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The market continued to digest recent gains on Tuesday. There is no big sell-off underway. NASDAQ fell a modest -6.66 points.
The economic data was fairly decent.
NASDAQ trading volume was light (1.72 billion shares), and breadth was slightly positive, with 1.02 gainers for each loser.
The Conference Board Consumer Confidence report for November posted a sharp rise (from 85.2 to 98.9). This was a positive report. The Present Situation Index rose moderately sharply from 107.8 to 114.0 and the Expectations Index rose sharply from 70.1 to 88.8. The report noted that "A decline of more than 40 cents in gasoline prices this month and the improving job outlook have combined to help restore consumers' confidence. While the Index remains below its pre-Katrina levels, the shock of the hurricanes and subsequent leap in gas prices has begun wearing off just in time for the holiday season. Despite this latest boost in confidence, holiday spending will be driven by the bargains consumers have come to expect." Please note that despite the hype, there is no significant positive correlation between consumer confidence reports and future consumer spending.
The New Residential Sales report for October registered a very sharp rise (+13.0% vs. +2.1% last month) in sales of new one-family houses and sales are +9.0% above a year ago (vs. +0.1% last month). This was a positive report, but there is a lot of volatility. We'll have to wait another month to get a clean reading of the post-storm demand for new homes.
The advance Durable Goods Manufacturers’ Shipments, Inventories, and Orders report for October registered a very sharp rise in new orders (+3.4% vs. -2.1% last month), a sharp rise in shipments (+1.1% vs. +0.1% last month), a sharp rise in unfilled orders (+1.5% vs. +0.7% last month), and a moderate rise in inventories (+0.4% vs. -0.1% last month). This was a positive report, but there tends to be a lot of monthly volatility for orders and shipments, primarily since few customers buy manufactured goods on a nice, smooth monthly cycle. Shipments for nondefense capital goods rose very sharply (+4.4% vs. -2.2% last month), and rose very sharply ex aircraft (+1.9% vs. -0.1% last month). New orders for nondefense capital goods, which are supposedly a good proxy for business capital spending, rose very sharply (+6.7% vs. -8.1% last month), and rose sharply ex aircraft (+1.3% vs. -1.2% last month). We'll have to wait until late December before we get a clean, post-storm report.
The ICSC-UBS Weekly Chain Store Sales Snapshot registered a moderate decline (-0.7% vs. +1.0% last week) for the week ended November 26 compared to the prior week, and sales were up sharply (+5.1% vs. +4.2% 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 "The traditional holiday shopping season is now underway with last week's sales. Although there was considerable hype and huge crowds, the initial 'spending blitz' on Black Friday and the sales on the days immediately following should not be used as a bellwether for the season as a whole. The industry has several key markers of success ahead--which should not be lost sight of. The first of these--which is already upon us--is how well retailers withstand the 'new traditional lull' in sales during the two weeks following Thanksgiving." They continue to forecast year-over-year sales growth of 3.5-4.0% for November.
The weekly Redbook Research Sales Average report registered a modest rise in chain store sales (+0.3% vs. +0.1% last week) for sales in November through the week ended November 26 compared to the same period of the October reporting period and registered a moderately sharp rise (+4.4% vs. +3.6% last week) for the week compared to a year ago. This was a moderately positive report. The report noted that "Retailers reported strong turnover in electronics including computers, DVD players, iPods, flat-screen TVs, video games and digital cameras. Cashmere sweaters, handbags, jewelry and toys were also on the best sellers list. Early indications for December are for a guarded optimism, with same store gains projected to be 4.1 percent year over year and 0.5 percent versus November, although this target will be finalized in next week's report."
The AAA Daily Fuel Gauge Report registered a moderate decline of -0.6 cents since Sunday (from $2.154 to $2.148) in the retail price of a gallon of unleaded gasoline, a fifty-fifth consecutive decline. This was a positive report. Regular unleaded gasoline is now -36.1 cents below the level of a month ago, +9.4 cents above its May 2004 peak of $2.054, and -90.9 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 $1.99 to $2.04 regular unleaded within a couple of weeks if the wholesale price were to remain steady (those numbers will rise by six cents on December 1 as the January gasoline futures contract becomes the front month). All of that is subject to dramatic change on a daily basis. Out here in Boulder, Colorado, prices remain stable with $2.22, $2.21, and $2.19 being popular prices. The spread between wholesale and retail gasoline prices is still wide enough to accommodate further declines in retail prices, but not more than another four to nine cents, unless we see further declines in wholesale gasoline prices.
[11/29/05] I'll be heading out to Washington, D.C. on Saturday to attend the working session of the Shadow Open Market Committee (SOMC) on Sunday at the Cato Institute, as well as their press briefing on Monday. They discuss monetary policy and related economic issues twice a year. I'll be flying back Monday afternoon/evening, and hope to post a column late Monday night.
[11/29/05] Although I've played around with blogging, with mixed results, and actually swore it off back in August, I was intrigued with some recent turmoil over AOL Journals (something to do with unwanted advertising). So, I created an AOL Journal of my own as a modest experiment. You need a "screen name", but you can get one for free and don't need an AOL account. I created a journal named "Poli Ticks" to express political ramblings. I have no idea whether I'll really pursue this new blogging experiment with much vigor. The first banner ad to appear was for Bank of America, my old bank.
[11/25/05] I went ahead and took a shot with Priceline for my trip to DC and got fairly lucky. I bid at the low end of my acceptable range, $59, and it was accepted on the third bid. I tried for two areas of downtown DC but my bids were rejected. I added Arlington, Virginia to my bid and it was accepted. Priceline put me in the Sheraton National Hotel which is near the southwest corner of Arlington National Cemetery and not too far from the Pentagon and Pentagon City Mall and Metro subway station. About a one-mile walk to the Metro. It will be easy, for me, to walk there right from National Airport, no more than 2-1/2 to 3 miles. With tax and fees, the total for two nights was $142.53 or $71.27 per night. Sheraton's web site offers rooms for $159 per night. Travelocity offers the hotel at $159 as well. Maybe if I had waited a few more days I could have gotten it for $49 or a hotel in downtown DC for $59, but to me it wouldn't be worth the anxiety of waiting just to save $20 and maybe risk having to pay more if demand turns out greater than expected. My plan was to take a stab, knowing that I could always re-bid the same in three days if my initial bid was declined. I'm happy with what I got and it's done.
[11/18/05] I just purchased my plane tickets for my next trip to Washington, D.C., December 3-5. Including my travel agent's fee, the roundtrip from Denver to Washington (National) cost $268.80, with two weeks advance purchase, and sane travel and connection times. The entire transaction was done via email. I checked a few of the online ticketing services and didn't see much better fares unless I traveled at insane times (before 9am or arriving after 10pm) or had purchased further in advance (21 days). I'd like to use Priceline, but there is no control over travel times. I will use Priceline for my hotel reservations.
Energy (except for natural gas) was weaker, the dollar was stronger, and metals (except for silver) were modestly upbeat on Tuesday. Gold finally did poke above $500, but not for long. It will take a few more days to clarify the intermediate-term trend.
[11/28/05] We're rapidly approaching the moment of truth for commodities. Unless some strong buying materializes over the next couple of weeks, we're likely to see some further weakening. The metals have been strong lately, but they may be overreaching, and we are not seeing any corresponding strength in energy or foreign exchange, suggesting a mere rotation between commodities rather than strength overall. That said, we could see occasional rallies due to premature short-covering.
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 2.01% of oil production came back online, with 37.62% (vs. 39.63%) of Gulf oil production now out of service, and another 0.66% of natural gas production came back online, with 29.94% (vs. 30.60%) of Gulf natural gas production now out of service. I'm not so sure that these numbers will hit zero any time soon since some of the outages were 100% losses and will require new equipment and facilities to be fully replaced. 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 January 2006 through December 2006 ($58.99 as the peak price in December), and then backwardation (declining prices) all the way out to the December 2012 contract at the lowest price ($52.62). All contracts after June 2008 are priced below the January 2006 contract. All contracts are below $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 ($52.62 for December 2012). The market is no struggling mightily to find its equilibrium level, but that could take another month or two.
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 +13.60 cents above the December 2005 contract and +7.45 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. The market is no struggling mightily to find its equilibrium level, but that could take another month or two.
[11/23/05] Goldman Sachs lowered its estimates for crude oil to $62 from $66 a barrel this year and to $64 from $68 next year. There was no mention of their infamous call for a $105 "superspike". This is backpedaling on their part, and likely to be followed by more backpedaling as the next six months unfold. They're obviously trying to "tout" speculation in commodities futures. They collect transaction fees as well as profiting on in-house trading. These are quite obvious conflicts of interest, but are oddly considered to be legal.
[11/17/05] Which is more likely over the coming year, crude oil at $100 per barrel or at $19 per barrel? I'd say the latter.
[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".
The economic data and preliminary initial holiday sales reports are all strong enough that I am raising my personal forecast for the Fed to hike the fed funds target interest rate to either 4.75% in March or 5.00% in May, subject of course to the evolution in the economy over the coming months. Although big Old Economy companies continue to restructure and cut jobs and spending, there is simply such a vast amount of cash sloshing around that the Fed really can push short rates up moderately beyond the midpoint of the neutral range without any significant negative impact on the economy. There has been plenty of chatter and some disappointment over the preliminary initial holiday sales numbers, but I don't think any of that truly reflects the underlying strength of the economy overall or of the consumer in particular.
As a result of the decent economic data on Tuesday, there was a moderate rise in the odds of a Fed interest rate 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 after January (March or May). The market continues to price in a hike to 4.25% in December, a somewhat likely hike to 4.50% in January, possibly a hike to 4.75 in March, and no hike to 5.00% later in the year. The March hike may merely be an insurance hedge rather than an outright bet. The hike to 4.25% in December is virtually certain. There is no serious betting on a hike beyond 4.75% in 2006 or any rate cuts in 2006. Even the betting on 4.75% remains only half-hearted. My reading is still that the markets overreacted to the FOMC minutes last Tuesday and I suspect will unwind a fair amount of that sentiment by the end of this week, especially as strong "Black Friday" sales numbers trickle in and analysts upgrade retail sales forecasts.
[11/24/05] The fed funds futures market suggests a quarter-point hike (to 4.25%) at the December 13 FOMC meeting, probably a quarter-point hike (to 4.50%) at the January 31, 2006 FOMC meeting, possibly 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, no hike 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] 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.
Carl Icahn and a group of three hedge funds have retained investment banker Lazard to conduct a strategic analysis of Time Warner (TWX) and propose restructuring alternatives. This may or may not lead to good things. I'm confident that Time Warner could be restructured, but I'm a little worried that some hedge funds may simply be interested in nothing other than to line their pockets with short-term gains rather than enhancing the value of the company after they leave the scene. Hopefully they'll spin off AOL. But if their "restructuring" requires loading Time Warner up with debt (e.g., to finance a massive share buyback and/or to pay a gigantic cash dividend to "shareholders" like Icahn, et al), that would be really, really bad news. Personally, I'd like to see Time, Warner, AOL, CNN, and cable operations split into separate companies.
[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.
[11/22/05] The 2005 Year-End Global Venture-Capital Investment Report from Ernst & Young and Dow Jones VentureOne states that "during the course of 2005, fund raising by venture-capital firms increased significantly with venture capitalists stockpiling the most investment capital since 2001. Mergers and acquisitions (M&A) and initial public offerings (IPOs) by venture-backed companies also showed continued strength during this period -- setting the stage for continuing investment in 2006. While investments in venture-backed companies in 2005 remained relatively consistent with 2004 levels, a strong trend toward later-stage financings suggests that investors are confident in the prospects of their portfolio companies and optimistic in regard to exit opportunities. Developments in the emerging venture-capital markets of China and India during this period underscored the increasing globalization of the venture capital industry." They conclude that "Looking forward to 2006, it is likely that the substantial fundraising that occurred in 2005, a strengthening liquidity landscape, and investors’ global interests, will lead to an increased level of venture-capital activity in the next 12 months. Because of the early signs apparent in 2005, the target for some of that investment capital may well be directed toward emerging areas such as alternative energy as well as renewed investing in the next wave of Internet start-ups." My reading on venture capital is that the sector is only slowly limping back to health and it will probably be another two or three years before venture capital investment once again makes a dramatic contribution to the health of the U.S. economy.
[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.
Hopefully I'll be making another modest contribution to both my taxable and Roth accounts next week.
The Fidelity FPRXX taxable money market fund is up to 3.21% and the FDRXX money market fund (for non-taxable accounts) is up to 3.73%. I would expect FPRXX to be up to 3.50-3.60% by the end of the year and FDRXX up to 3.90-4.00% 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. Sometimes you see declines in the yield, but they may simply be due to people putting fresh money in or taking money out of the funds, which may result in selling higher-yielding securities in some cases. With rates rising every FOMC meeting, it can make sense to leave fresh funds as cash until after the next FOMC meeting, but that can lower the short-term yield.
[11/22/05] If I had some free cash I'd take a flyer on some Qwest (Q), but alas I don't have any speculation capital, yet.
[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 almost looks like it's beginning to roll over in preparation for a steep decline, but pauses frequently look that way. Recent selling has been rather half-hearted. I'm optimistic, but without any significant and sustained stock mutual fund inflows, anything goes.
We still don't have crystal clarity as to how the holiday shopping season is shaping up. It will evolve and the market's perception will evolve with it.
[11/29/05] The question of the day is whether the decline on Monday was simply some profit-taking and a brief pause, or an indication of a trend change. Probably it was the former, although some more profit-taking is possible. My position remains that absent significant stock mutual fund inflows, anything is possible with this market.
[11/28/05] The market will respond to its own perception of the initial reports for holiday shopping. The numbers look at least halfway decent to me, but the market is entitled to its own opinion.
[11/26/05] There will be plenty of rumors and preliminary anecdotes about holiday shopping to drive the market on Monday. Tuesday we'll have some better data. I expect the season to shape up nicely, but the initial data could be rather erratic. One issue is the evolving split between online sales and traditional retail sales.
[11/26/05] My ongoing concern remains the extent of "hot money", market timing, and short-covering behind the recent advance. We simply aren't seeing enough in the way of mutual fund inflows to inspire confidence in the durability of recent gains.
[11/22/05] Clearly the market is bullish of late, but the big question is how much of that is due to "hot money" and market timing, the kind of money that can (and usually does) race away from the market even faster than it sloshes in, as we saw with the run-up last fall. My view is still that the market will continue to climb gradually over the long run, but that we'll see lots of volatility along the way. So, it's a bull market, but a very volatile bull market. In fact, the road will be incredibly bumpy over the next couple hundred points due to significant technical resistance. It will be quite a dramatic milestone if NASDAQ clears 2,500 and can stay there for the next six months. I'd be a lot more sanguine if we were seeing significant stock mutual fund inflows, but we're not, yet. Stay tuned.
[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.
[11/23/05] Overall market outlook: quite confused and susceptible to volatile swings, but a gradual drift up, over time, although short-term progress may be at risk to the downside until we see some renewed inflows into domestic equity mutual funds. There appears to be too much hot money flowing into the market for the recent gains to be sustainable for more than another month or two.
[11/18/05] The fact that there was a net outflow from domestic equity mutual funds over the past week after an inflow after thirteen consecutive weeks of outflows and the fact that we've seen inflows for 24 of the past 42 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.
[11/29/05] NASDAQ is moderately bullish over a one-month timeframe and modestly bullish over a 10-day period.
The major advance of NASDAQ off the October 10, 2002 low of 1,108.49 is 2 days off its closing high of 2,263.01 on Friday, November 25, 2005, and 3 days off its intra-day peak of 2,269.30 on Wednesday, November 23, 2005. Technically, we did set yet another "higher high" (above the peak in early August) on Friday, which indicates a bullish trend, but I'd prefer to see more highs and another eight days elapse before I'd say that we have established a true breakout from the recent (since August) trading range.
[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 148 days old, 2 days off its closing high of 2,263.01 on Friday, November 25, 2005, and 3 days off its intra-day peak of 2,269.30 on Wednesday, November 23, 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 33 days old, 2 days off its closing high of 2,263.01 on Friday, November 25, 2005, and 3 days off its intra-day peak of 2,269.30 on Wednesday, November 23, 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". Presently, this is technically a rally (since October 13, 2005) 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.
[11/24/05] The NASDAQ intra-day peak of 2,269.30 on Wednesday, November 23, 2005 was its highest intra-day peak since the peak of 2,281.18 on May 25, 2001.
NASDAQ is now bullish on all timescales except the 5-year and 6-year charts (and the 1, 2, and 5-day charts).
[11/30/05] Short-term (1-day): Modestly bearish.
[11/29/05] Short-term (2-day): Moderately strongly bearish.
[11/30/05] Short-term (5-day): Very modestly bearish.
[11/29/05] Short-term (10-day): Modestly bullish.
[11/11/05] Short-term (1-month): Moderately bullish.
[11/18/05] Short-term (2-months): Moderately bullish.
[11/18/05] Medium-term (3-months): Moderately bullish.
[11/5/05] Medium-term (6-months): Moderately strongly bullish.
[11/19/05] Year-to-Date: Modestly bullish. [NASDAQ closed 2004 at 2,175.44]
[11/18/05] Medium-term (9-months): Moderately bullish.
[11/18/05] 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.
[11/28/05] The post-boom bear market that started in 2000 was signaled by the Dow Industrials closing at a high of 11,722.98 on January 14,2000 after hitting an intra-day peak of 11,908,50, by NASDAQ closing at a high of 5,048.62 on March 10, 2000 after hitting an intra-day peak of 5,132.52, and by the S&P 500 closing at a high of 1,527.46 on March 24, 2000 after hitting an intra-day peak of 1,552.87.
[11/28/05] The end of the post-boom bear market that started in 2000 was signaled by the Dow Industrials closing at a low of 7,286.27 on October 9, 2002, with an intra-day low of 7,181.47 on October 10, 2002, by the NASDAQ Composite closing at a low of 1,114.11 on October 9, 2002, with an intra-day low of 1,108.49 on October 10, 2002, and by the S&P 500 closing at a low of 776.76 on October 9, 2002, with an intra-day low of 768.63 on October 10, 2002. Some people claim that the market bottomed in March of 2003, but that is not the case. The intermediate lows in March 2003 attempted to test the market and instead proved that the bear market was over with the Dow Industrials closing at a low of 7,524.06 on March 11, 2003 and an intra-day low of 7,397.31 on March 12, 2003, with the NASDAQ Composite closing at a low of 1,271.47 on March 11, 2003 and an intra-day low of 1,253.22 on March 12, 2003, and with the S&P 500 closing at a low of 800.73 on March 11, 2003 and an intra-day low of 788.90 on March 12, 2003.
Based on the latest economic data and preliminary initial holiday shopping reports, the economy appears to be growing at a moderately strong pace, not truly strong or a real boom, but reasonably decent nonetheless. I expect this pace will continue for the foreseeable future (one to two years), albeit with occasional zigs and zags.
[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.
[10/3/05] 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.
[9/23/05] 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.
[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 29, 2005 06:19:27 PM -0500
Copyright © 2005 John W. Krupansky d/b/a Base Technology