MarketVVizard's Market Thoughts

Top 920. Feb 12, 2004 10:03 AM

» Normxxx - More On The FED And Inflation

A Patient Fed

The Bank Credit Analyst Says. . . | 2004-02-12 08:41:00

Chairman Greenspan reaffirmed yesterday in Congressional testimony that the Fed is in no hurry to begin tightening policy. This is positive for reflation trades and will help to keep a lid on Treasury yields.

The Chairman highlighted the brighter economic picture, noting that the “prospects are good for sustained expansion”. However, he also re-iterated the Fed’s view that productivity and “underutilized resources should help keep a lid on inflation”. While acknowledging that the real fed funds rate will eventually need to rise to a neutral level, he still feels that the Fed can be “patient” in removing its current policy accommodation. Treasury prices rose on the news as short positions were unwound, presumably because some investors were expecting some hint that the Fed was becoming less “patient”.

-- posted by Normxxx

Top 921. Feb 12, 2004 10:42 AM

» MarketVVizard - The Illusion of Liquidity

The Illusion of Liquidity
Although the crusty and ever more morbid value investors may not believe it, folks who are now pursuing the highest-momentum stocks really did learn something from the 2000 crash. This time around, they've all placed sell-stops under their stocks so that they're sold automatically if the stock drops a certain amount. Of course, this assumes that someone would want to buy a momentum stock when the momentum is downwards.

By Bill Mann (TMF Otter)

February 12, 2004

If there were any doubt that speculative activity is back, this should settle it: The major online brokerages, including Ameritrade (Nasdaq: AMTD), Motley Fool Stock Advisor selection Charles Schwab (NYSE: SCH), E*Trade (NYSE: ET), and Toronto-Dominion Bank's (NYSE: TD) Waterhouse have seen an explosion in daily trading volume.

Whereas Ameritrade's daily trade volume in 2002 rarely exceeded 140,000, this past week it announced that it had set a record on Jan. 20, with 326,000 trades, and averaged 254,000 for the month. Trading volumes for options similarly shattered all-time highs this past month, more than 60% higher year over year. Options volume is heavily weighted toward calls, with puts trading at substantially greater time premium. Translation: People think that the markets will continue to climb. Margin balances, predictably, are skyrocketing.

This past weekend, Barron's excerpted from Baupost Group principal Seth Klarman's annual letter to shareholders. Klarman is perhaps best known for his now-sadly-out-of-print book Margin of Safety and is an extremely successful value investor. In his letter to shareholders, Klarman wonders just "what today's speculators could possibly be thinking" buying stocks, bonds, real estate, just about any asset class at present prices.

But the key to Klarman's discomfit comes not in spite of the horrible losses of the last few years, but because of them. A friend of mine described it this way: There really has been cash on the sidelines in the last few years, and we're in the midst of a rush to deploy it. People have waited out the trough, and are now trying to ride the wave upwards. They don't want to miss out.

And you know what? He's right. That's exactly what's going on. People fully expect that there will be people tomorrow who will buy the same overpriced securities they themselves bought today. Valuation? Yeah, like it matters. Things are going up. That's what matters. This puts into perspective the anger that our warnings on companies such as Sirius Satellite Radio (Nasdaq: SIRI), Internet Capital Group (Nasdaq: ICGE), and Ivanhoe Energy (Nasdaq: IVAN) have engendered in stakeholders.

When the most important thing about an investment is whether it goes up tomorrow, then someone pointing out weaknesses in the overall investment thesis constitutes a direct threat. When momentum is the driver, such roadblocks are deadly, because investment success is predicated on someone being willing to buy it at a higher price, at any point. That such opinions have no bearing at all on the business is beside the point. A momentum stock must maintain its momentum at all costs.

No speculator left behind
One of the main reasons that people feel more confident this time around is that they have learned a lesson from 2000: If they had only been able to cut their losses during the last slide, they'd have been just fine. There are many ways people are doing this, but one of the most popular is a tool called the "stop-loss." The theory is that if you place an automatic sell, say, 8% below your purchase price, your stock will be sold before you can get badly, badly hurt. It's a game of letting your winners run and cutting your losses, and it's nothing new -- sort of like idiot insurance.

I certainly recall a few people for whom the stop-loss got them out of the Junipers (Nasdaq: JNPR) of the world when they were really expensive. In a market where billions of shares are traded each day, there's not much reason why stop-losses wouldn't work. Still, of the people who employed heavy use of stop-losses in the last meltdown, I don't know of many who became filthy stinking rich as a result. But each of us knows plenty of folks who didn't use any stop-losses and were shellacked.

The way I see it, this is a spurious correlation. You don't get hammered in the market for want of a stop-loss; you get hammered buying overpriced crap in the first place. But this is exactly what's happening today. We're in 1987 all over again, and everyone's holding "portfolio insurance." Buy whatever you want. Have fun. Just remember to be the first to get out.

And that's the problem with what's taking place. Unlike 1999, the warnings of spectacular overvalue are legion, and people seem to be paying attention and speculating anyway. Everyone, it seems, will play the game thinking that he can get out before the collapse. Everyone has a stop-loss in place and is ready to sell the moment stocks start "acting bad."

And everyone cannot be right. But it seems that people have once again adjusted to prepare for the previous menace, the thing that burned 'em the last time around. Trouble is, it won't be the same thing that burns 'em the next time. It never is.

Whom God would destroy...
We've now seen almost a year of consistent rises in all of the big indexes with no drop of more than 5% in that time. During this period, the non-believing market "players" have kept their stop-losses in place, just in case they need to rush for the exits. All of this presumes that in each case there will be someone willing to buy at the price of the stop-loss trigger. But here's the thing about the stock market: Even though individuals can mostly count on liquidity, the overall market cannot. Everyone cannot depart at the same time -- there have to be buyers.

At some point, the stock market will decline by more than 10%. It's as guaranteed as the rising of the sun. When this happens, with extremely speculative stocks, the first of the stop-losses will be triggered, creating more selling pressure, dropping the price lower, triggering even more stop-loss sales. Where does such a thing stop? Just as we see short-selling activity at multi-year lows -- from a fundamental perspective, at a time when there are cases of overvalue aplenty -- as people don't want to get hit by the momentum bus, one would have to assume that people won't be that excited about piling into a cratering momentum stock on the way down.

Will this happen? Man, I don't know. What I do know is that speculative activity has spiked, that confidence levels are extremely high, that there are clearly millions of people involved in the stock market who are counting on continued momentum, but that many of these are hedged on the downside should that momentum ease.

...would he first make confident
But what happens if, rather than an easing, there's a disorderly rush for the exits? Some will get out unscathed, but not most people -- they can't unless someone is stepping up to buy. And if momentum, not fundamentals, were the reason for most people's buying a stock in the first place, then why in the world would one expect enough people to step up to the plate and buy when the momentum evaporates?

This scenario, by the way, has its own precedent. In 1987, many institutional investors utilized "portfolio insurance" techniques to try to limit their downside risk. What they found, rather than being stopped out for small losses during a bloodbath, was that they had entire positions sold at whatever price was available on the market, some being locked in at losses of 35% or more in a single day over their entire portfolios. It may not happen again, but the conceit of traders that they're faster and more nimble than everyone else is simply too widespread to suggest that such an outcome isn't likely under conditions awfully similar to what we have today.

There is no such thing as a bulletproof model. People who ignore fundamentals of the companies they hold are playing a dangerous game. Because sometimes the greater fool just happens to be you.

Fool on!
Bill Mann, TMFOtter on the Fool Discussion Boards

-- posted by MarketVVizard

Top 922. Feb 12, 2004 11:44 AM

» MarketVVizard - IMCL

Not a lot of time to explain. But remember the big EMLX hoax a couple years ago? EMLX dropped like a rock for no reason until it was halted. WHen it was reopened the MMs gapped it up 10 points above the day's high (because of all the shorts forced to cover as well as idiot retail investors that thought they could buy it on the cheap and put in market buy orders). It immediately traded back down to reasonable levels. Same situation exists right now in the halted IMCL stock. I will be attempting to make a quick buck on the situation.

-- posted by MarketVVizard

Top 923. Feb 12, 2004 12:42 PM

» MarketVVizard - How Pakistani's network offered the whole kit NYT By William J.

How Pakistani's network offered the whole kit NYT By William J. Broad 02/12/04

The break for U.S. intelligence operatives tracking Abdul Qadeer Khan's nuclear network came in the wet August heat in Malaysia, as five giant cargo containers full of specialized centrifuge parts were loaded into one of the nondescript vessels that ply the Strait of Malacca.

The CIA had penetrated the factory of Scomi Precision Engineering, where one of the nuclear network's operatives - known to the workers only as Tinner - watched over the production of the delicate machinery needed to enrich uranium for nuclear bombs. Spy satellites tracked the shipment as it wended its way to Dubai, where it was relabeled "used machinery" and transferred to a German-owned ship, the BBC China. When it headed through the Suez Canal, bound for Libya, the order went out from Washington to have it seized.

That seizure led to the unraveling of a trading network that sent bomb-making designs and equipment to at least three countries - Iran, North Korea and Libya - and has laid bare the limits of international controls on nuclear proliferation. On Wednesday, President George W. Bush proposed to enhance that system by restricting the production of nuclear fuel to a few nations.

The scope and audacity of the illicit network are still not fully known. Nor is whether the Pakistani military or government, which had supported Khan's research, was complicit in his activities.

But what has become clear in recent days is that Khan, a Pakistani national hero who began his rise 30 years ago by importing nuclear equipment to secretly build his country's atom bomb, gradually transformed himself into the largest and most sophisticated exporter in the nuclear black market. "It was an astounding transformation when you think about it, something we've never seen before," said a senior U.S. official who has reviewed the intelligence. "First, he exploits a fragmented market and develops a quite advanced nuclear arsenal. Then he throws the switch, reverses the flow and figures out how to sell the whole kit, right down to the bomb designs, to some of the world's worst governments."

The story of that transformation emerges from recent interviews on three continents - from Islamabad, Pakistan's capital, to Kuala Lumpur; from the back streets of Dubai, where many of the deals were cut, to Washington and Vienna, where intelligence agencies and the International Atomic Energy Agency struggled to understand and defuse the threat.

Taken together, they show how Khan assembled a far-reaching organization of scientists, engineers and businessmen who operated on murky boundaries between the legal and the illegal, sometimes underground but often in plain view, unencumbered by international agreements that prohibit trafficking in nuclear technology.

Khan started in the mid-1980s, according to intelligence officials, by ordering twice the number of parts the Pakistani nuclear program needed, and then selling the excess to other countries, notably Iran. Later, his network acquired another customer: North Korea, which was desperate for a more surreptitious way to build nuclear weapons after the United States had frozen the North's huge plutonium-production facilities in Yongbyon.

And in the end, he moved on to Libya, selling entire kits, from centrifuges to enrich uranium, to crude weapon designs. Investigators found the weapons blueprints wrapped in bags from an Islamabad dry cleaner. In his speech on Wednesday, Bush said the network even sold raw uranium to be processed into bomb fuel. He also identified Khan's deputy - "the network's chief financial officer and money-launderer," he called him - as Bukhari Sayed Abu Tahir, owner of a computer company in Dubai, who, investigators say, placed the order for the Libyan equipment.

One longtime associate of Khan's was Peter Griffin, a British engineer who said in an interview that he had been a supplier to Pakistan for two decades while Khan was building nuclear weapons. "Anything that could be sent to Pakistan, I sent to Pakistan," he said. But he said that all his sales had been approved by British trade authorities.

Griffin is also the partner in a Dubai company that investigators said placed the order for materials that wound up on the ship headed for Libya, although he denies knowing anything about that shipment.

Hints of Khan's operation were an open secret for years among intelligence officers and officials in Pakistan, the United States and elsewhere. But Pakistan's president, General Pervez Musharraf, confronted Khan only after the BBC China was seized on its way to Libya and evidence of the network tumbled out. Last week, Khan issued a public confession and then was pardoned by Musharraf.

The deference shown Khan at the end began decades before, when he was working secretly and successfully to make his country a nuclear power.

"Khan had a complete blank check," said a aide close to Musharraf. "He could do anything. He could go anywhere. He could buy anything at any price."

Khan's start came with India's first atomic test in 1974, an event that so traumatized Pakistan that developing its own weapon became the country's most pressing goal.

Khan, a bright young Pakistani metallurgist working in the Netherlands, lent his aid. From his perch at Urenco, a European consortium, he possessed blueprints of the world's best centrifuges - the hollow metal tubes that spin very fast to enrich natural uranium into bomb fuel. A set of thousands of centrifuges, called a cascade, concentrates the rare U-235 isotope to make a potent fuel.

"I saw top-secret technical drawings in his house," recalled Frits Veerman, a Dutch colleague who shared an office with Khan.

Khan stole the designs, Dutch prosecutors charged, and he fled back to Pakistan in 1976. He used the blueprints and his knowledge to set up an enrichment project in Kahuta, near Islamabad, that reported directly to the prime minister. He drew heavily on Dutch lists of nearly 100 companies that supplied centrifuge parts and materials.

"They literally begged us to buy their equipment," Khan boasted in 2001 in a publication celebrating the 25th anniversary of his Pakistani laboratory. "My long stay in Europe and intimate knowledge of various countries and their manufacturing firms was an asset."

Businessmen and merchants, including German, Dutch and French middlemen, flocked to Pakistan to offer price lists for high- technology goods and learn what Pakistan needed. The multilingual Khan led the acquisition effort. His shopping spree spanned the world.

"Africa was important because of the materials needed," said a senior Pakistani official involved in the investigation of Khan. "Europe was crucial for bringing in high-tech machines and components. Dubai was the place for shipments and for payments. We were not the first beneficiaries of this network. But the intensity of Pakistan's nuclear acquisition effort did enlarge the market. Everybody knew that there is a buyer out there, loaded with money and hellbent on getting this ultimate weapon."

Even in the early days, the trade was no secret. Washington sent Germany dozens of complaints about their leaky export-control system that let "dual use" technology leave even though some was clearly intended for Pakistan's nuclear program, said Mark Hibbs, a Germany- based editor of a technical journal, Nucleonics Week. But many of those warnings were ignored, he said.

Veerman said that Dutch companies continued to work with Khan after it was clear that he was developing centrifuges for a weapon. Khan even sent scientists to the Netherlands in the late 1970s for centrifuge-related training. Eventually, the flow of technology reversed, two senior Pakistani military officials involved in the inquiry of Khan said. "These contacts and channels were later used for sending technology out of Pakistan by certain individuals," a military official said, "including Dr. A.Q. Khan."

Khan had three motives, investigators say. He was eager to defy the West and pierce "clouds of the so-called secrecy," as he once put it. He was equally eager to transfer technology to other Muslim nations, according to a senior Pakistani politician. "He also said that giving technology to a Muslim country was not a crime," the politician said.

But another motive appears to have been money. As Khan's nuclear successes grew, so did his wealth. He acquired homes and properties, including a tourist hotel in Africa.

A family friend said that Khan spoke of the centrifuge designs he perfected as if the technology belonged to him personally, not to Pakistan. A senior politician said that in meetings with Chaudry Shujat Hussain, leader of a Pakistani political party, Khan never spoke of selling the technology, only of "sharing" it.

He started slowly. He simply ordered more parts in the black market than he needed for Pakistan.

At first, Western intelligence agencies tracking Khan were perplexed. "In the 1980s, I remember being told by officials that Khan was overordering centrifuge parts and they couldn't understand why," recalled Simon Henderson, a London-based author who has written extensively about Khan. It eventually became clear that the extras went to clients outside Pakistan. Around 1987, Khan struck a deal with Iran, which wanted to build 50,000 centrifuges of a type known as P-1, for Pakistan-1, an entry-level model, Western investigators found. If completed, a plant that size would have let Tehran make fuel for about 30 atom bombs a year.

As Pakistan's own technology became more sophisticated, Khan sold old Pakistani centrifuges and parts, Western investigators found, some contaminated with highly enriched uranium.

Iran appears to have acquired such secondhand gear. "They were not happy to discover they overpaid for old wares," said a U.S. intelligence official. But for Iran, it was a start.

A Pakistani military official involved in the investigation of Khan said foreign requests for technology "came on paper, in person, through third parties, in meetings with Khan himself."

The scientist then used the vast logistic system available to him, which included government cargo planes, to ship the components to middlemen, who cloaked the source. "The same network, the same routes, the same people who brought the technology in were also sending it out," said the military official.

In the final stages of his export career, Khan simply used his middlemen to order large shipments of parts for foreigners, even if Pakistan had no apparent role in the transaction, U.S. investigators said.

When Libya embarked on its two-step effort to become a nuclear weapons state, Khan's network was presented with an opportunity to sell a particularly sophisticated system. The network was moving to a new level of ambition. Libya's initial focus was the aging Pak-1 design, U.S. and European investigators said. But eventually the Libyans sought a more efficient technology, the Pak-2, made of a superhard alloy. That design has steel rotors that could spin nearly twice as fast as earlier aluminum ones.

The central figure in the Libyan Pak-2 effort, U.S. officials said, was Tahir, a Sri Lankan native who had moved to Dubai as a child. Khan had attended Tahir's wedding in 1998, Malaysian officials said.

In his speech on Wednesday, Bush said that Tahir used a company he owned in Dubai, SMB Computers, "as a front for the proliferation activities of the A.Q. Khan network." A U.S. expert said the Libyans planned a complex to make enough highly enriched uranium each year for about 10 nuclear weapons.

But the advanced centrifuges never reached Libya. They were seized on the BBC China. When investigators went to Libya, they found that Khan's network had also provided blueprints for a nuclear weapon. For investigators it was a startling revelation of how audacious and dangerous the black market had become.

-- posted by MarketVVizard

Top 924. Feb 12, 2004 6:00 PM

» pbradford6 - Re: Re: Re: Hussman

In response to message posted by Normxxx

If so, Europe (recently touted by the stock market mavens as the place to be for 2004, should begin to go down about now.

Norm, they may be right. Since March 11, 2003, T Price Euro Stock Fund is up 64.69%!

-- posted by pbradford6

Top 925. Feb 13, 2004 9:17 AM

» Austrian - Re: Re: Re: Europe G7 and Secular Shifts

In response to message posted by Austrian:

Euro depreciation should start shortly, it looks like it started today. They are in trouble and the US is their market. Euro printing in the longterm will be good for gold, but bad in the short term. Gold is and has been behaving poorly since the $435 peak. I expect huge volatility with a crushing correction if the Euro appreciates against the US Dollar. This is necessary for gold to break from US dollar and really rock. Read Cyclical Bear in a Secular Bull Market, the mirror image of the Nasty...

Regards,

-- Austrian

European Growth Unexpectedly Slows in Fourth Quarter (Update1)
Feb. 13 (Bloomberg) -- Growth in the $9 trillion economy of the dozen nations sharing the euro unexpectedly slowed in the fourth quarter as the single currency's gains hurt exports and the Italian economy stalled.

Gross domestic product, the value of all goods and services, expanded 0.3 percent from the third quarter when it grew 0.4 percent, the European Union's statistics office said. Economists surveyed by Bloomberg News forecast a 0.4 percent gain, the median of 32 forecasts showed. From a year ago, GDP grew 0.6 percent.

Europe's recovery from a contraction in the second quarter last year is being held back by the euro's 20 percent gain against the dollar in the past year. The stronger currency has made European products more expensive abroad and hurt earnings of companies such as Volkswagen AG and Alcatel SA.

``Exports are in great difficulty,'' said Renzo Belcaro, chief executive officer of Silmet SpA in northeast Italy, a producer of metal moldings for cars whose clients include Volkswagen and Fiat SpA. ``The dollar is creating huge problems.''

The euro rose to $1.2899 last month, the highest since its introduction five years ago, and was trading at $1.2826 at 12:11 p.m. in Brussels.

`Turnaround'

Economic growth in the fourth quarter comes at the bottom of the 0.3 percent to 0.7 percent range forecast by the European Commission Jan. 15. Growth for the first and second quarters this year will also fall within that range, the commission said today.

``This prediction suggests that the euro area economy is building on the turnaround that took place in the third quarter of 2003,'' the commission said. The region's economy shrank 0.1 percent in the second quarter. For the year as a whole, the euro region grew 0.4 percent in 2003, the slowest pace in a decade, Eurostat said.

Performance is mixed among the region's three largest economies. GDP in Italy, the third largest economy using the euro, was unchanged from the third quarter, when it expanded 0.5 percent, the statistics office Istat said today in Rome.

Italy is less used to dealing with a currency surges than Germany or France. Italy devalued the lira five times against the deutsche mark between 1980 and 1992 to prevent the gains from crimping economic growth.

German, French Growth

The German economy grew 0.2 percent in the fourth quarter, less than expected, while growth in France reached 0.5 percent, the fastest pace in six quarters, figures yesterday showed.

``We've seen a slow start to recovery in Germany, with the weak dollar taking its pound of flesh,'' said Dietrich Hoppenstedt, president of Germany's DSGV saving banks group, in an interview. ``Yet, I've no doubt that the economy is gathering momentum.'' DSGV represents 700 savings and state banks with assets of 3 trillion euro ($3.84 trillion).

Faster growth abroad is helping the euro region recover. The U.S. economy may expand this year at the strongest pace since 1984, pushing the unemployment rate lower, Federal Reserve Chairman Alan Greenspan said Wednesday. China's industrial production grew last month at a record pace.

Investor expectations that the U.S. economy will lift global demand and corporate products has helped European benchmarks gain more than 43 percent since an 11-month rally began in March. The Euro Stoxx 50, a benchmark for the 12 euro countries, has gained 2.2 percent since last Friday.

``We see the markets improving,'' said Matthias Ganz, Deutsche Boerse AG's chief operating officer, in an interview in Brussels. ``It's going in the right direction, but not as fast as it could.''

Consumer Spending

France Telecom SA, Europe's second-biggest phone company, had a full-year profit after two years of losses, helped by cost cuts and demand for fast-Internet access. Royal Philips Electronics NV, Europe's largest consumer-electronics maker, posted a fourth- quarter profit on higher demand for flat-screen displays, semiconductors used in mobile phones and cost cuts.

As executives wait for the recovery to gather pace, cost cuts and hiring freezes are holding back consumers, whose spending accounts for more than half of gross domestic product.

German retail sales fell for a second month in December, and unemployment rose in January for the first time since since May. French household spending grew in the fourth quarter at half the pace of the previous three months, Insee said last month.

``Consumers are not yet contributing to growth,'' said Holger Schmieding, co-head of European economics at Bank of America in London. ``In the euro area, they are typically late'' in regaining confidence after an economic slowdown.

ECB Rates Unchanged

European Central Bank policy makers have said the conditions are in place for a pickup in domestic demand and that accelerating global growth is making up for a loss in competitiveness resulting from the euro's appreciation.

The ECB last Thursday left the main lending rate unchanged at a six-decade low of 2 percent and investors increasingly expect borrowing costs to remain unchanged at the next meeting on March 4, interest rate futures contracts show.

The yield on a three-month contract for June settlement was 2.03 percent at 12:13 p.m. in Brussels, 20 basis points lower than on Jan. 1. The current three-month rate is 2.07 percent.

``The ECB would be more likely to cut rates if the euro contines to appreciate,'' said Trevor Williams, an economist at Lloyds TSB Group Plc. ``I think we will go through the $1.30 level before the end of March.''

When calculating today's GDP ``flash estimate,'' Eurostat said it used GDP figures for Germany, Italy, France, the Netherlands and Finland, together with indicators normally used in compiling national accounts such as industrial production and retail sales for Spain.

In the last 12 quarters, the flash estimate has correctly predicted the quarter-on-quarter growth rate eight times. A further estimate will be published March 4.

In the 15-nation EU, which includes non-euro members the U.K., Denmark and Sweden, GDP expanded 0.4 percent from the third quarter, and rose 0.9 percent from a year earlier, Eurostat said.

-- posted by Austrian

Top 926. Feb 13, 2004 1:44 PM

» MarketVVizard - Economic Electon Year Conspiracies?

Closed at the lows today. HUGE unexpected drop in consumer confidence. I remain surprised at the complacency in the market right now. Even though I've only been expecting a slow grind lower, all the ingredients are there for a crash.
_______________________________________________

"Presidential Election Conspiracy Theory"

<img border="0" src="http://www.financialsense.com/Market/goldberg/images/goldberg.jpg" align="right" width="125" height="185">I have received much e-mail in the fall suggesting that there are
interventional forces acting to keep the market going up or at least
prevent a meaningful correction from occurring until after the
presidential election. When I first read these e-mails, my initial
reaction was to dismiss them as reflecting the opinions of a generally
bearish FSO readership. However recently, I have also seen some of this
same presidential election rationale routinely used in some mainstream
publications such as the Barron’s Roundtable, and quarterly
newsletters of major brokerages. Basically, these publications suggest
that Fed policy will be accommodative of the stock market until the
election and that these policies will be successful in supporting the
stock market until the election. In addition, I have found that this
“presidential election” support theory is prevalent at many pubs and
water coolers around town. It almost seems to be common knowledge that
the market will not fall because of the organized support that is
anticipated to remain until the November election.

Whatever
the specifics of the interventional forces (or Plunge Protection Team
(PPT)) used in this conspiracy theory, if it is real, then we may
have a timing tool for an overdue stock market drop. Since the market is
a “discounting mechanism,” it’s obvious to me that the market
should be hit with a wave of selling before the election. Why
before? Do you believe that anyone holding stock based on the
presidential election rationale would be foolish enough to hold his or
her stock until after the election? How do you think that would
that play out? Would the PPT allow all widows and orphans to sell on the
Wednesday after the election at the closing price of Election Day? Would
they then allow all momentum players and day traders sell on Thursday,
and mutual fund investors on Friday, all at Tuesday’s closing prices?
I don’t think so! Such privileges to sell at yesterday’s close were
only allowed by some mutual funds for their hedge fund customers. That
is, before these people got caught cheating. If you feel that
interventional forces are supporting the stock market, then you may want
to consider selling in advance of the presidential election. Actually,
even if there is only significant belief of organized support
(and no actual support), that could also precipitate a stock
market drop in the early fall. Show me the person that will buy stocks
after the November election because he feels that the Fed (or whatever
the form or organized support) is going to support the stock market before
the election.

My
point is that if you believe there is a PPT, then you should look for a
stock market drop before the election since the stock market is a
discounting mechanism. And the pre-election drop could actually affect
the election results in just the opposite way as was intended.

Do
Patterns Repeat?

The
charts that I present below may stimulate your thinking on whether
“this time it’s different”. The chart on the left is the Dow Jones
Industrial Average in the 1920’s plotted on a numerical scale. The
chart on the right is a chart of the 1990’s to the present Nasdaq
bubble, plotted on a log scale. Note the similar shapes in each chart.
Since the recent Nasdaq chart is plotted on a log scale, and the
1920’s Dow chart is plotted on an arithmetic scale, the Nasdaq chart
is much more “extended” at its top compared to the 1929 chart. Also
note the presence of an important rally in both cases. We are in
the midst of our “important rally” now. Although the durations are
scaled longer on the recent Nasdaq chart, it is interesting that the
important rally occurred within a timeframe that was proportional to the
time needed for the parabolic rise to occur in both cases. The DJIA
chart finally bottomed near the bottom of the diagram (not shown). Where
will the Nasdaq chart bottom?

OK. If you
buy into patterns repeating between previous generations and today, here
is another “chart” to consider….

Yes,
the present day “chart” (below and to the right) is much more
contrived, displaced, and artificial compared to yesteryear’s chart.
Some may suggest it’s somewhat analogous to our current “economic
recovery” compared to the one in Joan Crawford’s day.

Greenspan
Testimony

I
was at home sick the last couple of days, and on some painkillers. That
is probably the best way to watch CNBC - in a state of
half-consciousness. Watching the Greenspan testimony yesterday, I think
he said that new jobs were just around the corner; but he couldn’t
answer the question of what industries the jobs were going to be in. He
seemed to tell young people to learn how to read and write, and the jobs
would come from American innovation, from some as yet, undefined
industries/functions. Yet today, he sited the failure of our education
system. So what would make the jobs happen? “It’s always been that
way before in the US”, said Greenspan.
Not much for young people to go on here. In any case, the stock
market loved Tuesday’s testimony, and was neutral on today's.

Today’s
Market

A
second day of Greenspan testimony, Imclone, and more on Comcast/Disney
highlighted today’s stock market action. Today’s stock market
resulted in a give back of most of yesterday’s gains. The Dow and
S&P 500 were down less than 0.5% and the Nasdaq and Russell 2000
were down by about 3/4%. Volume was light on all exchanges. Gold was
little changed, finishing at about $411.90 per oz. Silver had a
tremendous roller coaster ride, trading as high as $6.69, before trading
down $0.02, to close at $6.57. We’ve seen this happen many times
before. It tries the instincts of traders who consider taking profits
off the table after precious metals surges and wait for another lower
entry point. Some very intelligent money managers tell me that you
should hold your positions in a bull market. So hold, I will. Dell
reported self-satisfying results, which made the CNBC commentators
happy. Yet the shares are down in after market trading by about 1.5%. I
don’t know what speculative favorite, Nvidia reported with their
earnings, but it is selling off in very heavy trading after hours.
Imclone is making the entire group of CNBC birds chirp, and it’s
trading like a manic-depressive. Looking at the nutty trading patterns
of Imclone, it’s difficult for me to believe that the whole Martha
Stewart thing is over a couple thousand shares of this speculative
favorite. Yet it is.

There
was a lot of talk about the Comcast hostile takeover attempt of Disney
in an all-stock deal. Given how much the deal has changed from the stock
price moves over the last few days, you would have to wonder how much
sustainable synergy is in the combination. The same amount as AOL/Time
Warner? Comcast is selling off. Look for a wave of analyst upgrades of
Comcast in the next few days.

The
10-year note sits just below a short-term resistance line, as shown in
the chart below. It finished marginally down today.

-- posted by MarketVVizard

Top 927. Feb 13, 2004 3:58 PM

» bob90245 - Re: Economic Electon Year Conspiracies?

In response to message posted by MarketVVizard:

It almost seems to be common knowledge that the market will not fall because of the organized support that is anticipated to remain until the November election.

I wonder who is behind all the money needed to hold up the stock market? Oh, I get it. Instead of contributing money, the Bush re-election committee is quietly asking supporters to buy stock. Aha! That explains the story I read that reports record inflows into stock funds. And I betcha they're all Republicans, too. See? This stuff is not so hard to figure out. Quick, you Democrats... SELL ALL STOCKS!

-- posted by bob90245

http://www.suite101.com/discussion.cfm/i...

Top 928. Feb 13, 2004 8:29 PM

» Normxxx - Re: Economic Electon Year Conspiracies?

In response to message posted by MarketVVizard:

Looks like I posted this on the wrong thread. . .

-- posted by Normxxx