Analysts, Gurus &amp; Pundits

Top 548. Apr 20, 2005 3:48 PM

» Normxxx - Sorry You Asked?

UP AND DOWN WALL STREET : Sorry You Asked?

By ALAN ABELSON , Barron's | 20 April 2005

WHATEVER HAPPENED TO CURVEBALL?

Whatever happened to Osama bin Laden?

Whatever happened to the economic recovery?

What's wrong with the stock market?

Why is everyone so anxious about having their identity stolen?

Has oil peaked? Is the commodities boom over?

Will New York City be selected as the host of the Olympics? Does anyone besides Mayor Bloomberg care?

These are, obviously, only some of the burning questions of the day. And while we may not have all the answers, as a good journalist that won't prevent us from supplying them.

Let's start with whatever happened to Curveball? At first glance, you might easily mistake the query as having been posed by an oldtime baseball fan afflicted with an imperfect grasp of English and a habit of dropping his articles. In fact, Curveball is a nom d'espionnage conferred on an Iraqi chemist who took off for Germany in 1998 and right up to the onset of the war in Iraq supplied German and American intelligence with what purported to be the inside dope on Saddam Hussein's evil plots and deep dark military secrets.

He earned his not entirely complimentary but descriptive moniker by eventually persuading his handlers that he and his information both were more than a little suspect. Indeed, in retrospect, Screwball would have been more apt an appellation. The Curveball story came to light through the efforts of one of the innumerable commissions appointed to investigate why we were so badly informed on Iraq before we decided to invade that forlorn country. What this particular commission, created by the President, dug up was that even though top CIA types were warned Curveball was a serial indulger in wild pitches, they continued to credit what he served up. In so doing, they were merely adhering to the tried and true CIA axiom that a source who tells you what you want to hear is worth a heck of a lot more than one that tells you what you don't want to hear.

So what has happened to Curveball? Well, as part of a special protection program sponsored by the CIA for unreliable informants (a very crowded program, we might interject), he has been spirited to the U.S., where, already a proven master of embellishment and an accomplished speaker in tongues, he is being taught the bare rudiments of economics as part of his grooming as successor to a certain prominent bespectacled septuagenarian who plans to retire early next year. His new code name is "Chairman."

Whatever happened to Osama bin Laden? Actually, nothing and that's the trouble. Confirmation came last week of what was the world's worst-kept secret: When in 2001, we had the Evil One, his wives and his dialysis apparatus trapped in Afghanistan at Tora Bora, rather than do the job ourselves, we sent some Afghan warlord mercenaries, no doubt paid in advance, to do it for us. Oozing money at every pore, bin Laden dangled lots of coins in front of our fearsome warlords, who promptly curtsied prettily and wished him a happy journey.

The rising anxiety in our fair land about identity theft no doubt reflects its status as a relatively new phenomenon. Fanning the popular unease has been recent widespread notice afforded to disclosures that the keepers of personal data -- ChoicePoint and LexisNexis, among others -- have been a tad slipshod in shielding private stuff like Social Security numbers, the details about drivers imprinted on their licenses, your mother's maiden name and similar boring intimate info from predatory eyes.

To judge by the reaction, it's apparent that not everyone reads the obits and so missed the news that privacy, alas, is no longer with us. We found it extremely touching, incidentally, that the British firm that owns LexisNexis has generously offered, among other things, free credit checks to the several hundred thousand folks affected by its data unit's lapse, sparing them the suspense of not knowing when their credit rating suddenly plummets.

Although the price of oil dipped briefly below $50 a barrel last Thursday, it did creep back over that critical level before the week ended. While we confess to harboring no strong conviction as to whether we've seen a top in crude, there are a few hopeful signs. One is the recent analytical prattle about of a spike in oil that might hoist it over $100 a barrel; gushing forecasts like that typically come at the end of a big move in a commodity (even so precious a commodity as oil).

In the same vein, the proposed acquisition by ChevronTexaco of Unocal we view as a quite favorable omen. This is not necessarily a judgment on the wisdom of that particular purchase. But as we recall the last great oil spurt in the early 'Eighties, when big oil companies started to buy one another at fabulous prices the end was near, and when big non-oil companies started to buy big oil companies at even more fabulous prices, the end was here.

However, a word of caution. Even should it turn out that we've had the blessed pleasure of witnessing the high in crude, before partying we gas guzzlers had best keep in mind the lesson learned in the past year or so: Gasoline prices go up like mercury, but somehow come down like molasses. Must have something to do with the fuel's chemical constituents.

NOW, CONTRARY TO WHAT you may think, we have no intention of ducking the tough questions like whatever happened to the recovery? It's just that when faced with the burdensome task of delivering despairing news, we try to do so gently, saving the worst for last in the hope the dear reader will build up a bit of immunity. Contrary to surface impression, deep down we hate to see grown people cry.

The recovery is still with us -- but less so, it seems, with every passing day. For that matter, except for corporate profits, which have grown pleasingly plump, and certain frenzied parts of the economy like housing, where the boom is fast going from the improbable to the implausible, the recovery has never really flexed the kind of muscle with which economic expansions of the latter half of the last century wowed us. We guess all four of these years it has been sweating out the enormous hangover from the speculative excess that ran so wonderfully amok in both the stock market and corporate America in the late 'Nineties.

The real drag on this economy has been that those excesses never got a chance to fully correct, thanks to the Fed's fervent espousal of a liquidity cure that flooded the system with cheap credit and the Administration's extravagant, near-maniacal pursuit of stimulus, the fiscal consequences be damned. As all of history and human experience suggests, another binge is never the preferred remedy for a hangover.

So the poor old recovery, instead of a fresh start, actually began life saddled with widespread and formidable overcapacity. That virtually assured companies would be exceptionally timid in expanding and hiring, the two main spark plugs of a strong rebound. A glaring result has been a lopsided upswing, conspicuously lagging in jobs, wages and innovation. Not surprisingly, as the latest readings confirm, it has not inspired anything extraordinary in the way of manufacturing output or consumer or business confidence.

What it has provoked is a peculiar disquiet among a smattering of economists and any number of civilians as well, a disquiet that was rather eloquently expressed by Paul Volcker, Mr. Greenspan's predecessor as the big cheese at the Fed, in a recent speech at an economic gabfest at Stanford and an even more recent op-ed piece in the Washington Post.

Citing "disturbing trends, huge imbalances, disequilibria, risks" lurking beneath the placid surface of the economy, he confesses they strike him "as dangerous and intractable as any I can remember, and I can remember quite a lot." And what bugs him even more is that no one appears very interested in, let alone capable of, doing anything about it.

Even those sectors of the economy that bespeak strength on closer inspection prove less than encouraging. "We're buying a lot of housing at rising prices," Mr. Volcker concedes, but goes on to echo someone's nifty formulation that houses are now as much an ATM machine as a place to live in.

He points out that as a nation, we're consuming and investing roughly 6% more than we're producing. That's a neat trick, and we're able to pull it off by grace of huge gobs of money imported from abroad, some $2 billion worth a day. In the process, we're absorbing a mind-boggling 80% of the world's net flow of capital.

Central banks in China and Japan and elsewhere in East Asia for the moment are happy to supply the dough, while their countries provide the stuff that crowd our shops and our garages. But, Mr. Volcker cautions, those indulgent foreigners, whether central banks or private institutions, at some point "will have their fill of dollars."

More than likely, he reckons, the cause of such a disruptive change will be "financial crisis rather than policy forecast." More specifically, if the deficits and imbalances continue to grow -- and we don't get the impression Mr. Volcker would bet against that prospect -- confidence in our capital markets is destined to wither. When and if that happens, the consequences for us and the global economy will be downright awful.

"We're skating on increasingly thin ice," Mr. Volcker declares. And the only way to negotiate this dangerous passage is the old-fashioned way: by getting serious about monetary and fiscal discipline. It's urgent that we do so, he plainly believes. But, just as plainly, he's anything but optimistic that we will.

A FEW WEEKS BACK, in this sacred space, we allowed as how the market had the feel of a bear market. Nothing that has happened since, for some reason, compels us to change our mind. Just stubborn, we guess.

We've never bought the notion that the advance, which seems finally to have run out of steam, was anything but a rebound, however spirited at times, from the devastation visited on equities in 2000 and 2001. The fundamentals, as noted above, never really added up to the kind of economic backdrop that would nurture a sustained bull market. And the strictly investment elements, particularly the persistence of silly speculation by the public and mindless rote bullishness among the pros, only deepened our skepticism.

So, in fact, as well as feel, are we now firmly on the downtread of a bear market? We're sorry you asked that question or, more accurately, we're sorry we can't definitively answer it. But more to the point, perhaps, the market's action is unequivocally bad and that seems to us reason enough to give it wide berth. Opportunity cost, as the cliché goes, doesn't stack up at the moment as a major investment risk. Getting blown out of the water does.

Especially striking in the wide-ranging pummeling of the market has been the punishment meted out to the techs. IBM's rude treatment after a disappointing report sent renewed shock through the sector, but the bad news and the vertigo suffered by the stocks have been nearly epidemic in the past couple of weeks. All of which is a tribute to the doughty investment acuity of Barron's Roundtable rookie, Fred Hickey, proprietor of the High-Tech Strategist, who has been bearish -- and right -- on the techs.

Still adamant that there's more blood to be let before the group hits bottom, Fred in his latest screed is actively negative on such stocks as Best Buy, Dell, Lexmark, Maxim Integrated Products, Flextronics, Texas Instruments and Mercury Interactive. But he's especially down on Research in Motion, which he thunders is "hitting the wall." He warns of stiffer competition from Microsoft and a growing saturation of the market for BlackBerrys. This Research in Motion mainstay is expensive, he asserts, limiting its use to well-heeled business users. Yesterday's shortage of BlackBerrys has given way to discounting and promotions, and he tabs Research in Motion an all-too-familiar example of a sky-rocketing high-flier headed back to earth.

He does have a few kind words for another erstwhile tech favorite, Novell. He thinks the company's rebirth as a Linux software vendor (he calls Linux "one of the hottest trends in technology today") and its $3 a share in cash make Novell an inviting spec at $6. No argument from this corner.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 549. Apr 20, 2005 4:33 PM

» Normxxx - Cruelest Month?

Cruelest Month?
Chance of an April rally fades with the stock market's retreat,
says analyst Ned Davis

By SANDRA WARD, Barron's | 20 April 2005

An Interview With Ned Davis -- Artful in his ability to assess trends in the financial markets, Davis also throws in some heavy-duty science to best determine the direction of money flows. It's been 25 years since he started the independent research firm NDR in Venice, Fla., and Davis counts as clients hundreds of major institutions, all interested in tapping into some of the most current commentary and comprehensive market research available. Gauging everything from stock valuations to investor sentiment to sector disparities, Davis and his team are able to make the most of asset allocation. A contrarian sensibility comes in handy, too, especially in the current difficult market.

Barron's: You say we are in the late innings of the cyclical bull market but yet you remained bullish?
Davis: January is usually a very good month and usually there are very big inflows. This January was very unusual. We had extremely low inflows into funds and the market was under attack. The so-called January barometer says as goes January, so goes the market. That is not a good sign for the whole year, even though it may turn out the January barometer isn't right. But, the uncertainty over the Fed's actions and [the Organization of Petroleum Exporting Countries] and the Iraq election in particular might have contributed to holding things back in January. While inflows were terrible in January, they were very good in February and the market did pretty well. I thought the January lows would hold. That's what I was looking at to tell me there was something wrong with the bullish case. I figured if the January lows were taken out, that would be a problem and I would probably change my outlook for the market to neutral.

Q: Since the January lows were broken Thursday, have you changed you view on the market to neutral?
A: Yes. The Nasdaq and the Dow Industrials and the Russell 2000 had already violated the lows and Thursday the S&P 500 and the Dow Transports confirmed. When the Dow Industrials and the Dow Transports break their lows, that's a sell signal according to Dow Theory.

Q: So your hope of an April rally has faded even though the market appears to be oversold?
A: The market does appear to be oversold but I don't like to fight the tape unless I have a tremendous amount of evidence.

Q: What's your asset allocation now?
A: We are slightly overweight the stock market and slightly underweight the bond market and slightly overweight cash. We are 60% stocks, 20% bonds and 20% cash.

Q: Is cash on the high side?
A: Our normal cash would be 10%.

Q: Why had you been holding out for an April rally?
A: I was bullish but I was giving myself a very short leash. In August of last year, I changed my status to what I called leaning bullish. I say leaning instead of outright bullish because the Federal Reserve was raising rates. Generally, a string of Fed tightenings is negative for the market, so I was giving some respect to their position. But they had been overly accommodative and they were just becoming less accommodative and so it wasn't a typical tightening cycle and I felt I could stay bullish in the face of that.

Q: Why did the leash get shorter?
A: The Fed has claimed for the last three years that inflation was well contained. In fact, in May 2003 they were actually worried about deflation. However, now, the average of the CPI [consumer price index] and the PPI [producer price index] puts the inflation rate at about 3.88% from a negative rate in May 2002. At the Fed's last meeting a month ago, they said they noticed inflation was picking up and there was an increase in pricing power. This suggested to me they were thinking about fighting inflation. That goes beyond their neutral stance. It was a subtle change, but I felt it was an important change. Also, there has been some deterioration in the tape. Taking the two together, I feel the risks are fairly high.

Q: Weren't you also of the mind that now that the Fed is recognizing inflation, maybe it's time to start thinking about deflationary pressures again.
A: Yes. I was making a contrary opinion case. A lot of times contrary opinion is early. The behavior of the CRB [Commodity Research Bureau] Index is suggesting it has made a top. The CRB recently went up 11 days in a row -- very unusual and probably driven by short-covering. It was up 20 out of 23 days, then subsequently dropped five days in a row before making a pitiful rally and then dropped 10 straight days. That looks like a top. The trick here is whether inflation has peaked or not and will the Fed be allowed to tighten further. What happened in 1994? We had a whole series of Fed tightenings and the bond market got very nervous, which forced the Fed to quit hiking interest rates. Then the market took off. That could happen again.

Q: Hence the would-be April rally?
A: Another reason to believe in an April rally is that the market has tracked the four-year presidential election cycle really well. Not only did the overall market track well, but individual groups did well, too. For example, usually the market bottoms in the summer or fall of the mid-term election year. In this cycle, the bottom occurred in October 2002. It fit perfectly. The next year is usually the strongest year of the four and, in fact, we had a very strong year led by speculative growth stocks. Last year was an election year in which the market tends to be neutral a good bit of the year and through the election but usually ends well. The market went up almost exactly what it goes up in a normal election year. There is usually a switch in the election year to value stocks, which certainly happened last year. Energy has historically been the best group in an election year and that was true again last year. The post-election year is historically the weakest of the four-year cycle, but still it tends to be up around 55% of the time. The average gain is 2.9%.

Q: What are the strongest groups in the post-election year?
A: Very defensive groups. We have done a study breaking bull markets down into thirds. In the first third, there is a lot of stimulus and stocks that don't pay dividends in the S&P 500 actually beat dividend-paying stocks in the first third of the bull market by about 6%, which is remarkable. That has happened in this cycle. In the third stage, it flips totally around and dividend-paying stocks outperform non-dividend paying stocks in the S&P by more than 6%. At the start of the bull market people go for riskier assets, then as we get closer to the end the bull market cycle, they go for defensive groups

Q: Does that also result in a switch from small-caps to large-caps?
A: Somewhat. But going into the post-election year there is usually some indigestion in the first quarter following a big rally at the end of the election year. I was not particularly concerned about the weakness earlier this year because the second quarter of the post-election year is quite strong on average.

These are road maps that work until they don't work. But this post-election year has really followed the typical cycle very well and so I had forecast a good rally would start in April.

Q: Are you concerned about the strength in the economy?
A: Last year when we talked ("Contrarian Jitters," April 19, 2004), I mentioned the huge debt bubble. It is now $37 trillion. I thought that if 10-year T-notes got up to the 4¾%-5% range, the economy would definitely slow -- historically it's the move from the cyclical low in interest rates that has slowed the economy. In fact, rates on the 10-year note did go up to 4.89% in May or June of last year. And the economy hit a speed bump for about a month. I thought rates would have stayed up but they then plunged from 4.89% all the way to 3.99%. The Fed called that a conundrum. Bond yields are back up and I feel a key area for the economy is close to 5% on 10-year T-notes. At that point, the economy would slow again.

There are other differences from a year ago. There was a lot of stimulus a year ago. The money supply was growing very rapidly. The government was running huge and growing deficits and the dollar was weak. There is still some stimulus in the system but not nearly what it was a year ago and of course oil prices are up a lot further this year. So there are some hurdles here and bond yields will be the key. If bond yields don't rise a lot from around the 4½% level, then you can still put together a bullish case. Profits are slowing but the economy itself is stronger than I thought it would be.

Q: Some indicators have suggested the market has been oversold. Do yours?
A: My work indicated the market was oversold but not nearly as much as some suggested. Also, our short-term sentiment indicator dipped into the extreme pessimism zone. That was another reason we thought we were setting up for a pretty good rally. But the rally we had was not very impressive to say the least. I don't have enough tape confirmation to be comfortable assuming the cycle will play out normally.

Yet earnings and dividends have gone up more than the market has. The yield on GAAP earnings on the companies in the S&P 500 was 4.55% a year ago and now it is 5.15%. Dividend yields, which were extremely low at 1.58% a year ago are still low, but at 1.72% they're better than they were. So you can make the case that valuations are better than they were.

When you look at relative valuations a year ago, T-bill yields were less than 1% and now they've nearly tripled. If you take an average of short rates and long rates, they've gone up 50% from a year ago. So while earnings and dividends are up, compared with T-notes or T-bills or an average of the two, stocks are not quite such good values. There have been some improvements in absolute valuations, but there seems to be some sort of valuation ceiling. I don't know exactly what it is. I would say 1300 on the S&P would be an upside ceiling at this point. In a normal bull market cycle, the Nasdaq goes up 100% and the S&P rises between 50% and 62% from the lows. In this cycle, the Nasdaq has gone up 96% from its lows and the S&P has gone up 58%. We've had a fairly normal cyclical bull and we are probably in the late innings.

Q: You've written you're struggling with your bubble aftermath theme. Explain.
A: Throughout history there have not been that many bubbles, but there have been enough of them that some similarity exists. Usually there is a major bear market where the market declines by at least 50% after a bubble. Then there's a bottom followed by a huge cyclical bull market, but the market doesn't go to new highs. After that there is a very long period where the market goes sideways before another cyclical bull market occurs. But after the bubble of 2000, the recession was very mild and the economy has really done pretty well thereafter and this bothers me a little bit. In the stock market, none of the retracements in the S&P or Nasdaq are out of line with cyclical bulls and cyclical bears but small- and mid-cap stocks have gone up and made new all-time highs, and that is a little bit unusual. In the 1966 to 1982 period, which I consider a secular bear market, there were several averages that made new highs but they were unconfirmed. This time around, according to the bears, the bubble was solved by creating another bubble in housing.

Q: How are you positioned?
A: I'm mildly long and mostly in defensive stocks. But some of the defensive stocks I'm in I'm not totally comfortable with.

Q: Such as?
A: We've been in energy very heavily. It is still our favorite sector. We are also very heavy in materials. We have been trying to get more into health care and moving toward dividend-paying stocks. The problem with the energy stocks is that the bull market in them has gone a long way. The Fidelity Select Funds have four energy-related funds out of a total of 41. Normally the energy funds -- and this goes back 15 years -- have about 6% of overall assets. Now they have nearly 18%.
Unfortunately, the numbers don't go back into the early 'Eighties, the last time we had an oil bubble. There is still a bull market in energy and natural resources and commodities and so forth but it is probably in the late phases. That run-up in commodity prices 11 days in a row I mentioned earlier followed by a string of net down days makes me uncomfortable. But when you have this kind of momentum, making a top can take forever. Even if energy is starting to top out, it will take a while.

Q: Are you backing off your energy holdings at all?
A: Not really. I mention them, and where they are in the bull market, because we are risk managers and it is important where we are in terms of a trend.

Q: Any sector or asset class that's a great opportunity that people are overlooking?
A: No. People probably should stay with most of the stocks that are acting well, but maybe start to scale into some put options on the S&P to hedge themselves. Our indicator has also flashed a signal favoring large-cap stocks. While there are still some reasons to favor small-caps, they are fairly valued relative to large-caps and we don't want to fight the tape and the broader evidence leads us to side with large-caps.

Q: What do you see as the main problem for the market at this point?
A: Again, 3½% on Fed funds and 5% on T-notes is really all the market can stand, therefore anything above that would be a real problem for the market. On the upside, as I suggested earlier, I think the key is to feel like the Fed is finished and right now they don't sound like they are finished. We need a break in inflationary pressures so the Fed can say that's as far we are going to go.

Q: What about the dollar?
A: I agree with the bears that there is a structural problem there but as of December last year it seemed as if everybody was bearish on the dollar. It was probably about the most shorted trade we've seen. We did some sentiment work on the dollar and it showed extremely pessimism in late December and gave a buy signal. It is probably range bound, and the upside on the dollar index is resistance around 85-86 and more around 89. I would be surprised if it broke above those levels.

There is a fundamental valuation argument for the dollar as well. We found when U.S. short rates are below the average of foreign short rates, that tends to be negative for the dollar. This is common sense. Now, U.S. rates are actually three- quarters of a percent above average foreign rates. Not only that, because our economy is strong and the Fed is promising to raise rates again the difference between U.S. short rates and foreign rates is probably going to widen because Europe's rates are probably not going up.

Europe is not in a recession, but they are growing very, very slowly.
There is a contrarian bullish case here, which is wearing off now because the pessimism around the dollar is letting up a little bit, and there is also a fundamental bullish case. Short term, there's a seasonal case to be made because the dollar typically does well the first couple months of the year. I'm guessing the dollar this year is going to look a lot like the dollar last year.

Q: Does that bode well for foreign central banks sticking with the dollar?
A: Yes. The dollar has structural problems in terms of the trade deficit, which is almost an unsolvable problem.

We are depending on the kindness of strangers, as it has been said, and there has been talk of foreign central banks diversifying out of the dollar. But we haven't seen any signs of that. There are also some other factors in the bond market that are bullish and if foreign central banks did unload dollars, the bond market can handle it. I'm not overly concerned about it.

Q: What's bullish about the bond market?
A: One of the things that feels decent about the bond market and why I would be a buyer again at the 4¾%-5% range, is that domestic bond funds have 9.4% in cash. That's the highest amount of cash in bond funds in 15 years.
You can see in the commitment of traders data that large speculators, hedge funds, are short the bond market and so are the dealers that trade the bonds. This should be the smart money, but it turns out their record is not very good and they are in the largest short position in years. If the Fed keeps pushing rates up here and inflation doesn't come down and bonds get back up to 4¾%-5% zone, I would be a buyer.

Q: That's not a widespread view.
A: So many people make the assumption that rising interest rates mean lower bond prices and that bonds have to go down as a result of Fed tightenings, and it is not necessarily so. Bonds actually went from a little over 3% to almost 5% before the Fed even started tightening, so the tightening was already discounted. Therefore, when the Fed started tightening and people felt like inflation was going to stay contained, they went back into the bond market. After [Fed Chairman Alan] Greenspan declared that a conundrum, people dumped their bonds and yields backed up just below 4.6%. If the Fed raises short rates above 3½% [from 2¾%], you wouldn't want to take a risk in a longer-term note at 4½%. It would be tremendous competition. But, at this point, my guess is the Fed will stop and with these technical factors being positive for bonds they are not going to go above 5%.

Q: How does oil figure into this?
A: At $60, it would definitely be a problem.

Q: If you don't see inflation getting out of hand, do you see deflationary pressures?
A: Well, when you have a $37 trillion debt bubble outstanding and rates rising, there's a chance debt service is going to be a problem. The key for the Fed is to not let housing get out of hand. They were not able to pull that off in the stock market in 2000 but they cleaned up the mess pretty quickly. It's a tricky job and they've done a good job of it. But government and mortgage debt have exploded and I'm not sure we are in any better shape.

Q: Thanks, Ned.

What Goes Around...

During bull markets, various groups take the lead at one stage and cede it later. Speculative growth initially set the pace, while large-cap dividend payers do better later.

The market has performed in line with the election-cycle script, says Ned Davis, with speculative growth stocks pacing the first phase. Now dividend-paying and defensive stocks should lead.

	First	Second	Final	First	Second
Index	Third	Third	Third	Half	Half
DJIA	24.0%	12.9%	12.8%	43.3%	15.6%
Nasdaq/DJIA	8.7	0.7	–3.3	13.2	–3.8
Growth/Value*	1.9	1.3	0.0	0.3	–0.1
Small-Cap/Large-Cap*	8.2	3.6	2.9	9.5	6.2
Dividend Payers/Non-Payers*	–6.5	1.6	6.8	–6.6	1.3

*Monthly data. Study based on NDR-defined bull markets.

Returns and percent of volume results are median values; therefore they may not total 100%.
Growth=S&P BARRA Growth Total Return Index. Value=S&P Value Total Return Index.
Small-cap+Ibbotson Small-cap Total return Index. Large-cap=S&P 500 Total Return Index.

Dividend Payers=total return of S&P 500 stocks that paid a dividend during a calendar year.

Dividend Non-Payers=total return of S&P 500 stocks that did not pay a dividend during a calendar year.

Source: Ned Davis Research

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 550. Apr 20, 2005 5:28 PM

» Normxxx - Standard bear

Standard bear
Market observer Grant lashes Fed, speculative excess

By Jonathan Burton, MarketWatch | 20 April 2005

SAN FRANCISCO (MarketWatch) -- "Grant's Interest Rate Observer" is housed on Wall Street -- and that's as close as this iconoclastic biweekly investment publication comes to the mainstream research and opinion guiding most investors.

"Wherever you look in bond land, people are doing reckless things with paper money. It's an astonishing sight."
-- Jim Grant

The editor of this wry look at world financial markets is James Grant, who compiles deadpan reports about stock, bond and currency markets and the usefulness of central bankers and politicians. Grant is also author of "John Adams: Party of One," a newly published biography of this country's second president.

U.S. stock and bond investors are facing volatile and uncertain markets. Federal Reserve decisions on interest rates, the direction of the U.S. dollar and the potential for damage to economic and corporate growth are weighing on buyers and encouraging sellers.

In a recent interview with MarketWatch, the bearish Grant clawed the Fed for spawning a "reckless" borrowing climate. Plus, he offered a warning for investors in European bonds and support for what he'd call the world's safest asset.

Q. Is safety with paper money -- for example, holding cash -- advice you would give investors now?

The investment asset that is certainly the least popular among professional investors is cash. It's the one they can't hold for fear of losing their jobs. But if you talk to very good investors who have their own money at risk and who are discriminating about risk, almost all hold record amounts of cash. Cash is the asset of choice. It's the baseline asset. Most people regard holding cash as a sign of lack of imagination or enterprise. But cash is really a marker for the opportunities of the future. Nothing says that the opportunity set must be limited to that available today. It doesn't take much experience to realize that tomorrow is going to bring different opportunities, and perhaps much greater ones.

Q. Are you concerned that high commodity prices are pumping a bubble in shares of energy and oil companies?

Energy stocks are functioning businesses with cash flows, employees, prospects, histories. They are real businesses. There's nothing like the degree of absurdity in energy stocks as there was in the Internet bubble. The stock market is not factoring crude at $50-plus a barrel the way it values these stocks. If there is self-deception in the energy sector, it's the market not being skeptical enough about proven and probable reserves. But the energy bull market today is a much milder phenomenon than the Internet bubble was.

Q. You contend that five years after the Nasdaq peak, the bubble hasn't burst. What gives you that opinion?

My definition of 'bubble' is the view that, thanks to the all-knowing and omnipresent Fed, nothing really bad is going to happen to anyone holding positions in financial assets. This false confidence has led to a succession of bubbles after the bursting of Nasdaq. There are some extraordinary spectacles in finance. To me, the most extended and most speculative market under the sun is the debt market. The level of interest rates is still near record multigenerational lows. But more worrisome is the narrowness of the spread between the Treasury's credit and that of speculative or corporate borrowers. Wherever you look in bond land, people are doing reckless things with paper money. It's an astonishing sight.

Q. Is the Federal Reserve telegraphing its interest-rate message to investors effectively?

The Fed put markets on notice that the next few rises in rates might not be so predictable and gentle as one-quarter of one percent. The Fed is loath to shock. It recalls as if it were yesterday 1994, when it raised the funds rate not once but repeatedly, often with enough potency to cause a lot of loss and heartache on Wall Street among people who were financing debt securities with borrowed money.

So the watchword in this cycle is predictability. The Fed wants everyone to know what it's doing before it does it. But the unintended consequence of this caution is that people can 'tee off' on the Fed and its well-publicized game plan. If you use enough financial leverage, you can make a very handsome spread if you are persuaded that you know what the Fed is going to do. The apparent certainty of Fed actions encourages people to use a lot of leverage to amplify their returns. So the Fed, by being careful, paradoxically encourages others to take risk.

But [Fed Chairman] Alan Greenspan I think is a fellow who would like to be liked. He's uncomfortable being the bad cop and would rather that we all get along peaceably. So he wouldn't want to shock us with big increases in the federal funds rate. But it might come to that. Because contrary to widespread belief, the Fed, I believe, is not in charge of events. It chases after them. It likes to convey the impression that it has its hand on the wheel, but this machine of finance is moving of its own now and the Fed is not really steering it.

Q. The dollar's weakness against the euro has boosted U.S. shareholders' returns from European investments. But with the dollar firmer, what is your outlook for the euro?

The euro is almost a contradiction in terms -- a currency issued not by a nation-state but by a confederation. These countries have no finance minister; they have no power to enforce geopolitical will. And yet the euro is meant to compete with the dollar as a reserve currency. No reserve currency has not had the strength of a powerful nation state behind it. All these facts are well known; none of them mattered particularly when the euro was trading at 80-odd cents to the dollar. But at $1.30 to the euro, they begin to matter more, especially when the political institution of the euro seems to be coming unstuck.

The real risk to holders of the euro is that bond yields within the euro zone have been mispriced. Greece used to borrow at 1,700 basis points over the German rate; now it borrows for 30 years at 30 basis points over the German rate. There's been a terrific wave of optimism about the bill-paying capacity of very marginal governments on the strength of their commitment to the euro.

But the so-called stability and growth pact, which was meant to bind the euro zone in fiscal probity, this has come undone. I think the euro is in for a comeuppance in the marketplace, especially euro zone bond yields and credit spreads. I suspect the weaker countries will begin to pay substantially more than the stronger ones. Therein lies a great speculative opportunity for institutional investors.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 551. Apr 25, 2005 5:27 PM

» Normxxx - Market Intelligence Report

Market Intelligence Report

By Dr. Joe Duarte | 25 April 2005
http://www.joe-duarte.com

Cuba, China, And Venezuela: A New Axis Arises. Oil: Refinery Concerns On The Rise. Stocks Stuck In The Mud.

Stocks are stuck in the mud. The major indexes have still not resolved their issues with the 200 day moving average. Rising oil prices are back. And this week offers new economic data to move the markets. Wednesday could be a very interesting day, as oil supply data will be released.

The pre-market stock index futures were flat on 4-25. The U.S. Dollar was stable. Asian markets closed mixed. European markets were flat. U.S. Treasury bond yields were stable . The U.S. Ten Year note was trading with a yield of 4.25% in electronic trading. Crude oil was above $55. Gold was trading near $434.

The economic calendar for April 25: 10a.m. March Existing Home Sales. Previous: -0.4%. For Tuesday, April 26, 2005: 7:45a.m. ICSC-UBS Store Sales Index For April 23 Wk. Previous: +1.0%. 8:55a.m. Redbook Retail Sales Index For April 23 Wk. Previous: -3.8%. 10a.m. March New Home Sales. Previous: +9.4%. 10a.m. April Consumer Confidence. Consensus: 98.0. Previous: 102.4. 10a.m. April Richmond Fed Manufacturing Index. Previous: 0. 5p.m. ABC/Money Consumer Confidence For April 23 Wk. Previous: -16. Source: Wall Street Journal.com.

Today’s Analysis: Cuba, China, And Venezuela: A New Axis Arises.

U.S. citizens taking photographs of Venezuelan infrastructure were recently arrested, prompting Venezuelan President Hugo Chavez to claim that the United States is planning to attack his country.

According to CNN.com: “Venezuela's President Hugo Chavez said Sunday that a woman linked to the U.S. military had been arrested while photographing a military installation, and several U.S. citizens were also arrested for taking pictures of a refinery, signs, he added, that Washington may be plotting an invasion of his country.” According to Reuters, the arrest of the unnamed woman, reportedly a U.S. naval officer occurred several months ago. She was not identified by Reuters. And her whereabouts, at the time of the report, were not reported.

Chavez provided few details about the arrest, but warned, during his weekly radio show that ["If she or any other U.S. official does this kind of activity again, they will be imprisoned and face trial in Venezuela."] According to the CNN report “He also said that the other detained Americans were journalists caught while taking pictures of El Palito refinery, some 100 kilometers (62 miles) west of Caracas. They were released.”

The actions coincide with the sudden ending of military ties between Venezuela and the United States. Chavez, last week notified five U.S. officers in Venezuela, by phone, that they would be asked to leave the country. According to reports, he cited that U.S. officers were spreading negative ideas about him, to the Venezuelan military, fomenting anti-Chavez feelings in his military.

Cuban Directive Strengthened

The timing of Chavez’ announcements and moves to further separate Venezuela from the U.S. are not accidental. According to Reuters “Venezuelan President Hugo Chavez will visit Cuba this week to promote exports of everything from sardines to chocolate and forge a new bond in the alliance between his oil-rich nation and the Communist-run island.”

The deal is fairly simple. Chavez ships oil to Cuba, and Cuba offers services to Chavez. “Cuba pays for the oil with medical and educational services. More than 20,000 Cuban doctors, dentists, sports trainers and other technical experts now work in Venezuela. Cuba watchers say the shipments of crude and refined products have increased beyond the 53,000 barrels per day agreed to in 2000 and are closer to 78,000 bpd, with little evidence of cash payments for the $1 billion-plus oil bill.”

Chavez will be opening a trade fair in Havana this week in which he is launching a barter based trade zone with Cuba.

In fact, Cuba’s major export these days, aside from bizarre ideology is physicians, to places like Africa and Venezuela. There are some who believe that at least some of the doctors may be spies, and military advisors in disguise.

A Last Ditch Effort?

There is method to the madness, though. The fact is that Cuba’s economy is failing, after Russia pulled its support. So for years, Castro has been trying to find other means of support, and has found a kindred spirit in Chavez. Chavez’ oil is an easy calling card to use, in order to develop alliances with China, and to some degree even Russia.

According to Reuters “Venezuelan support, with planned Chinese investment in Cuba's nickel industry, are behind Castro's new confidence in a Cuban economic recovery and the survival of socialism.” But just six months ago, Castro had to resort to desperate measures in order to avert a political crisis. “In November, Cuba eliminated circulation of the U.S. dollar as legal tender and slapped a 10-percent exchange surcharge on the currency. Cubans swapped their dollar savings, producing an $800 million windfall for depleted state coffers.”

More recently, China gave Cuba $7.5 million that is reportedly to be used to improve Cuba’s weather prediction infrastructure.

Conclusion

A new axis is rising. The increasingly tight relationship between Cuba, China, and Venezuela should be of concern to Washington as all three countries have one thing in common, disdain for the United States.

Venezuela and Cuba are ideologically motivated, with Fidel Castro and Hugo Chavez envisioning themselves as the champions of Socialism/Communism. China is more economically motivated, as it attempts to replace, or at least increasingly oppose the economic might of the U.S. around the world.

This is a complex triumvirate. And the relationship is like most triangles, based on convenience and opportunity.

Venezuela is an important oil supplier to the U.S. Cuba is geographically important, due to its proximity to the U.S.

And China, needs access to oil, as well as needing some kind of leverage against the U.S. such as spying facilities, and perhaps even the presence of a military base, if nothing else for psychological effect. But, in case you haven’t noticed, cameras, and other spying type hardware could easily be fitted on weather balloons. And satellite dishes could be used for multiple purposes.

The persistently high cost of oil, has brought the three together, with Venezuela becoming the hinge on the relationship. China and Venezuela have inked an oil supply agreement, which will take several years to implement, and which as we have reported in this space will require significant amounts of adjustment, including rerouting of oil shipments to China via the Panama canal. Chinese refineries will also have to retool in order to process the thick, sulfur rich, Venezuelan crude.

What does Cuba bring to the table? People, some science, optimal geography, and a certain degree of wiliness, topped by Castro’s endless supply of hatred for the U.S.

How does it end? Much depends on time, and the price of oil. If the crash in the Chinese economy, that we have discussed here at length comes to pass, sooner, rather than later, many of this trio’s plans are likely to receive significant setbacks.

But, the longer oil holds up, the more time that the new axis will have to further its agenda.

Oil Market Summary And Outlook: Refinery Fears Hit New Highs

The refinery bottleneck is at the top of the oil market’s agenda. According to Reuters, the overnight rise above $55 in crude futures was due to “refinery glitches in the United States,” which “kept the market edgy about a possible squeeze on gasoline supplies this summer.” The wire service added: “Traders have grown increasingly anxious about U.S. gasoline supplies ahead of the summer driving season. A spate of refinery problems has raised fears that plants -- already operating near capacity -- may struggle to sate rising demand.”

Much of the concern has to do with “a gasoline-making unit at a ConocoPhillips' refinery in Louisiana,” which reportedly “would be down for another week after failing to restart following maintenance, compounding other refinery problems in Texas and Kansas.”

June crude oil futures have survived a test of the $50 support area, and may be entering a trading range with $58 or so as the top end. A break above $58.28 would set prices to new uncharted waters.

Oil and oil service stocks are mixed, with the major indexes not giving a complete picture of the prospects for some gains in individual stocks deep inside the sectors. We have several new picks in our energy sector.

In our opinion, for now it’s more about individual picks than buying entire sectors. There are some energy stocks that are going to deviate from the norm, on both the short and long side, offering opportunities for active traders. See our energy section for details on our updated list.

As we’ve been saying, this remains a long term bull market in oil. At this point, the recent decline in oil remains in the correction class, given the scope of the bull market that we’ve been in. Until the 200 day moving averages on futures contracts get taken out convincingly, we remain in a long term up trend in oil, and in our opinion, we are not very likely to see oil below $40 per barrel for some time, unless something very dramatic happens, such as a collapse of the Chinese economy, which as we’ve stated numerous times is a plausible scenario.

Investors should remain wary of the oil market, and should use extreme caution in any exposure there. Aggressive traders should be looking to go both short and long at this point depending on the individual circumstances of each position.

Technical Summary: Still Trying To Form A Bottom

The good news is that there was no new low in the major indexes during Friday’s selling. The bad news is that no real progress has been made, despite persistent signs of pessimism in the market [our wall of worry].

The S & P 500 ended last week below its 200 day moving average, along with the Nasdaq, the Russell 200 and the Nasdaq 100 indexes.

So the market is still, technically, in a long term down trend, albeit within easy reach of reversing it.

That means that traders and investors are still in no man’s land, a very uncomfortable place to be.

All we can do is look at the market every day and make the best decisions about all our recommendations, individually, on a daily basis. If short positions go lower, we’ll keep the position open. If there are opportunities to buy stocks, we’ll buy them. And if things get choppy, we’ll try to stay on the sidelines.

This is a difficult time since markets like this one are difficult to time, and to make money in. A patient and sector oriented approach is well suited to this market.

What To Do Now

This is still a time to be patient, but it is also a time to start buying stocks that are showing strength. Aggressive traders should keep open shorts that continue to fall. But new money for now should be geared to the long side.

Now, more than ever, strict adherence to buy and sell rules is important. Buying on strength, and sticking to using sell stops is still the key to success, for those with a short to intermediate term time horizon, especially in a narrowly traded market.

Wall Of Worry Still Present

No major changes appeared in the options market on Friday. There was a slight tick up in put option buying, which suggests that there is still some respect for the current market. Overall this is encouraging.

A tradable bottom looks to have been put in place in the last few days, although new lows are still possible.

Market bottoms usually have two stages, the momentum bottom, which may have come last Friday, and a panic bottom, which may have come on Wednesday of last week, although that is still not certain.

Momentum bottoms usually have large volume, while panic bottoms have high volume, but usually less than the momentum bottom. On a volume basis, these two days qualify.

We liked what we saw in the options market on 4-19. The market rallied nicely and the Put/Call ratios went up. That means that hedgers are taking out insurance, since they don’t expect the rally to last. And that’s exactly what you want to see, since it is often a clue to a rally that can last.

Normally, rising Put/Call ratios are a sign that a market bottom is near. But over the last few weeks, rising Put/Call ratios had been a signal that some smart money types knew something was coming, and bought portfolio insurance. Those individuals or institutions are looking fairly good right now, as their options are in profitable territory.

The CBOE Put/Call ratio checked in at 0.98 on 4-22, after a nifty 1.42 on 4-15, which might have marked the momentum bottom. This indicator has delivered several readings above 1.0 lately, with no rallies having materialized. A consistent string of low readings can be a sign of excessive optimism and often signals a top in the markets. Readings below 0.5 are of concern, but not as serious as readings below 0.40. Readings above 1.0 are bullish. The numbers cited here are meant to be evaluated on a closing basis.

The CBOE P/C ratio for indexes on 4-22 was 1.90 after the prior day’s 1.87, and 4–19’s 2.09, and 4-15’s 2.17. Readings below 0.9 suggest too much bullish sentiment, just as readings above 2 are usually required to mark major bottoms.

The VIX and VXN had readings of 15.38 and 19.04 on 4-22. When these indexes begin to rise, it is a sign of concern as rising volatility indexes suggest that an acceleration of the prevalent trend is on its way. A fall near or below 20 on VIX and 30-40 on VXN is considered negative, a fact that is usually confirmed when the volatility indexes begin to rise. Readings above 40 and 50, respectively, are often signs that a bottom may be close to developing.

Newsletter writers are increasingly bearish. The 13 week moving average fell below 70%.. Major rallies have traditionally been launched usually when this indicator falls below 40%. Readings above 70% are usually very bearish.

The futures traders polled by Market Vane registered a 64% bullish consensus, not much changed from recent readings. This survey last delivered a sell signal on 2-20, with a reading of 70% bulls on stocks, which preceded a significant market decline.

Our Big Trend Model bounced to 25. This is as oversold a reading as we’ve ever seen. The model last fell to 25 on 1-28, correctly predicting a market bounce. Readings near or below 40% often precede market bounces, but may initially be signs of caution when markets have had a rally. Readings above 80% are usually bearish. The Big Trend Model is composed of technical and monetary indicators and updates automatically on a weekly basis.

Our MASI indicator is back to neutral. MAGI gave a buy signal. When these two indicators agree, the market usually follows in the direction of the signals. MAGI is based on the weekly data provided by Investor’s Intelligence’s poll of newsletter writers, a group that has been bullish for several years, and stayed bullish, and wrong throughout the bear market. When both indicators agree, there is a high degree of correlation with a significant market move. When these indicators disagree, it is often a sign that the market is about to go nowhere but that volatility is on the verge of increasing. MASI buy signals when MAGI is bearish are rarely worth acting on. MAGI is an intermediate term indicator with an excellent predictive record. The best market bottoms occur when both of these indicators are both on buy signals, a telling sign of intense fear on the part of investors. MASI and MAGI are sentiment indicators that are updated on a weekly basis.

The NYSE insiders were bullish on stocks on 4-8. Short selling by NYSE specialists is still low by historical standards. This indicator is very positive when short selling by the specialists is low as the same time that they are net buyers of stock, which is the current scenario. This is a set of very smart investors, and when they turn positive or negative, it is just a matter of time before the market follows. Spec data is released to the public with a two week lag, so is not useful as a market timing tool, but is excellent background and confirmatory information.

Market Moves

Restaurant Leaders Looking Top Heavy

Starbucks (NNM: SBUX) and Brinker International (NYSE: EAT) are no longer the hot dishes they were a few months ago.

The action raises questions about the economy.

Is Starbucks a leading economic indicator? It might be if you think of it this way. People who are doing well don't mind paying up for premium coffee. After all, they go to work, they are looking forward to bonuses. And the economy looks bright. But slowing sales momentum at the coffee retailer suggest that the good times are no longer as good as they were, even during the dot.com bust, where the stock managed to hold up.

Brinker is also economically sensitive. Its flagship brand, Chili's, is a family favorite, as well as a cross demographic hangout. But rising gasoline prices might be keeping customers at home.

Conclusion

When two major food destinations seem to be struggling, it could be a sign that the economic landscape is changing, and that consumers are tightening their belt.

The Amex Biotech Index (BTK) again closed above 500. This is positive. The 500 - 510 area is now support. Visit our health and biotech area for more details as new stocks have been added our buy list.

The Amex Pharmaceuticals Index (DRG) also continued to act reasonably well. The index has now closed above 330, a key chart point. This is a positive.

The Philadelphia Semiconductor Index (SOX) is still testing the support at 380. 405 is key resistance. For trading info on technology stocks visit our Stock of the Day and Technology timing sections.

Small stocks held at key support.

To subscribed to Dr Duarte's market Intelligence reports, which are emailed daily "before the open" to subscribers, please visit our website at http://www.joe-duarte.com

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

http://www.forbes.com/investmentnewslett...

Top 552. Apr 29, 2005 6:59 PM

» SteveT - Buybacks Vs. Dividends: Who's Better?

Buybacks Vs. Dividends: Who's Better?
John Dobosz, 04.29.05, 6:00 PM ET

A rebound in profits over the past two years has swelled cash levels on corporate balance sheets, and boards of directors seem eager to return some of that bounty to shareholders, both through stock buybacks and cash dividends.

According to numbers from Standard & Poor's, stock buybacks among S&P 500 companies in 2004 grew 51% to $197 billion, which is $16 billion more than the $181 billion S&P 500 companies spent on cash dividends last year. Dividends are hardly slumping, though. Through April 26, 2005, 135 companies in the index raised dividend rates an average of 21.1%. There have only been four decreases or suspensions of dividends. Some high profile companies, like IBM (nyse: IBM - news - people ) and Merrill Lynch (nyse: MER - news - people ) to name two, have both jacked up their dividend and announced multi-billion dollar buybacks.

So which method of returning cash to shareholders is superior: paying dividends or buying back stock? The question may seem a bit like starting a debate on the competing merits of comic book and cartoon superheroes: Superman can fly, but Batman has a really cool car, although both fight evil. Nonetheless, we put the question to some of the top-performing newsletters that keep track of buybacks and dividends and use them as criteria in selecting investments.

"I like dividends and buybacks, but if I had to choose one, I would opt for a buyback," says John Buckingham of the top-rated Prudent Speculator newsletter. "When a company buys back shares, my ownership percentage rises ever so slightly without any tax consequences, even though dividends are now taxed at the 15% rate, assuming they qualify. A share repurchase is tax free."

One stock Buckingham is buying now that pays a generous 3.8% dividend and has announced a big share buyback is Citigroup (nyse: C - news - people ). Two other companies buying back shares that the value-oriented Buckingham is buying: Keynote Systems (nasdaq: KEYN - news - people ) and Avaya (nyse: AV - news - people ).

David Fried, editor of the Buyback Letter and Buyback Letter Premium Edition, predictably, is a big fan of buybacks, which he says offer companies more flexibility than dividends.

"Once a dividend is put in place, it is a big negative if the dividend is reversed, decreased or ceased in the future," says Fried. "On the other hand, if a company slows down or stops repurchasing shares, it is hardly noted. The buyback company can simply shift its spending, while the dividend company has to 'take something away' from its shareholders." Furthermore, he adds, the company buying back its shares can wait until an advantageous time to repurchase."

In choosing his investments, Fried insists that a company actually reduce the number of outstanding shares following a buyback announcement. Reducing outstanding shares makes each dollar of earnings more valuable on a per share basis. Many times, however, companies fail to reduce share count due to new issuance of stock to redeem employee stock options.

Three buyback companies Fried is currently buying include Home Depot (nyse: HD - news - people ), Dell (nasdaq: DELL - news - people ) and Merck (nyse: MRK - news - people ).

Even though buybacks may be more tax efficient than dividends (even after the reduction of the tax rate to 15%), Kelley Wright and Joseph McKittrick of Investment Quality Trends, urge investors not to discount the power of dividends to drive shareholder returns. Depending on which study you look at, anywhere from 45% to more than 70% of the total return from stocks has come from dividend yields and real dividend growth. The third component of returns has been the expansion of multiples of earnings investors are willing to pay to own a stock--multiples which even today are substantially above historical norms.

"Dividends are real, and you can't fake cash money," says Wright, who also notes that dividends continue to be valuable indicators of whether a stock or index is undervalued or overvalued. For example, the Dow Jones Industrial Average, which currently yields 2.4%, is in the middle of being undervalued at a 3% yield and overvalued at a 1.5% yield.

Which stocks are undervalued now? Wright points to Washington Mutual (nyse: WM - news - people ) with a 4.58% yield, and UST (nyse: UST - news - people ), the smokeless tobacco and cheap-wine maker that now yields 4.9%, after "getting taken out and shot" on Tuesday when it revised full-year earnings per share downward by 3%.

-- posted by SteveT

Top 553. May 11, 2005 9:34 PM

» Normxxx - THE YAMAMOTO FORECAST

THE YAMAMOTO FORECAST

By Irwin T. Yamamoto | 11 May 2005

THE YAMAMOTO FORECAST
P.O. Box 573, Kahului, Hawaii
808-877-2690

STOCK INDICES: FUNDAMENTALS-- The doubts on earnings, interest rates, inflation and the economy have lowered stock prices to more reasonable levels. A bit more. No, they are not cheap by historical standards. Yet the quick market downturn makes equities a better bargain than they were a few short weeks ago. Hence, the reduced prices can attract potential buyers when and if the business backdrop improves. I believe the aforementioned will eventually be realized. In other words, the economic picture may brighten. Well, at least the perception about it will. Let's address the issues on a near-term basis.

TECHNICALS-- The making of an oversold condition opens the door for a technical bounce. I've spotted trading volume multiply on the downside. A sign of the weaker players tossing in the towel. Additional periods of selling might create a "bottom."

Meaningful resistance levels are being removed. The opportunity for a tradable rally exists. A chance for near-term profits is forming. Then again, keep in mind these possibilities must be seen strictly as a trade, and not as investments for the long haul.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 554. May 13, 2005 1:35 PM

» Normxxx - Financial Markets Forecast

Financial Markets Forecast & Analysis
http://www.safehaven.com/article-3040.htm

By Robert McHugh | 8 May 2005

The Federal Reserve is flooding the economy with liquidity. They do this when risks of market declines are at their highest. It looks like they've had enough of this equity market slide as they boosted M-3 another 19.1 billion this past week (a 10.36% annualized rate of growth). For the past two weeks, they have increased M-3 a whopping $73.2 billion (that's a 19.97 percent annualized growth rate). Over the past six weeks, M-3 is up $105.2 billion (a 9.59% rate of growth). Now does that sound like a Fed the least bit worried about inflation? The left hand grabs the eye with staged announcements of another inflation-fighting quarter point measured interest rate increase, even creates a little controversy with language changes to really steal our attention, while the right hand pumps and pumps and pumps like the black hole of deflation is knocking at the door. The Maestro is quite the magician. Good for Gold, bad for the Dollar.

M-3 can grow from two sources, the money multiplier (velocity of money from economic growth) and from the Fed literally printing the stuff. But regardless of how it grows, the Fed has absolute power over the quantity of money that sits in the economy at any given time. If there is too much, they pull it out by selling their inventory of U.S. Treasuries to investment banking houses in exchange for money (deposits at banks). If there is too little, they buy securities in exchange for money they print. They also can slow the velocity of money growth by changing margin and reserve requirements. So when we mention the Fed increased M-3, we are saying they allowed it or directly caused it, but the end result is an acceptable targeted level by the Fed, one way or the other.

The trade-weighted US Dollar is breaking south from an Ending Diagonal Triangle pattern (a.k.a. Rising Bearish Wedge) - a typical termination pattern - that formed Micro degree wave 5 of Minuette c of Minor 4 up. The Dollar should be on its way to a retest of its recent lows, a test of 80.00.

We await a breakout in Gold either to the top boundary of the Rising Bearish Wedge, or to below the lower boundary of both the Rising Bearish Wedge and the long-term rising trend-channel. Rising Bearish Wedges tend to correct to the beginning of the pattern, which in this case is around 375ish. However, should the Fed continue to pump money into the system - which they are doing - then the correction in Gold could be quite shallow, take on the form of an Elliott Wave "flat" pattern, possibly the shape of a triangle with lots of overlapping waves - or delayed. Short-term, it is difficult to say whether Gold has topped or not. March 11th, 2005 may have been the top.

But there is room for Gold to rise to - and perhaps slightly above - the upper boundary of the Rising Bearish Wedge, to 460-465ish. Inside the Rising Bearish Wedge, Gold has recently formed a continuation Symmetrical Triangle Pattern, which increases the odds Gold will peak toward 465 before falling.

A Symmetrical Triangle has formed in Silver in the IT, that is a continuation pattern, portending higher prices ahead.

Oil. After selling off 12 percent from its high of 58.10 March 17th, to 51.01 on April 18th, prices rebounded to 55.90 last Friday for Minor degree waves 1 down and 2 up of the "A" portion of an A-B-C correction. Prices topped March 17th by forming an Ending Diagonal Triangle (a.k.a. Rising Bearish Wedge) pattern. The Ending Diagonal Triangle pattern suggests prices will decline to the point where the Wedge started, in this case to the low 40s.

The HUI is tracing out a classic Gartley pattern, with a downside target around the 150 area. However, ironically, this pattern is a Bullish pattern. What that means is, once prices correct to the 150 area, it is off to the races as a very nice Bull run begins again.

There is a confirmed Bearish Head & Shoulders pattern for the HUI, increasing the odds that more significant downside is coming, with a minimum downside target nearly the same as the Gartley pattern suggests, driving prices to as low as 152ish.

U.S. Bonds are retracing the impulsive decline since topping at 117.0 on February 9th and declining to 109.0 on March 23rd. Prices hit the .786 retrace intraday Friday, April 29th, then backed off, perhaps the top of Minuette ii. We can count an "a" up and "b" down, and a completed wave "c" up since March 23rd. This rally should be over. Much more rally from here negates the Bearish Head & Shoulders and forces us back to the drawing board with our Elliott Wave count. Repeat, Bonds must decline from here or this economy is in very serious trouble. More upside from here means Bonds are forecasting deflation, ergo, recession.

If our EW count and the H&S pattern are correct, as shown above, then Bonds are poised to plummet to 100. Over the past several weeks, we've been showing a long-term chart of Bonds that identifies a massive Bearish Head & Shoulders top. Concerning is that should prices break decisively below 100, that would confirm the pattern, and increase the probability that the pattern's minimum downside target of 79 would be reached.

The yield curve is flattening, often a precursor to recession. If the Fed goes nuts pumping liquidity into the system to stave off a recession, that will push Bond prices lower - unless the Fed pumps liquidity by buying the long end of the yield curve with newly created Dollars. What happens to Bonds over the next several weeks should be fascinating, as they will likely tell us where the economy's fate lies.

Bottom Line: Equities should put in a top this week, then a sharp decline should follow, in stair-step fashion. Caution is warranted.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

<img align="left" src="http://images.amazon.com/images/P/140008198X.01._PIdp-schmooS,TopRight,7,-26_SCMZZZZZZZ_.jpg" border="0"> The Future for Investors : Why the Tried and the True Triumph Over the Bold and the New
by Jeremy J. Siegel

Top 555. May 26, 2005 2:27 PM

» Normxxx - The Dow Theory

The Dow Theory in a Globalized World
http://www.marketthoughts.com/market_com...

By Henry K. To, CFA | 26 May 2005

Dear Subscribers and Readers,

Ever since the widespread adoption of the internet and the World Wide Web in the late 1990s, there has been a huge proliferation of the use of buzz words such as “convergence,” “flattening,” and of course, “globalization.” Given the low cost of starting up a stock market investment newsletter and the sheer potential of an audience nowadays, it is no surprise that we have also seen a huge explosion in the number of stock market advisory websites. And then there are blogs. The last time I saw, estimates are that there are more than 40,000 blogs being created each day. The amount of information now available at your finger tips–– even compared to ten years ago, is mind-boggling.

So what is an investor supposed to do in this day and age? How can one continue to make profitable investment decisions without succumbing to the barrage of information available on the internet, cable, satellite TV, and on one's cell phone? How can one rationally make decisions in an increasingly herd-like and emotional investing world, especially in an environment with over 10,000 hedge funds prying their eyes on every potential money-making opportunity? Not long ago, a hedge fund manager lamented to me that domestically, we are increasingly moving towards a world where “alpha” (i.e. excess returns over the market's return) is getting increasingly difficult to find–– and that investing other places (such as Asia) may be the way to go.

I will get back to investing in overseas markets in a moment, but regular readers of our commentaries should know that we have often discussed the economic/investment consequences of globalization in our commentaries and in our discussion forum. I have also written three long commentaries on China in late January and early February–– which you can find in our archives section on MarketThoughts.com. In the spirit of things, we have also set up an entirely new board on our discussion forum entitled: “The Central & Eastern Europe Board”–– which is definitely one of the most dynamic regions in the world besides China and India (in fact, with the Euro's appreciate against the dollar in recent years, SE Europe actually had the strongest growth in income in the world since 2000).

In a world where access to any kind of information is near instantaneous, the playing field may be leveled, but the textbook version of weak-form market efficiency may now be more fact than fiction at any point in our lives. That is, ironically, while the internet has empowered the individual in many aspects of one's life, this “empowerment” has also created a world where “values” and “excess returns” may be getting much more difficult to find–– at least on a day-to-day basis (this is a very important point which I will elaborate later in this commentary).

Okay, bottom-line Henry, what am I supposed to do?

Well, for one, you can go the route of this hedge fund manager. I have previously emphasized that investing in China may well be the golden opportunity for some of our readers–– precisely because timely and accurate information is still very difficult to find when it comes to investing in Chinese companies or securities–– even those of ADRs being traded on the NYSE or the NASDAQ. I have also said that to the extent that I can (along with my contacts in both Hong Kong and China), I will help out our readers who are interested in the “China Story” going forward. (For now, my partner and I are still working on this newsletter on a part-time basis–– hopefully, we will be able to transition into this in a full-time endeavor once we get the support of our subscribers later this year!)

But then, Professor Jeremy Siegel, in his latest work:

suggests (after tons of historical research) that historically, not only have the latest and most innovative companies underperformed the “tried and the true” over the long run when it comes to rewarding their investors, but that this concept has also applied to individual countries as well. That is, if one has invested in countries with the best economic growth rates over the long-run, then one's portfolio would have inevitably underperformed–– relative to, say, just investing one's money in the major stock market indices of the United States. I believe Professor Siegel's two major reasons are:

Investors have invariably paid too high a price for growth stocks or for the securities of a country that has been exhibiting higher-than-average growth. He has labeled this the “growth trap.”

Most upstart and innovative (e.g. “one-product companies” such as Xerox, Digital Equipment, etc.) companies invariably flame out. Investing in the “Asian Tigers” during the early to mid 1990s right before the Asian crisis is a prime country example.

To which my response is: For over a thousand years, China has had the fastest and most innovative economy in the world–– which abruptly ended sometime during the reign of the Qian Long Emperor in the 1700s. The Chinese are a very proud people and have historically had a very capitalist economy. With the adoption of Western management ideas and Western laws, China should emerge as one of the most powerful and sustainable economies in the 21st century. Both China and India today are the real thing. Consider these two very telling quotes from Thomas Friedman in his latest work:

<img align="left" src="http://images.amazon.com/images/P/0374292884.01._PIdp-schmooS,TopRight,7,-26_SCMZZZZZZZ_.jpg" border="0"> The World Is Flat: A Brief History of the Twenty-first Century
by Thomas L. Friedman

“Microsoft has three research centers in the world: in Cambridge, England; in Redmond, Washington, its headquarters; and in Beijing. Bill Gates told me that within just a couple of years of its opening in 1998, Microsoft Research Asia, as the center in Beijing is known, had become the most productive research arm in the Microsoft system “in terms of the quality of the ideas that they are turning out. It is mind-blowing.”” and “In China today, Bill Gates is Britney Spears. In America today, Britney Spears is Britney Spears–– and that is our problem.” The Chinese are catching up, and catching up quickly.

Nonetheless, given that China today is still a very cyclical economy, there will be times when Chinese stocks will be severely overvalued and severely undervalued. On an individual stocks basis, many more companies will go out of business in China (as a proportion of the total number of companies in China) than here in the U.S. The duty of MarketThoughts.com when it comes to China is thus two-fold: to help our subscribers successfully navigate the cyclical nature of the Chinese market and to help pick out the companies that will be successful in the long run–– or, at the very least, to avoid the losers. Given our study of emerging markets and of world economic history and of social/technology trends, I believe we are primed for this challenge (heck, havings contacts in Hong Kong and in China don't hurt either). In fact, as I will show you in our following paragraphs, the Dow Theory is all the more important given that we are now getting increasingly globalized and that information is continuing to be more readily available.

But what if I don't want to invest in China? What if I want to invest in U.S. equities only?

As I mentioned previously, the United States stock market today is becoming a market where “market efficiency” is getting increasingly more prevalent. Excess returns are becoming more difficult to capture over the long-run, especially with over 10,000 hedge funds on the sidelines waiting to pounce on any money-marketing opportunity.

[Normxxx Here: Also, in today's world, it is not a bad idea to diversify geographically. ]

Readers may recall what I wrote in my “On Jesse Livermore And His Legacy” article–– on how Jesse Livermore was able to succeed mainly because of his ability to continuously evolve his trading and investing style in tune with the markets. What ultimately undid Livermore in the early 1930s was his failure to evolve with the anti-free-markets economic policies of Franklin Roosevelt and his group of “brain-trust” academics. Recall what I said in Lesson Three and our conclusion from that commentary: The idea of evolution in the stock market continues to hold true today. In fact, with the advent of globalization and information technology, it is now even more imperative to evolve since trends can change much more quickly. Information is now instantaneous. Investors will need to be more nimble.

Whereas Philip Fisher emphasized that timing was not too essential in the purchase of stocks in 1958, this has all changed today. Witness the meteoric rise and fall of Taser–– all in a short time span of 12 months! Also witness the huge amount of cash that has been sitting on the balance sheet of Warren Buffett's Berkshire Hathaway over the last 24 months. Yes, the company has grown bigger, but as a percentage of total net worth, the amount of cash that Warren Buffett is currently holding is unprecedented. Ten years ago, Buffett would have been able to find opportunities to put this cash to work. Buffett had always been a great timer in the stock market (he had always had the great ability to evolve), and I believe he will be putting all his cash to work once he finds the best time to buy equities, bonds or whole companies.

In a weird way, Livermore's trading/timing strategies may have revived. The point is: Today, the timing of the stock market and individual stocks is all the more essential. And MarketThoughts.com is here to help. While the analyses of individual stocks and industries continues to be important today (and sites such as the Motley Fool does a good job of it), we also believe that the ability to time the stock market on at least the intermediate-term basis (and the ability to adapt to a different style of trading and to recognize which asset class to buy) is going to become more essential down the road. Through our twice-a-week commentaries and our DJIA Timing System, we will seek to complement our analyses of businesses, individual stocks and industries, with our proprietary technical indicators and our timing skills in the stock market.

This is no easy feat, but wait; there is one Theory that has managed to withstand the test of time through over a hundred years of usage in timing the stock market. This is the Dow Theory. The Dow Theory has withstood the test of time mainly because of the fact that it is a Theory based on a series of essays and editorials written by Charles Dow, the founder of the Wall Street Journal at the turn of the 20th century. It is not a “system” nor a set of formulas–– it is strictly a theory based on valuations and the idea of a [distinguishable] primary trend–– with the rest open to interpretation by the students of the Dow Theory. When push comes to shove, students of the Dow Theory are as much contrarians as they are trend-followers.

Consider the following quote from one of Charles Dow's original editorials: “The first thing for any operator to consider is the value of the stock in which he proposes to trade. The second is to determine the direction of the main movement of prices.” In today's environment–– in order to buy values–– one will need to be a contrarian–– whether it is a play in the overall stock market or more likely, in a particular industry or particular individual stock.

For example, I have previously quoted Merck (MRK) as one of the better long-term plays currently out there, and I still stand by my position. Does anyone recall the liability problems that Phillip Morris (now Altria Group) supposedly had slightly over five years ago and how they were going to bankrupt the company? Well, the company survived and continued to reward its shareholders, and today, the company still has one of the highest dividend payout ratio out of the 30 Dow Jones Industrial Average companies despite rising nearly 250% from its low in early 2000. Using a similar line of thinking, I believe Merck is now undervalued–– it is a great company and as long as it survives (which I definitely think it will), it will continue to prosper going forward.

As for whether the Dow Jones Industrial Average and the Dow Jones Transportation Average are good barometers of the U.S. economy, I have argued many times before that they are still very good barometers, especially given we are now in a globalized world since so many of these firms in these two stock market averages have global operations. Ladies and gentlemen, the usefulness of these two popular Dow Indices have been questioned many times before in the past 100 years, and they are still being questioned as I am typing this. For readers who are interested, you can read my latest argument for the Dow Theory in our discussion forum, as well as share your thoughts on the Theory on our Dow Theory Board.

I will continue to discuss the usefulness of the Dow Theory in our continually globalized world as we go forward in our investing journey–– and to also take it to the next level and evolve it as I continue the quest to take and transition the Dow Theory to the 21st century. Past Dow Theorists like William Hamilton, Robert Rhea, and E. George Schaefer have successfully evolved the Dow Theory to achieve many profitable timing and investing opportunities, and I believe this will be essential as the world is continuing to change at an ever-increasing pace. The advent of globalization and the “flattening” (as described by Thomas Friedman) of our world will level the playing field as well as empower the individual.

What this means is that successful investing or timing does not merely involve clicking on the IBD website and seeing what is on the Top 100 list anymore–– perhaps that used to be the case when IBD was not well-known or when one only had access to paper copies and checking stock quotes or constructing charts was a burden. Today, one needs to be much harder-working than that, and also to be a contrarian. In a way, the proliferation of the internet has made investing successfully much harder than it used to (the arbitrage plays that Warren Buffett did even in the 1980s do not work anymore), but armed with the Dow Theory and over a hundred years of history of both data and how the Dow Theory has evolved over time, I believe we will be able to help our subscribers immensely going forward in the 21st century. Make no mistake: I intend this to be the home of the Dow Theory in the 21st century.

But wait, there is still more. As an aside, I believe the foundation for the collapse of the Manchu Empire can probably be a great business case study. Lesson: Don't let this happen to your country! To those who are interested, I will quote from that very same article on the Qian Long Emperor: “In his later years, Qian Long was rather disillusioned and sedated with power and glory. With He Shen as the highest ranked minister and most favoured by Qian Long at the time, the day to day governance of the country was left in the hands of He Shen whilst Qian Long himself indulged on everyday luxuries and his favourite pastime of hunting. It is widely said that He Shen laid the foundation for further collapse and corruption of the Qing government and eventually came to a point where it was impossible to reverse the negative impact already done to all levels of Qing Government at the time.

Worse still, the proposed cultural exchange between the British Empire at the time and the Qing Empire collapsed when He Shen further encouraged Qian Long to maintain the belief that the Qing Empire was the centre of the world and need not pay much attention to the British proposal for trade and cultural exchange. The British trade ambassador at the time was humiliated when granted an audience with the Qian Long Emperor only to find just an Imperial Edict placed on the Dragon Throne. This announced to him that the Qing Empire had no need for any goods and services that the British could provide and that the British should recognize that the Qing Empire was far greater.” Within days of Qian Long's death, He Shen was ordered to commit suicide by Qian Long's successor, the Jiaqing Emperor. Too little, too late.

Signing off,

Henry K. To, CFA

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

http://www.joe-duarte.com

Top 556. May 31, 2005 2:29 PM

» Normxxx - Market Intelligence Report

Market Intelligence Report

By Dr. Joe Duarte | 31 May 2005

Europe: French No Vote A Prelude For More Trouble. Oil: Still Above $50. Stocks: Can U.S. Stocks Rally In Sleepy Summer?

Today’s Analysis: Europe: In Trouble And Getting Worse

The rejection of the European constitution by 55% of French voters has brought a difficult situation in France to a much wider and highly visible international stage. And expectations are for an even worse fate in Dutch voting on the proposal on Wednesday. According to Reuters “The Netherlands also looks set to vote down the constitution on Wednesday, with polls showing the "no" vote running at 60 percent on the heels of a French vote where the "no" camp garnered 55 percent.”

Europe is widely viewed around the world as being in a political crisis, and of being on the verge of a major economic malaise. Unemployment is pegged at 8.9% in the 12 nation block that uses the Euro as its common currency. Bloomberg reported Citing that “the slowdown in Europe and rising energy costs, the OECD joined European leaders, including Italian Prime Minister Silvio Berlusconi, in calling for the European Central Bank to cut interest rates.”

U.K. Prime Minister Tony Blair, a political foe of French President Chirac wants to take a “time out,” and called for a period of “reflection.“ The New York Times quoted Blair‘s reaction to the vote: "Underneath all this there is a more profound question, which is about the future of Europe and, in particular, the future of the European economy and how we deal with the modern questions of globalization and technological change."

Other European leaders expressed a willingness to work out the problems over the next several years. Still, The New York Times added: “Romano Prodi, the former president of the European Commission, (who) had predicted that a French no would mean ["the end of Europe."],“ on Monday ‘called the outcome ["a disaster,"] but insisted that the union would continue to function under current rules and that things could be worse.”

The Euro plunged in overnight currency market trading, with the repercussions spreading far and wide. For the U.S. a stronger dollar will continue to finance the massive twin deficits. For China, it could bring another round of tightening on a noose that is adding on new knots on a daily basis as both the U.S. and Europe continue to put pressure on Beijing to bring its trade policies to a more even footing. And for Europe, the uncertainty level is now off the scale.

According to VOA.com, in a summary echoing the mainstream consensus assessment of the situation, “The rejection by French voters of the European Constitution Sunday has plunged France into a political crisis. The no vote has hurt both the ruling conservative party of French President Jacques Chirac and the opposition Socialists.”

Many are saying that the “non” vote, is as much a reflection of President Jacques Chirac’s political fortunes, as it is an expression of France’s lack of interest in participating in economic globalization.

But much of the rejection may have to do with economic conditions in France, as much as the negative expectations that a more intertwined fate with the rest of Europe could make things worse. According to Bloomberg, on May 31, “Consumer confidence in France, Europe's third-biggest economy, plunged in May to its lowest on record and unemployment in April held at its lowest since 1999. An index based on a survey of 2,000 people fell to minus 29, the lowest level since a new survey was introduced in November 2003, from minus 24 in April, Paris-based statistics office Insee said today. The jobless rate was unchanged at 10.2 percent, the Labor Ministry reported.”

Bloomberg added: “An unemployment rate of 8.9 percent in the dozen nations sharing the Euro has caused political damage elsewhere. In Germany, Chancellor Gerhard Schroeder's party lost a May 22 vote in the most populous state in the country amid a stagnating economy and rising joblessness. The number of jobseekers in Germany stayed at 4.87 million, adjusted for seasonal swings, the Nuremberg-based Federal Labor Agency said today. The jobless rate held at 11.8 percent, close to the postwar record of 12 percent recorded in March.”

Conclusion

On April 14, in this space we wrote: "French President Jacques Chirac may be in the midst of a fight for his political life. The wily and dapper Monsieur Chirac, according to the Financial Times is having to resort to a televised meeting with 80 young voters in order to make a case for a yes vote on the EU constitution. Chirac will, on Thursday night, publicly throw his weight behind the campaign to secure a Yes vote on the European Union constitution amid fears of an EU crisis within weeks if voters in France or the Netherlands reject the treaty in national referendums.”

We added the following: “The European Union, in our opinion, may have come as far as it’s going to come for the foreseeable future. The advent of the Euro as a common currency may be the major accomplishment of the arrangement. There are too many old issues that simply have not been resolved that are still festering under the surface. A perfect example of Europe’s future is the fact that Germany is making deals with Russia, France is making deals with China, and the emerging republics such as Poland and Latvia are doing all that they can to make deals with the United States.”

Divide and conquer is an old strategy for success in a covert war. And Europe is clearly divided. The question is who, if anybody, is trying to conquer it, and why?

The answer may lie in the rising tiff between the U.S. and China over textiles, in which Europe is also a player, after having submitted a complaint to the World Trade Organization.

China is most certainly digging in, having rescinded a series of self imposed tariffs over the last few days.

Rising pressure on China to revalue the Yuan, rising pressure on Europe to lower interest rates, and rising pressure on the White House to address trade imbalances, are all major influences on what’s around the corner, a potential rise in protectionism.

In our opinion, the fellows watching what happens in France, Europe, China, and the United States most closely, could be jihadists, who may seek the perceived weakness in the European turmoil, as a chance to further their move toward a caliphate. Much of Europe already has a significant Muslim population. France in particular has had significant controversy in their school systems over Muslim headdress policies.

Times of rising uncertainty are usually preludes to times of social unrest. Social unrest gives those who are seeking it, an opportunity to divide and conquer.

[Normxxx Here: And an opportunity to recruit lots of disciples from among the disaffected. ]

Oil Market Summary And Outlook: Global Economy In Focus

Oil stocks bounced last week, and reversed intermediate term down trends. Exxon Mobil has been upgraded by a Wall Street brokerage. But external events could keep oil prices from rallying in a big way from current levels.

The French vote against the EU constitution is getting the headlines. But behind the scenes, there is an economic slowing evident in Europe, as consumer confidence has fallen, and GDP figures are flat all over the continent. China’s growth is also expected to slow some. And the U.S. is likely to continue to raise interest rates, which could eventually lead to a slowing of the U.S. economy.

OPEC is not likely to cut production in June. That means that the combination of slowing demand, if global economies continue to slow, and stead production near maximum levels, could bring the market into balance, and at some point into a situation of surplus.

The market is going to start looking at that as U.S. economic figures are released this week, especially the ISM number, a very reliable gauge of economic activity from the purchasing managers.

Oil prices are still testing the $50 area on the July contract for Light Sweet Crude. Oil and natural gas stocks are trying to stabilize. OPEC is debating what it’s going to do about its quotas. And crude supply, despite this week’s reported draw down, is in the best shape that it’s been in for years.

Supply is in fairly good shape on a seasonal basis. According to Reuters: “Crude oil stocks in the United States fell 1.6 million barrels to 332.4 million barrels in the week ended May 20 -- against analysts' forecasts for a 1.2 million-barrel-build -- marking only the second drop over a 15-week period, the Energy Information Administration (EIA) said. Higher refinery demand and limited imports going into summer might spell further declines in stockpiles, which had risen sharply over the past 15 weeks to their highest level since 1999, the EIA said. U.S. gasoline supplies rose 600,000 barrels to 215.4 million barrels, leaving them in the upper end of the average range for this time of the year. The peak usage driving season kicks off over the Memorial Day holiday this weekend.”

According to the API, “crude supplies climbed by 2.3 million barrels, but gasoline fell by 416,000 barrels,“ while “distillate stocks rose by 2.5 million barrels.”

We’ve been expecting a bounce in oil, and it looks as if it is now here, as crude has found support just below $50 in the July contract. Still, unless the market can take out the $53-$55 area convincingly, the charts are saying that the down trend remains intact.

Investors should still remain wary of the oil market, and should use extreme caution in any exposure there. Aggressive traders should be ready to trade both long and short in this period of possible volatility.

The Philadelphia Oil Service Index (OSX) closed above the 130 area, and could start making its way higher.

The Amex Oil Index (XOI) also reversed course to end last week, delivering a Friday close above the 50 day moving average that could set up a move back toward the top of the recent trading range.

In the current market, we recommend

<img align="left" src="http://images.amazon.com/images/P/0761535640.01._PIdp-schmooS,TopRight,7,-26_SCMZZZZZZZ_.jpg" border="0"> Successful Energy Sector Investing: Every Investor's Complete Guide
by Joe Duarte

The book predicted many of the current developments in the economy and the energy markets, and provides an excellent set of benchmarks and trading lessons for what could be in store for the future.

Summer Doldrums Are Here

Don’t look now, but trading could slow significantly over the next three months. As Wall Street trumpets the arrival of Summer Rally season, history shows that the period between Memorial Day and Labor Day, is also a period of thin markets, as Wall Street heads off to extended vacations.

This summer may be different. But it’s much too early to call, at this point.

The market heads into the slow season in decent shape technically, although it is overbought, and could deliver dull trading for several days, barring external events.

Technology and biotechnology stocks are still moving higher, and the major beneficiary is the Nasdaq, where a test of the 2100 area looks likely over the next two to three weeks, barring a major external event. That leaves the S & P 500 1200 level as the other key resistance area for now. It would also be nice to see one good momentum thrust day, where the ratio of up volume to down volume on the NYSE would be at least 9 to 1.

Market breadth has improved. And the number of stocks making new lows has begun to shrink. We’d like to see the number of new highs expand more aggressively though.

This market still has to be traded from the long side, with the usual amount of caution and strict attention to trading rules.

Oil and natural gas stocks could also start to recover. Small stocks also show improvement.

In this market, stock and sector selection, along with strict adherence to buy and sell rules remains the key to success. Active traders should also keep their options open on the short side, while investors should still have a good amount of cash ready to spend when the market gives an all clear signal. Buying on strength, and sticking to using sell stops is still the key to success, for those with a short to intermediate term time horizon, especially in a narrowly traded market.

Remain patient. Take this market one day at a time, and be ready for reversals.

What To Do Now

Stick with strength. Keep an eye on the chip and biotech sectors. Select energy stocks may also be worth some risk now on the long side. Don’t make big bets on any position, and have as many open positions as possible in order to diversify against the risk of a bad news event.

MASI Delivers Sell Signal

Our ST-MASI indicator has delivered a sell signal. This is a short term indicator, which has been erratic of late, and is out of context with the rest of our sentiment numbers. But it is still worth noting. If the market rallies, but ST-MASI remains bearish, we would expect other sentiment indicators to start turning negative.

Market sentiment in the options market has shifted toward a more neutral stance, compared to even a few days ago, though.

We like to see option players worry. And right now, they are less worried, which keeps us on our toes.

Newsletter writers are still bearish enough to spark an intermediate term rally, but are less bearish than last week. Our IT-MAGI indicator, built on data from Investor’s Intelligence’s poll of newsletter has been on a buy signal since April 22.

The CBOE Put/Call ratio rose to 0.81 on 5-27, after delivering a 1.02 on 5-25. The prior recently bullish reading was 1.00 on 5.17. Options expiration week had some nice bullish readings of 1.02 on 5-13, 1.10 on 5-12, 1.01 on 5-11, and 1.07 on 5-6. The best reading of late was the 1.42 on 4-15, which might have marked the momentum bottom for this market. This indicator has delivered several readings above 1.0 lately, with no rallies having materialized. A consistent string of low readings can be a sign of excessive optimism and often signals a top in the markets. Readings below 0.5 are of concern, but not as serious as readings below 0.40. Readings above 1.0 are bullish. The numbers cited here are meant to be evaluated on a closing basis.

The CBOE P/C ratio for indexes on 5-27 was 1.61, fading from the 2.14, on 5-25. This followed the very bullish 2.33 from 5-20. The best reading of late here was 2.14, on 5-5, a very bullish reading. This follows the 1.90 on 4-22, which came after the prior day’s 1.87, and 4–19’s 2.09, and 4-15’s 2.17. Readings below 0.9 suggest too much bullish sentiment, just as readings above 2 are usually required to mark major bottoms.

The VIX and VXN had readings of 12.15 and 15.15 on 5-26, still showing a rise in complacency among players. When these indexes begin to rise, it is a sign of concern as rising volatility indexes suggest that an acceleration of the prevalent trend is on its way. A fall near or below 20 on VIX and 30-40 on VXN is considered negative, a fact that is usually confirmed when the volatility indexes begin to rise. Readings above 40 and 50, respectively, are often signs that a bottom may be close to developing.

Newsletter writers are turning slightly more bullish. The 13 week moving average of the data from Investor’s Intelligence remained below 70%. Major rallies have traditionally been launched when this indicator falls below 40%. Readings above 70% are usually very bearish.

The futures traders polled by Market Vane registered a 62% bullish consensus. This survey last delivered a sell signal on 2-20, with a reading of 70% bulls on stocks, which preceded a significant market decline.

Our Big Trend Model rallied to a reading of 57.5, after its oversold reading of 12.5, delivered on 4-29-05, a correct call on the recent bottom. Readings near or below 40% often precede market bounces, but may initially be signs of caution when markets have had a rally. Readings above 80% are usually bearish. The Big Trend Model is composed of technical and monetary indicators and updates automatically on a weekly basis.

Our ST-MASI indicator is bearish. IT-MAGI gave a buy signal on 4-22, which is still in place. MAGI is based on the weekly data provided by Investor’s Intelligence’s poll of newsletter writers. When both indicators agree, there is a high degree of correlation with a significant market move. When these indicators disagree, it is often a sign that the market is about to go nowhere but that volatility is on the verge of increasing. MASI buy signals when MAGI is bearish are rarely worth acting on. MAGI is an intermediate term indicator with an excellent predictive record. The best market bottoms occur when both are on buy signals, a telling sign of intense fear on the part of investors. MASI and MAGI are sentiment indicators that are updated on a weekly basis.

The NYSE insiders were heavy sellers of stock for the fifth straight week, not a good sign. Short selling by NYSE specialists remains near all time lows by historical standards, since we‘ve been keeping this indicator. This indicator is very positive when short selling by the specialists is low as the same time that they are net buyers of stock, which is the current scenario. This is a set of very smart investors, and when they turn positive or negative, it is just a matter of time before the market follows. Spec data is released to the public with a two week lag, so is not useful as a market timing tool, but is excellent background and confirmatory information.

Market Moves
French ETF Could Provide Clues To European Developments

The I-shares France ETF (AMEX: EWQ) closed higher on 5-27. But trading this week could provide clues as to what investors are expecting from Europe.

EWQ looked to be rounding out a bottom on 5-27. But the fall of the euro after the French rejection of the European constitution could have repercussions for European stocks, and the European economy.

To bet against the European markets at this point would be folly. After all, this could be the bottom, given the rise in negative opinion from politicians, and so called experts.

Still, there is no reason to rush in and buy French or European stocks, until there are clearer signs of what's coming.

There have already been some movements in the French government, with a new prime minister being installed.

The deciding blow may be what happens when the European Central Bank comments on the decision of the French voters, and what it decides to do on interest rates.

A move above 25 on EWQ, though, would be a break out. If that happens, despite the moves by the politicians and the central bankers, we would bet that things in Europe may have hit bottom.

The Amex Pharmaceuticals Index (DRG) remained above 330, a key chart point. This is a positive. The Philadelphia Semiconductor Index (SOX) also closed well on 5-27, above 430, a key short term chart resistance point. This is a major development since 405 is key resistance. Small stocks look steady, but not as if they could be market leaders on this leg.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx