular unleaded gasoline is now -49.3 cents below the level of a month ago, +39.4 cents above its May 2004 peak of $2.054, and -60.9 cents below its September peak of $3.057. It may take a little while longer 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 $2.22 to $2.27 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. Out here in Boulder, Colorado I saw one station cut prices to $2.47, but $2.55 remains a popular price. The spread between wholesale and retail gasoline prices is still wide enough to accommodate further declines in retail prices.
After the close: The AMG Data Services Weekly Mutual Fund Flows report for the week ended Wednesday, November 2, registered a net inflow of $463 million into equity mutual funds and ETFs, with net non-ETF outflows of $2.275 billion, and net non-ETF outflows of $2.478 billion from domestic equity funds. This was a negative report, for a thirteenth week. I continue to be concerned that Katrina and Rita victims may be pulling money out of mutual funds or at least not putting in as much money as before the storms. Now we add the Wilma victims into the mix. This report strongly suggests to me that recent market rallies have probably been due more to market timing by hot money than true investment for the longer-term.
After the close: The weekly Fed Money Stock Measures report showed that the money supply (M2, which includes retail money market mutual funds) for the week ended October 24 registered a very modest rise (+$1.0 billion to $6.6365 trillion) and is 3.59% above a year ago. This was a neutral report, showing that there is neither a shortage of money, nor any inflationary excess. The 4-week moving average continues to rise, and the 13-week moving average continues to rise. It's possible that the Fed is finally starting to put a bit of a crimp in the growth of the money supply relative to the growth of total economic activity. Nominal year-over-year M2 is growing significantly slower than (pre-Katrina/Rita) nominal GDP, but we know that there is a tremendous amount of cash sloshing around in the economy.
I have only two non-bankrupt stocks left from "The Boom", one of which is Priceline (PCLN). The stock has been in the toilet of the doghouse for some time even though they have a very interesting business of which I am a very happy and loyal customer. Finally, they're getting some attention. They reported some good numbers and as I write these words the stock is up 26% for the day, but that's really only back up to its level in early August. What the future holds for their business and stock price is of course a mystery to all of us. I only have a few hundred dollars worth of the stock. The other ex-boom stock I still hold is Applied Micro Circuits (AMCC). I actually only had small positions of these stocks even at the height of the boom and once they fell I considered their residual value to simply be "lottery tickets" since even if I sold them there wouldn't have been enough cash to do much with the proceeds. Oh, and they are in a Rollover IRA account (at Fidelity).
John Mauldin has a new book out, Just One Thing: Twelve of the World's Best Investors Reveal the One Strategy You Can't Overlook, which is a collection of chapters by a number of well-known investors, managers, and financial experts. Mauldin's previous book was Bull's Eye Investing : Targeting Real Returns in a Smoke and Mirrors Market. I don't have a recommendation on either book, but certainly it's worth leafing through them at the book store. Click on one of my links to get to Amazon for your purchase and I will get a modest referral commission on the sale.
Qwest's (Q) new convertible senior notes have 3.25% coupon. It was actually a private placement.
Commodities bounced around quite a bit on Thursday, with energy rebounding, but gold and the euro retreating. It's still my belief that people are chasing very short-term trades while waiting for some sort of trend to emerge. The bounce in crude oil was most likely a short squeeze as too many people were caught betting that crude was about to plunge further, which it may well do, one of these days. It may take a few weeks to see whether a new trend is emerging or whether we're simply in a shifted trading range.
Recovery from Katrina and Rita continues to slog along. The restart from Wilma seems complete and overall Gulf Coast outages are now well below the level when Wilma first appeared. You can read what the Department of Energy's Energy Information Administration has to say each day, as well as the Department of Interior's Minerals Management Service (MMS). We have a ways to go, but progress is occurring every day. According to MMS, another 11.15% of oil production came back online, with 52.71% (vs. 63.86%) of Gulf oil production now out of service, and another 3.16% of natural gas production came back online, with 47.27% (vs. 50.43%) of Gulf natural gas production now out of service. It's rather interesting how well the economy is doing and how moderated energy prices are considering those outages; so much for the persistent argument that energy markets are "tight".
Crude oil futures are in contango (rising prices) from December 2005 through October 2006 ($63.51 as the peak price in July through October), and then backwardation (declining prices) all the way out to the December 2011 contract at the lowest price ($57.13). All contracts after November 2007 are priced below the December 2005 contract. All contracts after December 2008 are under $60. 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 ($57.13 for December 2011). It's still too early to call an end to "The Great Oil/Energy/Commodities Speculation of 2004 and 2005", but the market was clearly knocked off its feet. The shorts are still rather timid, but it's only a matter of time before the bulls finally capitulate. It may still take a while longer until 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 somewhat erratic. We have contango (rising prices) from December 2005 through June 2006 and then backwardation (falling prices) through December 2006, and then a slight rise in January 2007. The January 2007 contract is priced +3.73 cents above the December 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 may still take a while longer until the market settles down with respect to the intermediate-term impact of Katrina and Rita, although the "Refco madness" may persist for a while.
[10/19/05] Since some people are convinced that a recession is coming, the Asset Allocation Clock will tend to start moving those people out of commodities and into cash or other short-term fixed-income assets. The Fed campaign to raise short-term interest rates provides a further incentive for such a shift.
[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.
[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.
[10/31/05] Some popular books related to the "Peak Oil" fad: "Beyond Oil : The View from Hubbert's Peak" by Kenneth S. Deffeyes (2005), "Hubbert's Peak : The Impending World Oil Shortage" by Kenneth S. Deffeyes (2003), "The End of Oil : On the Edge of a Perilous New World" by Paul Roberts (2004), "The Coming Oil Crisis" by C. J. Campbell (2004), "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy" by Matthew R. Simmons (2005), and "The Oil Factor: Protect Yourself and Profit from the Coming Energy Crisis" by Stephen and Donna Leeb (2005). And if you're simply gung-ho about commodities in general, take a look at "Hot Commodities : How Anyone Can Invest Profitably in the World's Best Market" by Jim Rogers (2004). I'm not offering a recommendation on any of these books, but simply note that they are popular with the commodities crowd. If you're interest in the counterargument to "Peak Oil", check out "The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy" by Peter W. Huber and Mark P. Mills (2005).
There was a modest rise in the odds of a Fed interest rate hike to 4.25% in December, a moderate rise for a hike to 4.50% in January, a sharp rise in the odds of a hike to 4.75% in March, and a sharp rise in the odds of a hike to 5.00% by as early as August 2006. The market continues to price in a hike to 4.25% in December, a hike to 4.50% in January, a likely hike to 4.75% in March, and possibly a hike to 5.00% in August. The latter two hikes may merely be insurance hedges rather than outright bets. The hike to 4.25% in December is almost certain. There is still no serious betting on a hike beyond 5.00% in 2006 or any rate cuts in 2006.
[11/2/05] With the decent chain store sales reports on Tuesday, I'm even more seriously tempted to lean towards 4.75% in March as the pause point, but there is still a little too much economic uncertainty for my taste right now. I'll wait to see if there is enough follow-through pickup of retail sales over the next couple of weeks.
[11/4/05] The fed funds futures market suggests a quarter-point hike (to 4.25%) at the December 13 FOMC meeting, a quarter-point hike (to 4.50%) at the January 31, 2006 FOMC meeting, a quarter-point hike (to 4.75%) 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, possibly a quarter-point hike (to 5.00%) at the August 8, 2006 FOMC meeting, no hike at the September 20, 2006 FOMC meeting, no hike at the October, 24 2006 FOMC meeting, and no hike at the December, 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 4.25% at the December 13 FOMC meeting is fairly certain. Bets on hikes beyond January are most likely insurance hedges rather than outright bets.
[10/27/05] There was an interview of PIMCO's Bill Gross on BusinessWeek Online, in which he says that "By the time Greenspan retires [in January], most if not all of the heavy lifting -- that being rate increases -- will be over", which suggests that Gross now accepts that the fed funds target interest rate will go up to at least 4.25% or 4.50%, and he's essentially conceding that it could go higher.
[10/27/05] Bill Gross of PIMCO has a new, November 2005 Investment Outlook essay out, but despite its review of monetary policy over the past few decades (plus a mini-tirade on Iraq), it doesn't give a revised fed funds target interest rate. He notes what the market seems to expect ("the market anticipating at least two more 25 basis point hikes between now and Greenspan’s retirement") but neither concurs nor disagrees with the market. He does say that "We are due for what appears to be a 2% or less GDP growth rate in 2006, a rate sure to stop the Fed and to induce eventual ease at some point later in the year."
[10/24/05] Since a lot of people are now "convinced" that the Fed will hike to 4.50% before pausing, I'm going to suggest the following two possibilities as being more likely than the "central" guess of 4.50%: 1) the economy does weaken a bit in November, December, and January, causing the Fed to decide only at the end of January that the hike to 4.25% in December needs to be the pause-point in rates until the economy gradually begins to reaccelerate sometime later in the first half of 2006, or 2) the economy actually improves as the recovery from the storms progresses and the Fed decides that the hike to 4.50% in January was just not quite enough and decides to hike to 4.75% in March but then decides that that should be the pause since the economy is not really overheating and energy prices have moderated, especially as demand for heating fuel begins to decline later in March. So, once again I remain sitting on the fence, but split between 4.25% and 4.75%. My ultimate view will be guided by the pace of the economic recovery as it unfolds, as it should be.
[10/20/05] Federal Reserve Board Governor Donald Kohn stated very clearly and directly that "we are not yet at a point where we can stop and watch the economy evolve for a while." Even so, many Wall Street pundits, traders, and speculators will endlessly debate how to precisely interpret Kohn's words. Yes, the Fed will hike to 4.00% in November, and most likely to 4.25% in December, but the end of January is a very long ways away and the economy could well evolve quite dramatically in three long months.
[10/19/05] I still don't see quite enough economic strength to justify a hike to 4.50%, but I'm poised for such a shift. A hike to 4.25% in December seems like a slam-dunk to me, but the strength of the economy in January also seems like a big unknown to me. I may hold off until the results for retail sales for Thanksgiving weekend come in before betting more confidently on Fed action at the end of January. I think strong retail sales in December and January are likely, but certainly not a slam-dunk, yet.
[10/19/05] Federal Reserve Bank of San Francisco President Yellen finally gave the markets a clear view of the so-called neutral rate and neutral range, saying that it is "reasonable to put the current neutral rate in the range of 3-1/2 to 5-1/2 percent. At 3-3/4 percent, the current federal funds rate is toward the lower end of this band. This suggests a presumption that the rate will need to be raised further. Indeed, financial markets now appear to expect the funds rate to peak at about 4-1/2 percent -- in the middle of this neutral range. Again though, I want to emphasize that there is no way to know precisely what the neutral stance is." At least she has offered the markets a solid target. This is not to say that 4.50% is the precise interest rate at which the Fed will pause, but unless she is rebutted by other Fed officials, it will stand as the rough target.
[10/15/05] 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 January, 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.
[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%).
MBNA (KRB) shareholders approved the acquisition by Bank of America (BAC). In general I'm in favor of consolidation, but it's difficult to say how this one will do. Bank of America is my old bank (I now use Wells Fargo (WFC)). I had two credit cards and a ton of credit card debt with MBNA, but all of that will go away once my personal bankruptcy is discharged (maybe within a month or so). My bank account was really with Fleet Bank, but they were acquired by BAC. I wasn't terribly happy with BAC, and now I reside in one of the few states they don't have branches. I was actually reasonably happy with MBNA and had used their credit cards for about 20 years. I had a reserve line of credit with BAC, but had paid it off back in the fall of 2004. From an investment perspective, I do lean towards being happy with this merger.
[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.
[11/3/05] VentureOne (a unit of Dow Jones Newswires and the publisher of VentureSource) reports that there was a 16% rise in the amount of venture capital funds raised in Q3 over the same quarter a year ago, but there was an 18% decline from the amount raised in Q2. 18% more has been raised in the first three quarters of 2005 than during the same period of 2004. These amounts are "commitments" to the venture funds which "closed" during the quarter. Please note that this is about venture funds raising their own money, not the investments that they will make with that money in the coming quarters and years.
[10/25/05] The VentureOne/Ernst & Young LLP Quarterly Venture Capital Report for Q3 registered a moderate decline (-6.4% vs. +14.1% last quarter) in the amount of money invested from last quarter, but a moderately sharp rise (+9.4% vs. -6.4% last quarter) from a year ago in equity investment in companies who have received at least one round of venture funding. This was a mixed, but reasonably positive report. Information technology (IT) continues to get the lion share of investment (57%) compared to distant second healthcare (30%). There was a modest rise (+1.0%) in the amount invested in information technology companies since last quarter, and a moderately sharp rise (+10.6%) compared to a year ago. Computer software continues to be the largest sub-sector, with 22.8% of the money invested in Q3, and rose +1.5% from Q2 and rose +0.2% 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 real "boom". The top ten states in terms of amounts invested were California (46%), Massachusetts (12%), Florida (4%), Washington (4%), Texas (4%), North Carolina (3%), Virginia (3%), New Jersey (3%), New York (3%), and Colorado (3%). The top ten deals were FiberTower ($150 million), provider of a service that eliminates legacy copper backhaul, Replidyne ($62.5 million), developer of anti-infective biopharmaceuticals, TARGUSinfo ($60 million), provider of on-demand data to optimize customer interactions, Affymax ($60 million), developer of peptide drugs for the treatment of various blood, cancer, and kidney diseases, Amicus Therapeutics ($55 million), developer of small molecule, orally-active pharmacological chaperones for the treatment of human genetic diseases, MetroPCS ($50 milion), provider of wireless local and long distance communications services, Cerexa ($50 million), provider of hospital based anti-infective therapies for the treatment of patients with serious, life threatening infections, Force10 Networks ($46.1 million), provider of gigabit and 10-gigabit Ethernet routers and switches, Alinea Pharmaceuticals ($45 million), developer of treatments for diabetes and metabolic disorders, TherOx ($40.3 million), developer of site-specific systems for the delivery of oxygen-supersaturated solutions to oxygen deprived (ischemic) tissues. Note the dearth of software companies on that list, since the actual amount needed to fund a software business is relatively small.
[10/11/04] For some background information on venture capital, click here.
[11/2/05] The Fidelity FPRXX taxable money market fund is up to 3.10% and the FDRXX money market fund (for non-taxable accounts) is up to 3.63%. I would expect FPRXX to be up to 3.60% by the end of the year and FDRXX up to 4.00% at that time as well, with further gains beyond that.
[11/1/05] I'm hoping I'll have a little spare cash later this month to fund a little more of my nascent savings and investment plans. Incidentally, the interest rate that Siebert (actually it's Fidelity: FPRXX) pays on a taxable money market account is presently 3.07% and climbing every week and almost every day. They (Fidelity FDRXX) pay 3.59% on cash in a non-taxable Roth account. I'm sure you can beat these rates elsewhere, but this is what I get for a small amount of cash with zero effort and instant access to the cash. There is a bit of a lag as the Fed keeps raising interest rates, but that will stabilize by April.
[10/25/05] My old Roth account at Siebert does now seem to be fully reopened and shows my initial deposit. Now it's time to start planning for my next deposit and even start planning a regular budget for deposits.
[10/20/05] My old Roth account at Muriel Siebert seems to be open again, so I went ahead and made a modest Roth contribution and a modest deposit to my Siebert taxable account to get my new, post-bankruptcy savings plan underway. Money will be very tight for me for some time, but I have to give this a reasonably high priority.
[10/15/05] 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.
It may take the market another day or so for the dust to finally settle after the pent-up anxiety of the Fed FOMC meeting.
People will respond to the monthly employment report that is due out before the market opens. Normally this is an important report, but the data will be so skewed by the impact and recovery from the recent storms that any net gain or loss of jobs will be mere statistical noise. We may get a clean report in a month, but even that is debatable. Nonetheless, the markets will react to whatever data is reported. I think we should see a modest gain (+25K to +125K), but the statistical adjustments could turn that into either a large gain, a modest loss, or even a large loss.
The market is heavily overbought on a short-term technical basis, so a bout of profit-taking is quite possible, although neither certain nor necessarily likely.
[11/3/05] We could in fact see a seasonal rally over the next few months since traditionally the period from November through February is considered the most bullish part of the year for stocks. Unfortunately, such rallies frequently attract a lot of hot money engaged in market timing that is likely to leave the market at any time as quickly as it arrived.
[11/1/05] Traders and short-term speculators may appear to be in a somewhat bullish mood, but that could quickly change unless NASDAQ breaks out decisively above the 2,140 "technical resistance" level (the line connected peaks over the past three months) within the next week. In any case, even a nice breakout is somewhat suspect since there simply isn't any significant mutual fund inflows to keep the market on a steady up-trend and dampen its steep, rollercoaster volatility.
[10/29/05] We are once again back at square one, with market participants struggling to decide whether the recent correction has run its course and is ready to continue heading 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.
[10/29/05] Overall market outlook: quite confused and susceptible to volatile swings, but a gradual drift up, over time, although short-term progress may tend to be downwards until we see some renewed inflows into domestic equity mutual funds.
[11/4/05] The fact that there was a net outflow from domestic equity mutual funds for a thirteenth week and we've seen inflows for 23 of the past 40 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.
A bear market is frequently defined in terms of a 20% decline in the overall market index level, or a prolonged period of market decline measured in months or years. I use the latter definition, with three months as my threshold. So, we are now technically in a bear market. We will return to a bull market only after the market closes higher than its level of three months ago. In some sense we have been in a bear market for an additional period of time since the closing level has been below that of three months ago for some time now, but with such an obvious peak back on August 3, we should measure from that peak. The good news is that we could actually go back to being in a bull market in just a few days if NASDAQ moves another 10 points higher. I would prefer to measure any bull market from a low such as that of October 13, so we have more than two months to go to categorically be back to a clear and solid bull market.
[11/4/05] NASDAQ is very modestly bullish over a one-month timeframe and moderately strongly bullish over a 10-day period.
The major advance off of the NASDAQ October 2002 low is now in a correction, 66 days off its closing high of 2,218.15 of Tuesday, August 2, 2005, and 65 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 132 days old, 66 days off its closing high of 2,218.15 of Tuesday, August 2, 2005, and 65 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 +35.24 (+1.71%) points on Wednesday, October 20, 2005 confirmed the new up-leg of the October 2002 advance for NASDAQ that began with the intra-day low of 2,025.58 on Thursday, October 13, 2005. This up-leg is now 16 days old, at its closing high of 2,160.22 of Thursday, November 3, 2005, and 9.76 points off off its intra-day peak of 2,169.98 on Thursday, November 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 showing some renewed life after suffering some recent blows, but we need to see this leg extend well beyond a month before treating it more seriously.
[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.
[11/4/05] Short-term (1-day): Moderately bullish.
[11/2/05] Short-term (2-day): Moderately strongly bullish.
[11/4/05] Short-term (5-day): Moderately strongly bullish.
[11/4/05] Short-term (10-day): Moderately strongly bullish.
[11/4/05] Short-term (1-month): Very modestly bullish.
[11/4/05] Short-term (2-months): Very modestly bullish.
[10/12/05] Medium-term (3-months): Moderately bearish.
[10/18/05] Medium-term (6-months): Moderately bullish.
[11/4/05] Year-to-Date: Very modestly bearish. [NASDAQ closed 2004 at 2,175.44]
[11/4/05] Medium-term (9-months): Modestly bullish.
[11/1/05] Longer-term (1-year): Moderately bullish.
[10/14/05] Longer-term (2-years): Modestly bullish.
[10/22/05] Longer-term (3-years): Moderately strongly bullish.
[10/18/05] Longer-term (4-years): Modestly 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.
[11/1/05] The latest economic data does look bullish, but it's always risky to put too much faith in the latest data points in a series. There are too many adjustments in the statistical calculations due to the recent storms. We need to wait until November and December to get a clean reading on the true health of the economy.
[11/1/05] One of the disturbing readings in the September personal income and expenses report is that savings has been in negative territory for four consecutive months. I'm willing to blame that on elevated oil and gasoline prices, but we need to see savings pop back up into positive territory before we can really say that the economy is truly healthy. The good news is that the savings deficit shrank significantly in September (from -$158 billion to -$32 billion) and energy prices have tumbled lately.
[10/26/05] The economy is now in the "quiet period" in advance of the start of the traditional holiday shopping period. In another two or three weeks or so we should start to see retailers really start to pump up their marketing programs. In five weeks Thanksgiving will be behind us and we'll have preliminary reports on how consumers are really doing.
[10/22/05] The recent decline in oil and gasoline prices should help to provide some additional boost to the economy. There is lots of talk about higher heating and electricity bills this winter, but it remains unclear how that drag will really play out.
[10/20/05] We continue to see occasional bright spots for the economy. Superficially, the economy continues to "flutter", unsure of whether the road is simply bumpy or whether the bright spots are a "last hurrah".
[10/15/05] 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: November 03, 2005 08:43:34 PM -0500
Copyright © 2005 John W. Krupansky d/b/a Base Technology