The King Report
M. Ramsey King Securities, Inc.
Wednesday June 26, 2002 - Issue 2447
"Independent View of the News"
Globex SPUs [at press] 950.50, -24.00; USUs 105.12, +2.06 $=120.30yen; euro = .9871 Gold is +$4.30
Enter The Pain
After the close, GE announced they would hold a conference
call on July 18 and reaffirm earnings guidance for this quarter. That's ridiculous - GE already made the
announcement. It's a transparent ploy to produce a
perceived double benefit for GE stock, which is in steep descent. SPUs rallied after the ploy. But the surprises
are negative in a bear market, and this is a super/secular
bear.
Yesterday's session had the smell of bankruptcy anxiety in
the air. WCOM, Amtrak, US Air, UAL, LU were cascading on
fear debt would sink them. After GE's gambit, CNBC
reported that according to WCOM insiders, the company had
cooked earnings the last 5 quarters. The stock fell to
.35 in after-hour trading. WCOM faces the abyss. Will
it take LU, TLAB, and others with it? What about the
bankers and debt holders? Two large JPM blocks traded
after the news; SPUs and NDUs fell precipitous...Micron's
after-the-close report of a 4-cent loss also is
contributing to after-hour and overnight trading distress.
The due bill has arrived for Easy Al and others' duplicity
and malfeasance. As we keep harping, that's what happens
after a busted bubble. Monetary policy is ineffective,
except for a brief rally that allows insiders and the
astute to exit. More money is lost on the resultant
'death march' decline than on the initial bubble burst.
The financial violence worsens. Debt keeps growing;
its unserviceability crushes the economy. The panicky
liquidity cannot get into the economy efficiently. A
daisy chain of bankruptcies ensues; a debt deflation
spiral occurs. It takes years to remedy the excess
debt and capacity.
The hellish consequences of Easy Al and Slick's '90s bubble
are arriving with increasing frequency and intensity.
Long-time readers know we constantly lambasted the corruption, fraud, and chicanery of the late '90s. Bubbles don't
occur by accident. The bubble was partly designed to keep
Slick out of jail. Many people thought our continual
bashing of Slick was solely political, but as we tried
to articulate, we were disgusted at the massive corruption
that permeated virtually every facet of US society. We
often mentioned that the US would pay dearly for the
venality of the '90s. That is now transpiring in the
military, intelligence agencies, Justice, corporate
America, the Church, stocks, etc.
Slick posted a for-sale sign on the US, and every insider
and wise guy knew it. Everything was for sale, and ethics
were discarded for quick profits. Non-financial profits
peaked in 1997, but accounting chicanery kept the game
going. The government manipulated economic data. Fraud
was ubiquitous. It was obvious; and the consequences
weren't a forecast; they were a certainty.
As bankruptcies proliferate, Congress and Bush will be
pressured to act. They will select winners and losers,
since everyone can't be saved. What telecom, techs, etc.
will be given Chrysler-like sustenance?
US banks will resemble Japanese banks. Soon, politicians, academicians, media, etal can issue the same bromides
to US banks that they arrogantly hurled at the Japanese.
In overnight trading, bonds are up a deuce, stocks futures
are cascading, gold is up $4, and the dollar is tanking.
Today will be coyote ugly. Critical technical support
levels will be obliterated. As we kept warning, stocks
were sick, but misguided traders kept usurping the necessary purging. We also stated that market action implied that something or someone was 'in trouble'. The news that
WCOM's CFO was fired 48 hours ago is just one factor that
has emerged. They are undoubtedly many othe...There will
be various and sundry rumors as to who 'is in trouble';
some will be true. The obligatory purging is commencing.
And as we warned, the final stage is vicious; prices
decline to unfathomable levels due to forced liquidation…
When or will the Plunge Protection Team surface?
Euros are up sharply overnight. The market is starting to
price in a rate cut. This is extremely bad news as the rate cuts are innocuous for both the economy and stock market,
but are anathema to the dollar.
Federal Express cut next quarter guidance, triggering a
collapse in rails. The rails had been huge post-9/11
winners as the obvious alternative to airlines and as a
key beneficiary of the widely heralded economic rebound.
FDX's pronouncement is a more prescient economic forecast
than an econometric model. So much for the LEI and other
overly dependent-on-monetary-policy indicators.
Treasury's announced cancellation of the 2-year auction,
due to Congressional inaction on raising the debt ceiling, boosted bonds and crippled stocks.
Please disregard talk about how sentiment is so negative
it signals a massive rally. Just as bullish sentiment goes
and stays at extremes in bubbles, the reciprocal occurs in
bear markets. But most importantly, as we keep saying, valuations are the true indicator of sentiment. When tech stocks still trade at 60 to 80 PEs and major market indices sport historically high PEs, sentiment is still extremely bullish.
CNET reports, "Apple Computer, which initially could not meet demand for its new flat-panel iMac, now appears to have the opposite problem. Retailers and distributors who had to wait weeks after the product's January introduction to get their hands on the desk lamp-shaped desktops now find the machines piling up as the consumer PC market slows to a crawl."
The Chicago Tribune, citing the Illinois Association of Realtors, says housing prices are up 15.1% in Q1 for the
Chicago area. Some areas, like Oak Park are up 27.3%.
But that won't show in CPI.
You know that housing price surge? Well if LU goes, parts
of New Jersey and Chicago western suburbs won't have to
worry about the housing bubble. This will be repeated throughout the US - where ever teetering corporations
and depended entities are domiciled.
For the past 20 years, Wall Street and others bragged
that 'just in time' inventory management made US business
and the economy more efficient. Yesterday, the WSJ had
a front-page article blaming the erstwhile-trumpeted
practice for retarding the recovery.
There will be even more Congressional hearings into the
ways and means of the financial fraud and carnage that
is still unfolding. But when will hearings into
Congressional and Executive fraud occur?
We said it many times over the past several years, and
we'll say it again. "The level of speculation in a
society is directly proportional to the level of corruption."
We don't recall the quote's originator.
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All the best,
Bill Murphy
Le Patron
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