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Despite the chatter, the market decline on Tuesday was primarily a technical reversal, the result of momentum petering out near a key technical resistance level (the NASDAQ psychological 2,200 level). NASDAQ fell a moderate -14.21 points.
The economic data was mixed and reasonably decent, but with enough wiggle room for the cynics to suggest that not all is well.
NASDAQ trading volume was light (1.72 billion shares), and breadth was strongly negative, with 2.31 losers for each gainer. This was not a heavy sell-off.
The Retail Sales report for October registered a slight decline (-0.1% vs. +0.2% last month), but a moderately sharp rise (+0.9% vs. +1.1% last month) ex autos; sales were 5.7% higher than a year ago (vs. +6.5% last month). 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 December to get a clean, post-storm retail sales report.
The Producer Price Index (PPI) report for October registered a moderate rise (+0.7% vs. +1.9% last month), and a modest decline (-0.3% vs. +0.3% last month) ex food and energy. This was a mixed report, but there is a lot of volatility and no clear trend at this time. There was a very sharp rise (+3.0% vs. +2.5% last month) in the price of intermediate goods, which is supposed to be an indicator of future inflation, and it was a sharp rise (+1.2% vs. +1.2% last month) ex food and energy. Inflation would be a big issue if such readings were to continue, but energy prices have already backed off considerably in recent weeks, so we may simply be seeing a storm-related short-term effect rather than the emergence of a persistent trend.
The New York Fed Empire State Manufacturing Survey report for November registered a sharp rise in the pace of business expansion, and indicates a moderate rate of expansion of economic activity. This was a positive report, but there is a lot of volatility. New orders growth accelerated modestly, and remains quite positive. Shipments growth accelerated moderately, and remains quite positive. Unfilled orders growth accelerated sharply from a contraction, and is now quite positive. Employment growth accelerated moderately sharply, and is growing at a moderate pace. The average workweek growth decelerated moderately, indicating slower growth in overtime. Overall six-month expectations accelerated sharply and are quite rosy. More than half (55% vs. 45% last month) of the surveyed businesses expect better business conditions in six months and only 8% (vs. 12% last month) expect conditions to be worse. Prices paid continue to outpace prices received, helping to put a damper on the acceleration of inflation, but putting profits and employment growth at risk. Prices received did rise moderately, suggesting that a modest amount of inflation may be brewing. The inflation outlook was mixed, with significantly fewer businesses expecting to pay higher prices. There was a moderate rise in businesses expecting to charge higher prices (from 42.71% to 45.19%), and a moderate decline in businesses expecting to charge lower prices (from 8.33% to 7.69%). Net-net, the inflation outlook is relatively mixed, suggesting moderate but not runaway inflation.
The ICSC-UBS Weekly Chain Store Sales Snapshot registered a moderate decline (-0.6% vs. +1.0% last week) for the week ended November 12 compared to the prior week, and sales were up moderately (+3.9% vs. +4.1% last week) compared to a year ago for “comparable-store sales”. This was a mixed report, but there is a lot of volatility. The report noted that "Even with retailer's Veteran's Day sales, retail sales seemed to sway with the warm breezes and overall demand for seasonal goods suffered this past week. Despite this, the month remains on track and we expect comp-store sales to rise by 3.5 to 4.0 percent for November."
The weekly Redbook Research Sales Average report registered a moderate rise (+3.5% vs. +4.2% last week) in sales for the week ended November 12 compared to a year ago. This was a positive report.
The AAA Daily Fuel Gauge Report registered a slight decline of -0.1 cents since Sunday (from $2.293 to $2.292) in the retail price of a gallon of unleaded gasoline, a forty-first consecutive decline. This was a positive report. Regular unleaded gasoline is now -47.9 cents below the level of a month ago, +23.8 cents above its May 2004 peak of $2.054, and -76.5 cents below its September peak of $3.057. 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 $2.05 to $2.10 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 fall from $2.39 to $2.37, another fall from $2.39 to $2.35, and another fall from $2.43 to $2.30. The spread between wholesale and retail gasoline prices is still wide enough to accommodate further declines in retail prices.
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Tuesday was another mixed day for commodities, suggesting a continual rotation among the various commodities from day to day while people struggle to get a sense of the evolving trend. The euro seems to have stabilized, for now. Crude oil and gasoline continue to deteriorate. Gold has little luster, although copper is hot.
Which is more likely over the coming year, $100 crude oil or $19 crude oil? I'd say the latter.
[11/11/05] We will see some more volatility over the next week as traders and short-term speculators finish shifting from December crude oil futures to January futures in anticipation of January becoming the new front-month futures contract after Friday, November 18. We'll also see the new December 2012 crude oil contract begin to trade, causing volatility in the current longer-term contracts.
Recovery from the Gulf Coast storms continues to slog along. 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 0.11% of oil production came back online, with 48.36% (vs. 48.47%) of Gulf oil production now out of service, and another 0.28% of natural gas production came back online, with 37.14% (vs. 37.42%) 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 ($59.13 as the peak price in October), and then backwardation (declining prices) all the way out to the December 2011 contract at the lowest price ($52.92). All contracts after December 2007 are priced below the January 2006 contract. All contracts remain 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 ($52.92 for December 2011). 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 July 2006 and then backwardation (falling prices) through December 2006, and then a slight rise in January 2007. The January 2007 contract is priced +9.38 cents above the December 2005 contract and +3.15 cents above the January 2006 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.
[11/11/05] It's still too early to call an end to "The Great Oil/Energy/Commodities Speculation of 2004 and 2005", but the commodities markets have clearly been knocked off their feet. The shorts are still rather timid, but it's only a matter of time before the bulls finally capitulate. If gold fails to break out above $500 and crude fails to rally back above $65 by the end of November, I will "officially" call for the end of this incarnation of the commodities bull market.
[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.
[11/11/05] 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). If I wasn't so lazy, I'd write my own book on commodities speculation called "Peak Bull".
There was a modest decline in the odds of a Fed interest rate hike after March. 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 virtually 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.
[11/15/05] 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%).
[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.
I received a buyout offer for a portion of my units in the Geodyne Energy Income Program limited partnerships (oil and natural gas). It was a low-ball bid, but the units have no significant liquidity (no open secondary market), so it's not an outrageously offensive bid. It's 15% above Geodyne's ongoing repurchase offer, which is 48% the Geodyne valuation for the units at the beginning of the year when oil and natural gas were significantly cheaper. Even though energy commodity prices have retreated, this long-term investment (since 1987-1989) is providing an interesting level of return. The six different partnerships my units are in have returned 100% of their original cost plus another 20-40%, so far. There was also a significant payout from a huge class action securities litigation back in the 1990's since the issues with such limited partnerships were not adequately disclosed in a particularly comprehensible manner when they were originally marketed by Paine Webber back in the 1980's. They're in one of my old IRA accounts (with UBS, which was Paine Webber).
The Fidelity FPRXX taxable money market fund is up to 3.19% and the FDRXX money market fund (for non-taxable accounts) is up to 3.69%. 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 as interest rates continue to rise. There is a lag between Fed rate hikes and money market yields since the money market funds hold debt that will continue to have its original yield until that short-term debt matures and the proceeds are rolled into newer and higher-yielding debt.
[11/5/05] I was in fact able to come up with a little more cash to continue to fund my taxable and Roth savings programs. But first I had to make sure I was allocating enough cash for my estimated taxes.
[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.
The market could correct further, but the past two days may simply have been a "test" before the advance continues.
[11/15/05] The market has lost much of its recent momentum, so the open issue is whether some new buying materializes or whether short-term players reverse and try to push the market down. We could see a dip, but it could turn out to be merely a pause before the advance continues.
[11/11/05] The market remains overbought and susceptible to a correction, but the latest report showing net inflows to domestic stock mutual funds could well lend support to the market.
[11/11/05] A key obstacle is clearing the closing high of 2,218.15 of Tuesday, August 2, 2005, and the intra-day peak of 2,219.91 on Wednesday, August 3, 2005, barely 23 points above the current closing level. Any significant stumbling at this stage could lead to a correction, but a modest breakout based on real buying could be quite bullish.
[11/5/05] We are once again back at square one, with market participants struggling to decide whether the recent rally has run its course and is ready to correct, or is just starting to get a head of steam on its way up. 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.
[11/4/05] 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.
[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.
[11/11/05] The fact that there was a net inflow into domestic equity mutual funds over the past week after thirteen consecutive weeks of outflows and the fact that we've seen inflows for 24 of the past 41 weeks, suggest 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.
[11/12/05] NASDAQ is moderately bullish over a one-month timeframe and moderately bullish over a 10-day period.
The major advance off of the NASDAQ October 2002 low is now in a trading range, 74 days off its closing high of 2,218.15 of Tuesday, August 2, 2005, and 73 days off its intra-day peak of 2,219.91 on Wednesday, August 3, 2005.
[11/11/05] We're actually provisionally out of the bear market since the current closing level is higher than three months ago, but we need to see that relationship hold for at least a month before we say that we are clearly in a bull market. In particular, there was a rally that peaked two months ago only slightly below the current closing level, so until we get well above that level, we should simply be considered to be in a trading range. By my own standards, I'd measure the market from the low over the past three months, and that was only 21 days ago. I'd prefer to see an advance of at least three months from such a low before calling a durable bull market. Another standard to use is the classic "higher highs and higher lows", meaning we'll be back to a bull market as soon as we clear the old peak from August 2-3. I would prefer to clear that peak as well, but I feel that it is only necessary to have higher highs and lows over a three-month period to indicate that we're in a bull market. So, I'll indicate that we are clearly in a bull market once we get three months past the October intra-day low, and we'll be in a strong bull market once we clear the August peak at least three months past the October low. Of course, being in a bull market doesn't mean we'll stay there.
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 140 days old, 74 days off its closing high of 2,218.15 of Tuesday, August 2, 2005, and 73 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 24 days old, 2 days off its closing high of 2,202.47 of Friday, November 11, 2005, and 2 days off its intra-day peak of 2,205.36 on Friday, November 11, 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. Presently, this is technically a rally within a trading range (back to August), within a bull market (back to 2002), within a bear market (back to 2000), within the long-term bullish trend, at least until this leg extends for three months.
[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.
NASDAQ is now bullish on all timescales except the 5-year and 6-year charts (and the 1 and 2-day charts).
[11/16/05] Short-term (1-day): Moderately bearish.
[11/16/05] Short-term (2-day): Moderately bearish.
[11/16/05] Short-term (5-day): Modestly bullish.
[11/12/05] Short-term (10-day): Moderately bullish.
[11/11/05] Short-term (1-month): Moderately bullish.
[11/12/05] Short-term (2-months): Modestly bullish.
[11/12/05] Medium-term (3-months): Modestly bullish.
[11/5/05] Medium-term (6-months): Moderately strongly bullish.
[11/12/05] Year-to-Date: Very modestly bullish. [NASDAQ closed 2004 at 2,175.44]
[11/11/05] Medium-term (9-months): Moderately bullish.
[11/1/05] Longer-term (1-year): Moderately bullish.
[11/5/05] Longer-term (2-years): Moderately bullish.
[10/22/05] Longer-term (3-years): Moderately strongly bullish.
[10/18/05] Longer-term (4-years): Modestly bullish.
[11/15/05] Longer-term (5-years): Moderately bearish. About a 7.2% decline each year.
[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.
[11/12/05] I still am not getting a solid feel for how the holiday shopping season is going to be shaping up. The weekly chain store sales reports are beginning to look somewhat positive.
[11/11/05] All four of my flight segments on Northwest Airlines for my trip to Washington, D.C. and New Jersey this week were packed full. My fare was relatively cheap, but not dirt cheap, indicating that there is enough demand for travel to suggest that the economy is holding together quite nicely. The casino bus between DC and Atlantic City was more crowded than I've ever seen over the past three years, further suggesting that people have plenty of "disposable" cash in their wallets.
[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 15, 2005 07:06:23 PM -0500
Copyright © 2005 John W. Krupansky d/b/a Base Technology