Summary : Weekend Reading: Now Let's Get Busy
By Paul Kedrosky
Special to RealMoney.com
10/12/2003 12:59 PM EDT
URL: thestreet.com
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Good Sunday morning. Here, as usual, are some articles and papers worth reading from the weekend papers and elsewhere. First, however, some comments on the week that just finished, as well as on the week ahead.
The markets forged further ahead this week. All three major U.S. indices advanced, and all three closed the week within tripping distance of their 52-week highs, no more than 1% off. Leading the week was the frisky Nasdaq Composite, up 1.85%. Not too far behind were the S&P 500 and the Dow, up 1.1% and 0.8%, respectively.
It was a light week for economic news, and there was only a smattering of the third-quarter earnings releases that are about to flood the market. Nevertheless, it was economic information that kept things going last week -- and Thursday was key. Reports showed improvement in the labor market, with U.S. new jobless claims coming in at 382,000, the lowest number since last February. Add in solid same-store sales figures, and you had the makings of a week that just kept meandering upwards.
The ignored-news-of-the-week award goes to the dollar. The currency is now hitting medium-term lows against most of it major counterparts, including the yen and the Canadian dollar. While the effect of the lower dollar is mixed -- U.S. exports are becoming more competitive, which may slow some of the ongoing job loss in manufacturing; it is also making it more expensive to finance the widening U.S. deficit -- no one seemed to want to talk about it either way. This is an example of where the U.S. penchant for not looking far beyond its economic borders is far from a virtue, with the falling dollar likely to hit lower levels, and accelerate through them, before many investors realize just how serious the dollar's woes have become.
While last week marked the anniversary of the current bull-market run, this week marks another anniversary -- that of prior October mini-collapses. It was Oct. 19, 1987, that the Dow set its one-day loss record of 22.6%. There have been other nasty Octobers since then, just to keep the memory fresh in investors' minds. There is nothing unique or alchemical about October itself. Arguably, it has much to do with third-quarter earnings data coming, and investors trying to decide what it means for the fast-finishing year and the year coming. With the preceding in mind, here is the latest "crash confidence" index from Yale's School of Management. It asks retail and institutional investors how confident they are that we won't see a market crash in the next six months. Answer: They are at record-high levels of confidence -- and climbing higher.
Turning to individual stocks, there was a change in the prevailing wind. For the first time in three months the majority of the top-performing stocks were not money-losers. Nor were they mostly technology stocks. It was, perish the thought, almost a balanced week, with stocks from a number of sectors winning out, and all sorts of sectors represented. Leading the list, however, was Cole National Corp, owner of a range of different optical-oriented retail outlets, like Pearle Vision. The company was up more than 70% on the week, entirely on the back of a somewhat mysterious $321-million buyout offer.
On the loser's list, things were the same as they have recently been: more money-makers than money-losers, and an eclectic mix of stocks. This week, however, we had one standout winner among the losers: CSG Systems. The company, which providers billing services, got thrashed on Wednesday after it said its quarterly earnings would be down as much as 60% because of a ruling on its contract dispute with the cable TV company Comcast Corp. Ah, the joys of a) semi-regulated industries, and b) having a concentrated list of customers.
Let's turn to the week ahead. In a word, it will be busy. Next week marks the beginning of third-quarter earnings season, with about 110 S&P 500 companies delivering results (there will be 160 S&P 500 reporters the following week, and 90 S&P 500 companies the week after that). According to Thomson First Call, this earnings season has been an awfully positive one: there were three negative forecasts for every positive one in the first quarter of this year, which fell to a 2:1 ratio in the second quarter, and has now fallen further to 1.7:1 so far this quarter. It is hard to imagine it gets much better than this.
The week is a chock-a-block with companies to watch. Headliners include IBM, Bank of America, Johnson & Johnson, Merrill Lynch, Motorola, General Motors, Advanced Micro, Altria, Caterpillar, Coca Cola, eBay, Honeywell, and the sadly spiraling Sun Microsystems. While GE's weak numbers last Friday set a somewhat negative tone, you would have to be the most optimistic bear to believe that GE will be the rule, not the exception. We are likely to see solid results, and generally confident talk about the outlook.
On the economics front, the week is fairly busy as well. On Wednesday we have U.S. retail sales for September, which are expected to be slightly lower, down 0.1%. Thursday will see the Philadelphia Fed's report on manufacturing conditions this month; and the day will also see weekly jobless claim, which most now expect to show continued improvement. Also on Thursday we have the U.S. Consumer Price Index, and it is expected to be up about 0.2% in September, slightly lower than the August increase of 0.3%. Finally, the University of Michigan will release its consumer sentiment report on Friday, and the expectation is for it be up very slightly.
All in all, a busy week, and the beginning of a very busy three weeks in the markets. These weeks won't answer the question of how long the recovery is going to last, but we will get some hints about how strong it will be. Key to watch will be where the earnings growth has come from: cost-cutting vs. sales growth. There isn't much more to be gained from the former, so future growth is going to come from sales -- so sales growth will be the number to watch.
Finally, here are some articles and papers worth reading:
The outlook for oil in Russia hinges on Putin. [Oil & Gas Journal]
Stephen Roach on the U.S.' doomed attempt to ignore history and provide both guns and butter to a clamoring electorate. [Morgan Stanley]
P&G and Amway are fighting a titanic struggle over satanic symbols, free speech, journalistic intent and biblical word count. [Ad Age]
T-Mobile and AT&T Wireless, unlike Sprint, are both delaying their launch of the Treo 600 amid rumors of software issues and number-portability problems. [Gizmodo]
States are selling bonds to cover pension-fund losses, and finding themselves neck-deep in more losses. [NY Times]
What will be the effect of Rush Limbaugh's 30-day sidelining on Clear Channel? He is the largest syndicated property in their stable. [ Miami Herald ]
Yet another unintended consequence of outsized agricultural subsidies: obesity. [NY Times Magazine]
Merrill's Bernstein favors energy, utilities and health care -- not technology. [Merrill Lynch]
So much for the flash storage market: WR Hambrecht downgrades Lexar to a sell on margin compression. [WR Hambrecht]
Viacom's USA Networks is a troubled network, with falling viewers and overly high distribution fees. [ LA Times ]
Many are unhappy with Global Crossing CEO John Legere, alleging that he used Global Crossing Asia money to settle sexual harassment suits against him, and that he was responsible for controversial capacity swaps. [ LA Times ]
Making money after the telecom bust: mobiles, broadband access and corporate services. [ The Economist ]
Carl Icahn, Warren Buffet, Wilbur Ross and the global telecom asset scavenger hunt. [ The Deal ]
Some argue that Sun Microsystems might actually turn things around. [ SF Chronicle ]
Reebok is now competing tough with Nike in the business of wooing athletes. [ Boston Globe ]
McKinsey argues that off-shoring of labor is a win-win game. [McKinsey Global Institute]
The broad run in small capitalization stocks is over, but there is energy left in oil and in health care. [ NY Times ]
The volatile merits of diversifying a portfolio using commodity funds. [ NY Times ]
Traditional phone companies struggle as wireless' march continues in all markets. [ Business Week ]
This is the "perfect market" for growth investors. [ThinkThoughts via Washington Post ]
Google's algorithms are increasingly being successfully gamed. With a Google IPO likely looming, this sort of news is going to become more widely watched. [ Washington Post ]
The time and cost of formally registering a new business, by country. [World Bank via Washington Post]
Progress on the Basel II capital accords -- and some backing down on major issues. [BIS]
Research: Institutional investors can successfully predict breaks in strings of quarterly earnings. [Penn State working paper]
Research: The global risk premium is lower than most prior studies have shown, yet the future risk premium is likely to be lower yet. [Journal of Applied Corporate Finance]
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Paul Kedrosky advises various hedge funds and private equity firms in the U.S. and Europe and serves as an adjunct professor at the University of California in San Diego. Formerly a high-ranked sell-side technology equity analyst, Kedrosky has also started various technology companies and worked in product management at Digital Equipment Corp. At time of publication, Kedrosky had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Kedrosky cannot provide investment advice or recommendations, he welcomes your feedback. |
