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The market bounced around on Wednesday, still struggling to recover from the anxiety of the Fed FOMC meeting. We'll see at least another day or two of this volatility before the market fully digests the new reality of the FOMC action and statement. NASDAQ rose a modest +4.74 points (+0.21%).
NASDAQ may have been held down due to angst over Google's (GOOG) quarterly report, but that was probably just a one-day issue. One analyst attributed Google's "problem" to "arcane accounting." Imagine that.
The economic data was mixed, as usual.
NASDAQ trading volume was heavy (2.32 billion shares), and breadth was modestly positive, with 1.17 gainers for each loser.
The ISM Report on Business for Manufacturing for January registered a modest decline in the Purchasing Managers Index (PMI), but continues to indicate only modest growth. This was a mixed report, but at least shows manufacturing holding up. Production continues to grow at a moderate, but moderately slower pace. New Orders continue to grow, but at a moderately slower pace. The backlog of unfilled orders now shows a modest rate of expansion. Exports are now growing at a moderate, and moderately faster pace. Employment is growing at only a very modest pace, moderately slower than last month. The report noted that "The past relationship between the PMI and the overall economy indicates that the PMI for January (54.8 percent) corresponds to a 4.4 percent increase in real gross domestic product (GDP) on an annual basis." That's decent enough to keep the Fed on track for at least another two hikes, in my opinion.
The Construction Spending report for December registered a sharp rise (+1.0% vs. +0.2% last month, and +8.1% vs. +7.8% last month above a year ago) in the value of construction put in place, there was a sharp rise (+1.1% vs. +0.2% last month) in private construction, and a moderate rise (+0.7% vs. +0.3% last month) in public construction. This was a positive report, but there is a lot of volatility.
The weekly Mortgage Applications Report registered a moderate decline (-5.1% vs. +7.7% last week) for the week ended January 27. This was a negative report, but there does tend to be a lot of volatility. Applications to purchase fell moderately sharply (-8.0% vs. +6.7% last week), and refinancing applications fell modestly (-1.5% vs. +7.8% last week). The volatility will probably remain quite high from here on out, especially as the Fed continues to raise short interest rates and demand for housing gradually (eventually) begins to moderate to a more moderate pace.
The DOE EIA Weekly Petroleum Status Report registered a moderate rise (+0.6% or +1.9 million barrels to 321.0 million barrels) in the inventory level of crude oil, and remains well above the upper end of the average range for this time of year. This was a positive report, and indicates that we have plenty of crude oil and that the lofty price level is due primarily to speculation rather than real supply or demand. The crude oil inventory level is +11.4% above a year ago, and well above the level which would indicate a shortage or tightness of supplies (200 million barrels). The Strategic Petroleum Reserve (SPR) fell slightly (-0.1% or -0.8 million barrels to 683.7 million barrels), and is +0.7% above a year ago. The gasoline inventory level rose very sharply (+2.0% or +4.2 million barrels to 219.0 million barrels), and is +0.1% higher than a year ago. The heating oil (distillate fuel oil) inventory level fell slightly (-0.1% or -0.28 million barrels to 136.3 million barrels), but is +11.5% above a year ago. What these weekly reports do make quite clear is that there is no shortage of oil, gasoline, or heating oil at the overall, national level. As the EIA report puts it, "Total commercial petroleum inventories rose by 1.9 million barrels last week, and remain above the upper end of the average range for this time of year." That doesn't sound like a particularly bad place to be, unless you're an energy and commodities bull.
The AAA Daily Fuel Gauge Report registered a moderate rise of +0.6 cents since since Monday (from $2.341 to $2.347) in the retail price of a gallon of unleaded gasoline, a second consecutive rise. This was a negative report. Regular unleaded gasoline is now +13.3 cents above the level of a month ago, +29.3 cents above its May 2004 peak of $2.054, and -70.0 cents below its September 2005 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 $2.32 to $2.37 regular unleaded within a couple of weeks if the wholesale price were to remain steady. Retail prices could now rise as much as +3 cents or fall by as much as -2 cents in the coming weeks All of that is subject to dramatic change on a daily basis. Out here in Boulder, Colorado, prices remain in a range of $2.27 to $2.31.
[1/31/06] The first auction of 30-year Treasury bonds since they were suspended will be held on February 9, to be issued on February 15. Finally, we'll once again have an actual data point for the 30-year yield on the yield curve. There will be an auction of the 10-year note on February 8, to be issued on February 15 as well, which will give us a solid update on the yield curve.
[1/31/06] What the December Personal Income and Outlays report for December strongly suggests to us is that the weakness in Q4 GDP was due to weakness in consumer spending on durable goods in October and November that was reversed in December. Spending declined in October, was mediocre in November, and then robust in December. The December spending data probably came too late to be included in the Q4 GDP report and will probably be incorporated into the next revision of Q4 GDP; the advance GDP report probably extrapolated from the weak October and November data. The good news is not that Q4 GDP will likely be revised upwards, but that we entered 2006 with a strong month of consumer spending at our backs.
[1/3/06] Annoyance: This column is now stored in a web page named stock_market_commentary.htm. It used to be stored in mplatest.htm, but I moved it since I'm trying to get it boosted in Google's ranking system. Sorry for the inconvenience. The old page should offer you a link to the new page, for now, but you should update your bookmark or favorites list, if you have one.
[12/10/05] If you ever find yourself struggling with some of the math needed for investment and financial decisions, check out Robert Hershey's All the Math You Need to Get Rich: Thinking with Numbers for Financial Success.
Commodities were mostly lower, with energy pulling back, the dollar rising, and most metals (except for copper and aluminum) pulling back.
Crude oil may in fact have aborted its latest attempt to set a new high. Traders and speculators may take another shot, but it looks like they're giving up and like to trade down in the overall trading range. I suspect that they had been hanging on waiting for President Bush to take a harder line against Iran in his State of the Union address, but instead, the President initiated a push to reduce demand for crude oil.
I'll give commodities another two weeks before deciding whether they are still in a bullish trend, or simply peaking in a "bubble". Traders and speculators may give a last try to push gold to $600, but it sure feels like the end is near for commodities. Look at natural gas, well off it's peak.
[2/1/06] Iran? Who knows what's going to happen on that front. The latest I read about OPEC was that Iran was assuring people that they were not considering a cut in their crude oil exports, despite the pressure to refer Iran to the UN Security Council.
March is now the front month for unleaded gasoline futures.
[1/20/06] With crude oil now in the upper $60's, I have no doubt that traders and speculators will seek to push crude up to a new high. Whether they will succeed is unknown. This has nothing to do with economic or business fundamentals or actual supply or demand, but is simply a function of large amounts of cash ("hot money") seeking outsize, albeit risky, short-term gains. Also, Goldman Sachs had touted a target of $68, so that's an obvious impetus for short-term speculation.
[1/26/06] Recovery from the Gulf Coast storms continues to slog along. You can read the biweekly reports from the Department of Interior's Minerals Management Service (MMS) at 1:00 p.m. Central time every other Wednesday. We have a ways to go, but progress is occurring every week. According to MMS, another 1.56% of oil production came back online, with 24.89% (vs. 26.45%) of Gulf oil production now out of service, and another 1.49% of natural gas production came back online, with 16.56% (vs. 18.05%) 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". By the way, I never read any market reports suggesting that traders and speculators are taking any of these ongoing increases in production into account.
Crude oil futures remain in contango (rising prices) from March 2006 through February 2007 ($69.62 as the peak price in February 2007), and then backwardation (declining prices) all the way out to the December 2012 contract at the lowest price ($63.35). All contracts after December 2008 are priced below the March 2006 contract. All contracts remain above $60, and no contracts are above $70 any longer. The "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.
Unleaded gasoline futures remain in contango (rising prices) from January 2006 through August 2006 and then backwardation (falling prices) through December 2006, and then a slight rise in January 2007. The January 2007 contract is now priced +11.97 cents above the March 2006 contract. The bottom line is that there is no evidence of a market expectation of dramatically rising gasoline prices over the long term.
[12/16/05] Although some of the metals popped up above the thresholds I suggested at the beginning of the month, they've all pulled back significantly and below my thresholds. So, I'll give them another couple of weeks to see if they can achieve some durable gains. I'm not forecasting that all speculation will vanish any time soon, but simply that the massive bull wave they was driving all commodities up may finally be over. I suspect that soon we will revert to the traditional, garden-variety speculation that we've always had, and that can usually be ignored by true investors.
[12/9/05] There are still plenty of people interested in speculating in commodities, but the breadth does seem to be waning. Spurts of activity such as on Thursday do seem bullish, but also seem to smack of a market on its last, anxious legs. Even outright bear markets (which we aren't quite in yet) occasionally have sharp rallies, but they don't indicate the overall, longer-term trend.
[12/1/05] With metals prices being so strong lately, I'm a little reluctant to call a full end of the commodities speculation wave of the last two years. I'd like to give the metals group another couple of weeks to see whether they are able to move up significantly from their recent highs, say another 5%, with gold to $525, platinum to $1,050, silver to $8.87 and copper to $2.18. Commodities may be at a similar stage as stocks back in mid-March of 2000, with the Dow having peaked in January, NASDAQ peaked on March 11, and the S&P 500 peaking on March 24. The euro peaked a long time ago, energy a while ago, and the metals are the remaining leg of the stool still standing.
[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.
[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.
[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.
[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".
My interpretation of the FOMC statement is that the Fed expects to have to hike again at the March meeting unless the economy heads south, and that their statement at that time will probably be very close to this statement. In other words, they would really like to see a significant easing of inflationary pressures, which means that core PCE needs to average under the midpoint of the Feds preferred range (1% to 2%) for several months in a row, as opposed to near the upper end of the range as it does now. Although I believe that commodities prices will decline in the not-too-distant future, you'd better believe that the Fed has to be at least a little worried that there is too much potential for persistent past commodities gains to flow through to core prices. Expect the Fed to be extremely vigilant on "inflationary pressures."
PIMCO's "Bond King" Bill Gross has posted his latest monthly February 2006 Investment Outlook (IO) letter, entitled "Curveball." I haven't read it carefully yet, but it seems to suggest that the Treasury yield "curve" (hence the title) is going to behave in a rather atypical manner in the coming years. From my quick scan, I was unable to discern his outlook for the target fed funds interest rate, the rest of the yield curve, or the economic outlook for the coming months.
[1/14/06] Maybe this will be the market's M.O. until the Fed clearly states that it believes the latest hike was the last hike: Price in 100% odds of a hike at the next meeting and 50+% odds of a hike at the meeting after that. That seems like the safe way to bet, or at least seems what the market has been doing recently.
There was a 2-basis-point inversion from the 6-month T-bill yield to the 2-year Treasury note, a 4-basis-point inversion from the 2-year to the 3-year Treasury note yield, a 4-basis-point inversion in yield to the 5-year Treasury note, a 2-basis-point inversion between the 2-year and 10-year note, and a 4-basis-point inversion from the 6-month T-bill to the 10-year T-note. The 30-year Treasury bond yield is 4 basis points below the new fed funds target rate that is expected at the end of March (4.75%) and the 10-year T-note is 19 basis points below that new fed funds target rate. There is plenty of confusion and debate over what all of this means, but for true, long-term investors, there simply is nothing here to cause any alarm. For the moment, the Treasury yield curve is not a good indicator of economic activity going forward over the coming few months.
[1/24/06] The current inversion between short-term Treasuries and the 5-year treasury appears to be mostly due to the fact that the Treasury has been auctioning primarily the shorter-term debt and much less of the 5 and 10-year notes. That means an excess of supply of the shorter-term debt and a relative shortage of the longer-term notes, which pushes the short-term yields up and the longer-term yields down. This is primarily a function of Treasury's auction schedule as well as a conscious decision to shift supply towards the short end. None of this has to do with economic expectations, so the inversion is not indicative of the economic outlook.
There was a moderately sharp rise in the odds of a Fed funds target interest rate hike to 4.75% in March and a sharp rise in the odds of a hike to 5.00% in May. The market is pricing in a hike to 4.75% in March, and a little better than a coin flip for a hike to 5.00% in May. The betting on the May hike may be merely be an insurance hedge rather than an outright bet.
[2/1/06] Market expectations are currently that the Fed will pause after hiking to 4.75% at the end of March. Stay tuned, as this market expectation can turn on a moment's notice. My expectation remains hiking to 5.00% in May. If anything, I would be biased higher towards 5.25% to 5.50%.
The fed funds futures market suggests a quarter-point hike (to 4.75%) at the March 28, 2006 FOMC meeting, possibly a hike (to 5.00%) 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 (less than 45 days), so it's too soon to confidently judge the likelihood of a hike to 4.75% at the March 28, 2006 FOMC meeting. Bets on hikes beyond March are uncertain and may merely be insurance hedges rather than outright bets.
[1/25/06] A major unresolved issue with Fed FOMC communications is whether the Fed FOMC will explicitly state in its announcement that its action at a meeting does in fact end its rate-hike campaign. A related issue is whether the Fed FOMC will explicitly state in its announcement that its action at the next meeting will likely be the pause point (i.e., a warning of the pause a meeting before it happens). The closest I can come to clarity on this is to note that since the Fed has now consistently said that its future actions will depend heavily on the economic data, the Fed may in fact give no warning in their announcement whether a given action was the end of the campaign or even whether the next meeting is likely to be the end. If that's the case, the only way people will know that the campaign is over is when an FOMC meeting passes without action, or if the Fed official comments between meetings seem to suggest a Fed feeling that "interest rates are about right", "further action isn't likely to be required", or similarly vague sentiments. Since the Fed has not been clear on these two communications issues, the markets will be quite volatile as market participants jockey for interpretations of the Fed's actual announcement phrasing. I'd also note that no market commentators have made clear their expectations on these two issues either. So much for transparency.
[1/5/06] Commodities prices will eventually moderate as higher interest rates gradually take hold and gain traction, but meanwhile, lofty commodities prices are a reality and a real inflationary effect, so the Fed does need to respond to them. That will assure that the Fed runs their interest rate hike campaign up to at least 5% (in May). Whether the commodities speculation binge peters out by Spring is a matter of debate, but it is the mere existence of that debate that will keep the Fed on a hawkish anti-inflation binge. The Fed shouldn't, and doesn't, target asset speculation, but the existence of such widespread asset speculation is an indicator that there is way too much cash (liquidity) sloshing around in the financial system.
[12/22/05] The big sport in the fixed-income arena over the coming five weeks will be the shape of the Treasury yield curve. A steep inversion (downwards sloping from left to right) is frequently a prelude to a recession, but the chatter-level goes through the roof whenever there is a flattening or even a slight inversion anywhere in the yield curve. Since a lot of investors need to hold debt as a part of their desired asset allocation and tend to do it in a "laddered" manner (spread over various durations), the yields may simply reflect actually supply and demand. And all of this is subject to change on a weekly and daily basis. There is plenty of time for Treasuries to move dramatically in any direction over the coming weeks, so there is no significance to the spread between the expected fed funds target short interest rate at the end of January and current Treasury yields. Nonetheless, it will be great sport to watch the yield curve chatter play out in the coming weeks. Click here to check Treasury yields on Bloomberg.com.
[12/29/05] Although the so-called Treasury yield curve has a 30-year data point, the closest we have to a 30-year Treasury bond is the bond that was issued for February 15, 2001, payable on February 15, 2001. That's essentially a 25-year bond. On February 15, 2006 Treasury will once again issue a fresh 30-year bond. There's no telling what yield it will come in at, but adding 5 years to the duration of that point in the yield curve is certain to cause some kind of pop. Nominally the yield should rise, but intense demand for a true 30-year bond for retirement planning puts upwards pressure on the price which means downwards pressure on the yield. Renewed issuance of the 30-year bond could also shift some demand from the 10-year note which had assumed leadership for the long end when Treasury ceased issuing the 30-year in 2001. The bottom line is that there could be some upwards pressure at the long end of the Treasury yield curve in February.
[12/28/05] One important consideration to keep in mind with the treasury yield curve is that the power to predict recessions is driven by the concept of the Fed moving above the neutral range to a clearly restrictive monetary policy. The question is not whether rates are higher, but whether they are well above the neutral range. On January 11, 2000 when the 10-year and 30-year yields inverted, the 10-year was at 6.72%. On February 2, 2000 when the 2-year and 10-year yields inverted, the 10-year was at 6.60% and the 2-year was at 6.63% and the 6-month was at 5.94%. Today, the 6-month yield is at 4.31%, the 2-year is at 4.34%, the 10-year is at 4.34%, and the 30-year is at 4.50%. We have a long way to go to get to where the Fed was at in 2000, and most sane commentators are forecasting that the Fed will pause fairly soon, with the 6-month yield likely to be at least almost a whole percentage point below its level in 2000, possibly even 144 basis points. There is no sane way to look at the real data and conclude that the Fed is currently or likely to shortly pursue the kind of restrictive monetary policy that might be considered a cause of a recession.
[12/28/05] Another consideration to keep in mind is that there are a lot of people who have specific needs for treasuries of various durations, so real demand can drive the yield curve out of all proportion to any fundamental relationship between points on the yield curve. Some people hold treasuries as collateral for specific terms. A lot of baby boomers are getting close enough to retirement that their asset allocations are shifting in favor of holding longer-duration treasuries, which increases demand, pushes up prices, and pushes down the yields. Many bond holdings are "laddered", meaning they are intentionally spread over the yield curve to control risk, regardless of the valuation of any specific points on the yield curve. And, the varieties of needs of foreign central bankers is a vast snake pit of dynamic modalities and rationales.
[12/28/05] The bottom line: If the Fed is really doing its job of keeping inflation in check, we should see a flat yield curve. And it's not unreasonable to see modest fluctuations of up to five or ten basis points anywhere along the curve based on short-term fluctuations in supply or demand. The so-called "inversion" has been no more than what might be expected for volatility of prices that are subject to an open market.
General Motors (GM) said it will build two-mode hybrid gasoline/electric versions of the Chevrolet Tahoe and GMC Yukon hybrid sport-utility vehicles at its Arlington, Texas, plant beginning in late 2007. The two-mode design is supposed to be even more efficient than the single-mode designs that current hybrid vehicles use. The point is that GM's future is not so completely bleak as a lot of Wall Street short-sellers expect you to believe.
[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.
[1/24/06] The VentureOne/Ernst & Young LLP Quarterly Venture Capital Report for Q4 registered a sharp decline (-9.9% vs. -1.42% last quarter) in the amount of money invested from Q3, but a very sharp rise (+14.0% vs. +16.40% last quarter) from Q4 a year ago in equity investment in U.S.-based companies who have received at least one round of venture funding from a surveyed professional venture capital firm. This was a mixed report. Venture investment for 2005 was +2.2% higher than the previous year. The total dollars invested in 2005 amounted to $22.1 billion, the highest amount since 2001 ($36.2 billion), and higher than 1998 ($17.9 billion). Unfortunately, 2005 was only slightly higher than 2002 ($22.0 billion) and it will probably take at least a couple of years to exceed the 2001 level. Please note that these numbers don't include either "angel" investments or "buyouts". The latter dwarfs venture investment and had its best year ever in 2005. Information technology (IT) continues to get the lion share of investment (51%) compared to distant second healthcare (36%). There was a very sharp decline (-16.7%) in the amount invested in information technology companies since last quarter, and a sharp decline (-10.9%) compared to a year ago. Computer software continues to be the largest sub-sector, with 23.1% of the money invested in Q4 and 42.7% of the IT money invested in Q4, and fell -5.6% from Q3 and fell -11.7% 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". Later stage deals received 49% of the money and first stage deals received only 22% of the money. The ten largest deals were: Health Dialog ($171 million), provider of care management services, including disease management, ORBCOMM ($110 million), provider of wireless telecommunications services, Cornice ($75 million), provider of compact, high-capacity storage for pocket-able consumer electronic devices, Perlegen Sciences ($50 million), developer of novel potential drug targets and markers which predict drug response using a method for rapidly analyzing and comparing entire genomes, Raven Biotechnologies ($48.3 million), developer of monoclonal antibodies (MAb) therapeutics for treating cancer, Portola Pharmaceuticals ($46 million), developer of therapeutics for the prevention and treatment of cardiovascular disease, Small Bone Innovations ($42.2 million), provider of orthopedic products and technologies to treat trauma and diseases in small bones and joints, Nanosys ($41.5 million), developer of nanotechnology-enabled systems based on a platform technology incorporating high performance and highly integrated inorganic semiconductor nanostructures, Barracuda Networks ($40 million), provider of enterprise-class spam and spyware firewall solutions for comprehensive email protection, and SavaJe Technologies ($40 million), developer of Java-based operating system for wireless devices, with an emphasis on mobile phones. Note the dearth of software companies on that list, since the actual amount needed to fund a software business (especially in the first round) is frequently relatively small. The top ten states for amount invested were California at 45.32%, Massachusetts at 14.74%, Texas at 4.05%, New York at 3.36%, Virginia at 3.28%, Maryland at 3.25%, Washington at 2.79%, Colorado at 2.63%, Georgia at 2.24%, and New Jersey at 2.00%. The survey data was obtained from professional venture capital firms that have invested in U.S.-based early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors. Please note that there are companies receiving investments who are operating in so-called stealth mode, and don't show up in publicly-available statistics, but it is believed that such investments represent a small fraction of the total investments.
[1/13/06] According to Dow Jones Private Equity Analyst, U.S. private-equity firms raised $151.8 billion in 2005, which is an increase of 65% from 2004 and second only to the $177.9 billion raise at the height of the 2000 bubble. The largest increase came from the buyout and corporate-finance funds sector, which raised a record $106.4 billion, 90% more than 2004. That's a lot of money sloshing around, looking for a home. Some of it will be used to take public companies private
[10/11/04] For some background information on venture capital, click here.
The 1-day yield for the Fidelity FPRXX taxable money market fund is up to 3.59% and the FDRXX money market fund for non-taxable retirement accounts is up to 4.09%. I expect FPRXX to be up to 3.80 by the end of February and FDRXX up to 4.25% 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. Click here for the top Prime Retail Money Market Funds from iMoneyNet. iMoneyNet says the average 7-day taxable simple yield is 3.80% (up from 3.72% last week), very modestly less than the average of FPRXX and FDRXX (3.84%).
[1/18/06] My next automatic monthly dollar-cost averaging investment in the S&P 500 Tech Sector Spider (XLK) via ShareBuilder.com will occur on February 14, 2006, the second Tuesday of the month.
[1/3/06] I've decided to restart my automatic monthly dollar-cost averaging investment plan with ShareBuilder.com. I'll continue buying a small slug of the S&P 500 Tech Sector Spider (XLK), but only the very modest amount I had chosen back in July 2004 when I first started the plan. Another change from my original plan is that my investments will be made on the second Tuesday of each month rather than the first Tuesday. My initial reason for this change was simply that it was too late to set up the plan for the first Tuesday of January. The commission is $4 for each monthly investment. I may have to stop the automated plan or maybe increase it, depending how my negotiations with the IRS go on setting up a payment plan for my back taxes. I had considered switching to another ETF, maybe an Internet ETF, but I have enough of a history with XLK to judge it reasonably well. One big, open question is whether Google (GOOG) will be added to the Information Technology sector of the S&P 500 Index. In any case, at least this decision is now out of the way, for now. Incidentally, the 7-day yield for ShareBuilder's money market mutual fund is 3.56%.
[12/27/05] Long before I focus too much of my attention on what stocks (or other assets) to buy, the simple truth is that there are three investment angles that have the potential to reward me far more handsomely than whether I get a return or 2% or 20% or even 200% on stocks over the coming few years: 1) my financial "wealth" is is so small that even the modest amounts of cash that I will contribute each month will dwarf any realistic investment return for quite some time to come, 2) "investing" in my intellectual and business skills (e.g., spending money on courses, seminars, and conferences) could result in opportunities to boost my income far in excess of any realistic investment returns on my meager "wealth" for the foreseeable future, and 3) cutting my expenses and shifting the cost savings into my investment accounts would likely also dwarf my investment returns. So, for now my optimal investment approach may be simply to leave the cash in money market mutual funds, with maybe a modest fraction of it invested in a simple market index fund.
[12/20/05] I've been thinking again about starting another small monthly dollar-cost averaging investment program with ShareBuilder. The question is which ETF or stock to use. Some possibilities include the S&P 500 (SPY), Dow Jones Industrials (DIA), S&P 500 Tech Sector (XLK), NASDAQ-100 (QQQQ), Qwest (Q), and Verizon (VZ), among other possibilities. My default first choice would be XLK, and SPY as my second choice. I'm also tempted by the S&P 500 Consumer Discretionary sector spider (XLY) since it includes Amazon (AMZN) and eBay (EBAY). I'm not sure where Google will end up when it gets added to the S&P 500. Yahoo (YHOO) is already in the XLK. I'll stick with one stock in the ShareBuilder account so that I can, if I need to, liquidate the entire account for a single $4 commission.
[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 continue to have a very, very modest portfolio in two rollover IRA accounts, but not enough to be worth speaking about.
Today the market will try to break out of the multi-day rut that it always gets into whenever the Fed FOMC meets. Today, Friday, or Monday, it will be one of those days that the market will make its move, whether up or down.
The market is poised to either break out and set a new high for the advance (only 23 points above Wednesday's close), or fall off the proverbial cliff into a steep correction. I strongly suspect the former, but with so much "hot money" in the market, all bets are off.
[2/1/06] Besides recovering from Fed FOMC anxiety, the market will focus on the monthly employment report due out on Friday morning.
[2/1/06] With the Fed now out of the way, a relief rally is quite possible, although not guaranteed.
[1/31/06] We will have put a big chunk of the Fed interest rate anxiety behind by the end of the day, but it will take a few days for the dust to settle, and then people will move to a whole new level of anxiety, wondering what the Fed will do at the FOMC meeting at the end of March, and beyond.
[1/30/06] We won't be "safe" until the market sets a new short-term closing high, which means a gain of about 30 points from NASDAQ's closing level on Friday. Traders and short-term speculators will take it as a bearish signal if the market fails to set a "higher high" within a week or so.
[2/1/06] Give the market yet another week to blink and decide whether the rally and recovery bounce was "real" and durable, or not. The latest bounce may simply have been a "bear market bounce" rather than a true up-leg of the advance.
[1/20/06] It's difficult to say whether or not there is any additional market consolidation in front of us. It may in fact be over, or we may actually be beginning a significant correction. I lean toward the former, but I have to admit that the bulk of the run-up since October has been "hot money" which can evaporate at a moment's notice.
[1/24/06] People remain sitting on pins and needles waiting to see if the market will resume its dive off a cliff, or maybe bounce back. Anything is possible with so much "hot money" in the market. I'd lean towards expecting a significant bounce, but it is very possible that we first see some more of the "weak hands" getting blown away before "bargain hunters" trigger a massive short-covering rally, and that process won't necessarily play out in merely another single trading session.
[1/13/06] The big question is whether the decline on Thursday was simply a "pause" before the advance continues, or the end of the January rally. I lean towards the former, but more profit-taking might ensue in any case. The decline on Thursday simply didn't look like a classic market top.
[1/11/06] The market is now right at the edge, undecided whether to begin a correction or continue the advance. I lean towards the latter, but all bets are off after such a big run-up.
[1/10/06] One big question is when we'll get our first big episode of profit-taking after the recent run-up, and whether it will be a full correction or simply a modest pause before the advance continues.
[1/9/06] The big question now is whether the market is really on a true roll, or whether we simply saw a bunch of hot money hop into the market and may soon witness how quickly hot money can hop back out of the market. We'll know in a month or so as we get towards the end of the seasonal November to February period.
[1/7/06] The market remains heavily over-bought on a short-term technical basis, but that's no guarantee of a decline.
[1/6/06] The worry about a "cliff dive" in early 2006 is now significantly diminished, but is still a lingering concern. The good news is that there may still be quite a lot of money that had bet on a decline, so we could see some more short-covering and rotation into stocks as the month progresses.
[1/3/06] Click here for our Stock Market Outlook for 2006.
[12/30/05] The big, big question is what the "hot money", such as the hedge funds, will do in the coming weeks. There is no telling whether they will bail out like last year, or pile in more money or cover shorts and kick off another rally.
[12/28/05] People are still pondering that cliff that the market fell off at the beginning of the year. There's no reason to think that history will repeat itself, but people still worry, no matter how irrational their fears might be. We could also end up with a self-fulfilling prophesy that leads to a modest "cliff dive" at the beginning of the year and then a resumption of the advance. Anybody who was really worried about 2006 has had more than plenty of time to close out their positions. That makes a 2006 "cliff dive" less likely, although still possible.
[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.
[11/3/05] 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.
[1/27/06] The fact that there was a net inflow into non-ETF domestic equity mutual funds for a third week after five weeks of outflows after an inflow after two weeks of outflows after an inflow after thirteen consecutive weeks of outflows and the fact that we've seen inflows for 28 of the past 51 weeks, suggest that the market will continue to be quite volatile, but likely to maintain a gradual drift upwards.
[1/5/06] January 13th will mark the 3-month milestone for the rally since October 13th. Once we get past that milestone and set a new closing and intra-day highs for the rally, then I will call the rally a new cyclical bull market (that started on October 13, 2005). Until then, it's simply a "rally".
[2/2/06] 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 14 days off its closing high of 2,331.36 on Wednesday, January 11, 2006, and 14 days off off its intra-day peak of 2,332.92 on Wednesday, January 11, 2006. Technically, we did set yet another "higher high" (above the peaks in early August and December and January) on Wednesday (January 11), which indicates a bullish trend, but I insist on seeing another intra-day peak and another closing high above the intra-day peak of Friday, January 6, at least three days from that last peak before I'll say that we have established a true breakout from the recent (since August) trading range. That means a pair of new peaks. The wait is on. This is the moment of truth. We'll know within a week or maybe a little longer.
[11/11/05] We're actually provisionally out of the bear market (that lasted from early August to mid-October) 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 190 days old, 14 days off its closing high of 2,331.36 on Wednesday, January 11, 2006, and 14 days off off its intra-day peak of 2,332.92 on Wednesday, January 11, 2006. 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 75 days old, 14 days off its closing high of 2,331.36 on Wednesday, January 11, 2006, and 14 days off off its intra-day peak of 2,332.92 on Wednesday, January 11, 2006. The key signal to watch for now is a day on which the market opens sharply higher but closes sharply off both the open and 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 longer cyclical bull market (back to 2002), within a secular bear market (back to 2000), within the long-term secular bull market, at least until this leg extends for three months.
The sharp gain of +28.75 (+1.26%) points on Friday, January 6, 2006 confirmed the new up-leg of the October 2002 advance for NASDAQ that began with the intra-day low of 2,189.91 on Tuesday, January 3, 2006. This up-leg is now 21 days old, 14 days off its closing high of 2,331.36 on Wednesday, January 11, 2006, and 14 days off off its intra-day peak of 2,332.92 on Wednesday, January 11, 2006. The key signal to watch for now is a day on which the market opens sharply higher but closes sharply off both the open and 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 longer cyclical bull market (back to 2002), within a secular bear market (back to 2000), within the long-term secular bull market, at least until this leg extends for three months. Clearly this leg is awfully stressed, so this will be an excellent test of whether we are truly in a bull market. We'll probably know within a week, maybe two.
Given the recent market decline, it's appropriate to start looking for the start of another new up-leg for the advance. Tentatively the new, but unconfirmed, up-leg starts with the intra-day low of 2,241.02 on Monday, January 23, 2006. We now look for confirmation of the new leg, which means seeing a day with at least a 1% rise after at least two days wait and within 10 days and on heavier volume than the day before the big gain, without breaking below the intra-day low for the leg. If we can confirm this leg without breaking below the intra-day low of the January 3, 2006 leg, we'll have rather solid confirmation that we are indeed in a reasonably robust bull market. Tuesday was Day 2 with a moderately sharp gain, but we ignore gains on Days 2 and 3 since they're frequently dead-cat bounces. Wednesday was Day 3 with a modest loss, but we ignore Days 2 and 3 since they frequently have dead-cat bounces. Thursday was Day 4 with an almost-sharp gain, but I can't in good conscience consider it a strong enough confirmation to be confident about. We really do need to see a solid 1%+ gain. Friday was Day 5 with an almost-sharp gain, but I can't in good conscience consider it a strong enough confirmation to be confident about. I suspect that this leg will need to set a new high above the high for the January 3 leg before we actually see a confirmation. I remain optimistic about this leg. Monday was Day 6 with a modest gain. Tuesday was Day 7 with a slight decline. Tuesday was Day 8 with a modest rise. The next three days will likely tell us the fate of this leg.
[1/12/06] NASDAQ closed at 2,331.36 on Wednesday, January 11, 2006, at its highest closing level since it closed at 2,425.38 on February 16, 2001. The next older closing high was 2,552.91 on February 15, 2001.
[1/12/06] The NASDAQ intra-day peak of 2,332.92 on Wednesday, January 11, 2006 was its highest intra-day peak since the peak of 2,353.51 on February 21, 2001. The next older peaks were 2,442.99 on February 20, 2001, 2,457.65 on February 16, 2001, and 2,593.09 on February 15, 2001.
NASDAQ is now bullish on all timescales except the 5-year, 6-year, and 7-year charts (and the 2-day chart).
[2/2/06] Short-term (1-day): Modestly bullish.
[2/1/06] Short-term (2-day): Flat, trading range.
[2/1/06] Short-term (5-day): Moderately bullish.
[2/2/06] Short-term (10-day): Modestly bullish.
[1/28/06] Short-term (1-month): Moderately bullish.
[1/31/06] Short-term (2-months): Moderately bullish.
[1/4/06] Medium-term (3-months): Moderately bullish.
[1/19/06] Medium-term (6-months): Modestly bullish.
[1/31/06] Year-to-Date: Moderately strongly bullish. [NASDAQ closed 2005 at 2,205.32]
[11/18/05] Medium-term (9-months): Moderately bullish.
[1/6/06] Longer-term (1-year): Moderately bullish.
[2/1/06] 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.
[1/10/06] Longer-term (5-years): Modestly bearish. About a 4% decline each year.
[1/10/06] Longer-term (6-years): Moderately strongly bearish. This was the grand finale of the "boom" in 2000.
[1/10/06] Longer-term (7-years): Modestly bearish. This was the start of the big run-up for the "boom" in 1999.
[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.
[1/25/06] Consumer spending is holding up nicely, despite higher energy prices.
[1/19/06] All indications are that the economy is humming along nicely, but probably modestly below "potential" due to ongoing corporate restructuring issues. There is neither any recession nor any runaway inflation detectable either shortly in front of us or at or over the horizon at this point.
[1/18/06] The latest Industrial Production report suggests that the economy remains reasonably strong.
[1/13/06] The challenge for estimating the economic outlook is not so much the overall level of activity, but drilling down to sectors themselves, including business investment, consumer spending, energy production and pricing, transportation activity and costs, supply and demand for commercial real estate, major corporate layoffs, formation of new businesses, hiring by small businesses, etc. I'm not even sure we have any reliable information for much of that at all. It is so much easier to simply say that 2006 GDP growth will be in the 2.75% to 4.25% range (midpoint of 3.50%).
[1/10/06] Financier George Soros has forecast a recession in 2007. That's possible, but too far in the future to try to be accurate about. He (along with a chorus of others) claim vociferously that the Fed has "got to overshoot because they can't stop until the economy shows signs of a slowdown. By the time it shows those signs, it may be a little too late". I and some Fed officials would beg to disagree. I predict that the Fed will pause within a few months (May, actually, and at 5.00%, as opposed to the 4.75% in March that Soros predicts), and that the economy will give all appearances of still being quite strong at that point. The Fed wants to remove the last vestiges of "accommodation", but has no interest in causing a recession. So, why are Soros, et al, so wrong about this? For reasons unknown, they are acting as if the Fed rate hike campaign had started at neutral and was heading up into restrictive territory. If that were the case, the Fed would definitely be looking for a slowdown, since that would be the purpose of the hikes. But, instead, the goal of the Fed's current campaign is to end in the neutral range, which by definition means that monetary policy is neither accommodative nr restrictive, and if it isn't restrictive, then by definition it won't be slowing down the economy. In short, no recession in 2006, and the economy will continue to zigzag along through 2006 at a reasonable clip. As far as a recession in 2007, I think that would require some significant "unhinging" of economic factors that just doesn't appear in the cards. Sure, a housing slowdown might do it, but there is just as likely to be some positive forces developing as well (e.g., positive results from ongoing corporate restructuring and employment gains). And remember that regardless of Fed policy, there is an incredible amount of cash (liquidity) sloshing around looking for all manner of opportunities, so innovation and other aspects of the economy's growth engine won't be restricted at all, maybe not for the next several years.
[1/5/06] I'll withhold further judgment on the strength of the economy until I run across some data that relates to what's going on this month as opposed to last month or the month before. I may have to settle for anecdotal reports such as companies announcing major deals or out of the ordinary hiring plans.
[12/30/05] Hilton Hotels (HLT) says it plans to open 175 to 200 hotels in North America in 2006 and another 15 to 20 hotels internationally. That's impressive and suggests a bit more optimism about the economy in 2006 than I've been encountering lately.
[12/29/05] Despite chatter about a slowdown in the housing sector, I still feel that there are enough "good cylinders firing" in the rest of the economy to get reasonably decent growth in 2006.
[12/23/05] The final Q3 GDP report and the November personal income and expenditures report suggest that there is some real underlying resilience in the economy, despite lofty energy prices, the big hurricanes, and rising short interest rates.
[12/21/05] The latest housing construction report showed the economy humming along nicely, but that's not necessarily a reliable prediction of future economic activity.
[12/16/05] The latest industrial production report showed the economy humming along nicely, but that's not necessarily a reliable prediction of future economic activity.
[12/14/05] The latest monthly retail sales report was mixed and lackluster, but still consistent with a reasonably healthy zigzag economy that continues to plug along on a gradual upwards path.
[12/1/05] 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.
[12/2/05] One of the disturbing readings in the October personal income and expenses report is that savings has been in negative territory for five 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 has shrunk each month since July and shrank from $70.9 billion in September to $61.5 billion in October.
[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
[9/19/05] 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.
[1/13/06] Obviously, Apple (AAPL) has been doing quite well, but they don't seem to represent the rest of the tech sector.
[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: February 01, 2006 06:38:49 PM -0500
Copyright © 2006 John W. Krupansky d/b/a Base Technology