Thought the sharck soup thread readers might like to read this -->
August 5, 2001
Tonight's Commentary:
Friday was neat to watch unfold wasn't it? We woke up to cautious futures
trading as everyone was trying to figure out what the all important jobs
number would bring us. Then we got the figures and it was "interesting" to
say the least. Unemployment stayed the same at 4.5%. Non farm payrolls
only fell 42 thousand instead of the 55K everyone was expecting. And
Earnings rose 0.3%.
That had two distinctly different effects. The people who were hoping for
a 50 basis point cut from Uncle Alan got disappointed and pouted and sold
some positions. The others who simply wanted to see the economic carnage
end, were happy. So, the bond pits and the futures pits waged war between
the hopeful and the hopeless. As we neared the open, no one had truly won
the war and the futures trading went out pretty much at fair value which
is a statistical non event.
Then things got really wild for a while. we were down just a few points
until about 10 minutes after 10 when the futures spiked down big time and
the averages were quick to follow. What in the world was that all about?
Well our buddy the NAPM came out and it really sounded the economic
warning siren. Let me explain: The NAPM is divided into two parts. The
manufacturing side and the "non" manufacturing side. Well everyone knows
manufacturing is mired in a recession. But all the talking heads have been
telling us how its "contained to manufacturing" , the overall economy is
fine. What BS! I have been telling you we are on the verge of falling into
a pit for months now!
The non manufacturing side of the equation scared the hell out of people.
It was supposed to come in with a reading of 51.5, not great, but above
the all important 50 level which shows growth. Ha! It came in at 48.9.
Swell. Now the non manufacturing section of the report is indeed showing
we are no longer "expanding". This is what hit the market like a Mack
Truck. In ten minutes we were down 120 on the DOW and about 40 on the
NASDAQ. I have to apologize to all of you. I focused only on the jobs
report, expecting the NAPM to come in weak, but still over 50. I didn't
even think about it. Obviously I should have!
So the market pouted about it and we spent the day in a tight range down
about 85 on the DOW and 30 on the NASDAQ. This lasted the entire day until
the very last hour when things perked up a bit. When it was all over we
finished with the DOW down 38 and the NASDAQ down 21. It wasn't the action
we had wished for really. I have no problem telling you that at times
during the day it seemed like they were going to throw in the towel, but
they didn't. It ended up being the lightest volume day of the year. Again.
That makes something like 6 "lightest day of the year" in a month. No one
wants to make a move in here.
I try my best to put out a balanced issue, without much ranting and
raving. I know some of my competitors get a kick out going over the top
and trying to be wacky so they get the curiosity hounds, but I try and
control myself. But I have to level with you, I am in rare form as I write
this.
What is there to say that I haven't regurgitated to you for months now?
Nothing folks. The whole damned Globe is slowing like someone threw out an
anchor, profits are in the toilet, and day after day these idiots tell you
how great things are. Does it matter that the NAPM fell again? Does it
matter that the non manufacturing side just fell off a cliff? Does it
matter that durable goods had to be revised down? Chicago PMI 5 full
points lower than estimates? Yes it does folks. Today I had to endure
listening to the Labor secretary tell me why I should be happy because the
"rate of decline" has slowed. Can you imagine that I am supposed to get
excited because we are falling slower than we were? Makes me want to run
right out and mortgage my house to buy stock.
Just last Sunday I suggested that we were in an economic dead cat bounce.
Again I got laughed at. We had a trial reader write to us and tell us that
"except for some arcane manufacturing in "Bum..." Minnesota, the economy
is fine" Now I guess that uhm, Gentleman has to answer to how the non
manufacturing side just fell out of bed. Well forget it folks. We were in
a dead cat bounce. All the numbers are being revised back down and the
NAPM, PMI, factory orders, retail sales, Durable goods, auto sales, and
everything else proves it out. How about Thursday's news about chip sales?
Down 45% year over year. That was pretty catchy too.
Here is the point folks. I am not trying to alarm you, or scare you I am
trying to prepare you. For what you ask? For the fact that there is no
second half recovery. Not in the second half of this year anyway. Day
after day I see numbers and news that suggests this thing is deeper
already than anyone wants to tell you about. Well I will tell you, cause
that is what I do. You can't change that. The poor US consumer has been
shouldering the weight of the world for 20 years and his shoulders are
getting tired. Without the US consumer, who is going to help bring the
global economy up? Maybe Argentina? Oh, sorry, they are a millimeter from
bankruptcy. Brazil? Oops, their currency just hit another low. Japan? darn,
forgot they are in the start of the 13th year of recession. Germany?
shucks, rampant unemployment and rumblings of a recession. France?
England? Russia? Give me a break. All three don't add up to California's
GDP for God's sake.
What about the idiots that they parade around telling us how we don't need
the "global economy" and that the US will pull itself up like it always
had. Really? Well if we had a manufacturing base here in the states, and
we sold here in the states, I could buy that. But guess what? We don't
make squat here anymore and we import a hell of a lot more than we send
out. With companies taking in 30+ percent of their sales from overseas,
are people really willing to say they will be "just fine" if they lose it?
Seems to me that if revenues fall 25% the street panics. Maybe its some
sort of new math?
Then we have poor Mr. Jones our mythical consumer. Poor guy has been doing
his best. Yup, he is buying the right jeans, getting the correct sneakers,
and getting his Dish network. He is spending like there is no problem ,but
there is. We are looking at a bubble in the making and no one wants to
call it that. Housing. Month after month people are rushing to refi their
house. why? Because the "price" of the house keeps going up and up. So, he
keeps taking "equity" out. Hey not a bad deal right? Why not right? Lets
look. Suppose Mr. Jones has a house that he bought for 109 thousand and
now its worth 149. So, he goes to the local money store, and takes out a
new mortgage for 150K. Cool!
Okay now he pays off the original 100 grand he owes, and now he has 50
grand to play with, so he buys the wife the new SUV. Go Mr. Jones! then
the very next year he finds his house is worth 179K. so he does the refi
thing again and puts some more bucks in his pocket. Meanwhile of course,
his monthly payments are increasing, but hey, he can buy that new built in
pool! What if people decide to stop buying new homes and prices fall?
Whoa!!! That can't happen. Oh yes dear reader, it can. It has happened
before and certainly can/will again. With consumer confidence just
starting to give way again, we could be looking at the start of it. Well
what happens if Mr. Jones finds out that his house is now only worth 140
grand again? Oh oh. He can't refi any more, and he is paying monthly on a
house that isn't worth what he is paying. Guess what? Mr. Jones can't sell
his house anymore.
But what happens if Mr.Jones loses his job? Oh boy a big headache. Now he
has to find work, he is paying a huge mortgage, and the 'ace in the hole"
which had always been his safety net is gone. what safety net? In most of
history, people kept a huge amount of equity IN their home. That way if
God forbid things got really tough, they could at least sell it and live
off the proceeds. Mr. Jones can't do that anymore. In fact the savings
rate here in the US is the lowest since World War II. Mr. Jones can't go
to the bank and withdraw some savings for a "rainy day". He doesn't have
any. Unfortunately all his excess capital was put in mutual funds, where
"investment professionals" had him buy stocks like cowpoop.com which just
happens to have gone belly up. His funds are down, way down.
Think I'm nuts? Probably right. But, laugh if you want, Real Estate is in
a bubble just as the NASDAQ was, and all bubbles end badly. Well I have
been watching real estate prices on Long beach Island in NJ. They are
starting to waver. Long Beach is a relatively desirable area to own a home,
but Each week the Real Estate ads say things like "listed for 699,000
reduced to 575K for immediate sale" Its still a ton of money, but last
year they could have gotten 799. See the point? At some "time" people will
not or can not pay the prices anymore and they have to come down. I
believe that when that happens in earnest, we are going to see another
round of economic problems. Mr. Jones will be trapped in a house he cannot
sell, paying a mortgage that is too large, and his discretionary spending
will be nill. Not exactly the recipe for a major economic recovery.
I am not an alarmist. But I think someone should be ringing the alarm
bell. All this garbage you hear about Leading indicators looking better
and the "rate of decline" slowing is just that, garbage. We will start to
look better when something solid shows we are doing better. Like
unemployment falling instead of rising, NAPM's that show life, and Junk
bonds start moving up. When you see things like that THEN you can start
saying we are seeing an economic bottom. Until then, all this noise is
simply that, hot air analyst noise. Don't forget folks if these talking
head braniacs don't flood the airwaves with their nonsense baloney about
voodoo accounting, then people won't send money to their funds. No money
and no job. Hmmm.
Then just today I am enduring the pain of listening to another cone head.
This nut, (no I won't say who) makes his rounds from CNBC to FOX networks
and tells everyone about how all that is needed is the dollar to pull back
some. Quote: "If we take steps to bring the dollar down so it is more
instep with the global economies, our corporations could then post the
type of earnings we all want to see". Wow. I have a question for this
buffoon. Does he know foreigners own 37% of US treasuries? 46% of
Corporate bonds? almost 12% of US equities? If the dollar, which is the
REASON all that money came here in the first place is reduced in value to
the "baht", what happens if all those trillions decide that they should
move money to China? At least China is growing. Can you imagine the
ramifications of pushing the dollar lower? We should let the market peg
the value of the dollar, not have the government actually take it down.
That would be suicide.
Okay, as you can see I was a bit twisted up there for a while, but I am
calmer now. Sometimes I think it better that I don't watch these people on
TV, its bad for my blood pressure! Now that I have that off my chest what
in the world is going on with this market? Nothing has changed folks. It
wants to move higher and it gets smacked in the face. Granted it gets
smacked by some really ugly cold hard facts, and those facts shouldn't be
ignored but they sure want to. why would the market want to move up
anyway? Two reasons. First the "big guys" need people in the game and like
a Las Vegas casino, they know the little guy has to win once in a while or
he won't play. They can't have that!
Second and most importantly, since everyone is so convinced about this big
recovery that is supposedly coming, every day they are trying to time the
"exact bottom". They all want to rush in at the very first signs of
recovery, so that is why each piece of good news gets rewarded. They never
know if that first piece of news is the one that turns the tide, so they
jump in and hope. Then if it doesn't pan out they move back to the
sidelines again. One of these days we are going to get a few positive news
releases and NO bad news to counter it and we are going to see quite an
explosion higher. And that is all we are counting on. A hope rally that
takes us up several hundred points until they all realize that things
aren't turning around and they bail out again. We still feel that is
intact.
Our guess for the future is this: Friday stunk. We expected it to be
better based on the "not so bad" employment report, but the NAPM bothered
traders big time. But, as they say time heals all wounds and we think the
desire is to move higher. If it wasn't they could have used Friday to puke
us for 200 points. We feel that Monday will be poor to fair at best , but
that by Tuesday they will be trying to hype us higher. If it finally
catches on and somebody like CSCO who has earnings Tuesday night, doesn't
screw us up, we could see some decent moves up. We will use NASDAQ 2100 as
a buy signal to hop aboard and if not, NASDAQ 2000 to bail out. Remember
we said a long time ago we think the trend is higher, but its going to
come with a lot of nasty looking bumps and lumps. So far that is sure the
case huh?
Just remember this: Tuesday night we hear from CSCO and if they can spin
their earnings with a bright light, we are probably heading higher. But if
they report that things are still lousy, and they actually guide us lower,
tech will probably get clobbered again. It wouldn't be unwise to bail out
of tech before the close Tuesday just in case they say the wrong things. |
