"Market Monitor"-Robert Drach of "Drach Weekly Research Report"
PAUL KANGAS: My guest "market monitor" this week is Robert Drach, editor and publisher of "The
Drach Weekly Market Research" report based in Key Biscayne, Florida. And welcome back Bob.
ROBERT DRACH, PUBLISHER, "DRACH WEEKLY RESEARCH REPORT": Good to see you
again Paul.
KANGAS: Another record high in the Dow, approaching 11,200, third record high in a row for the
NASDAQ. All the other indexes close or at record highs. What is driving this market? Is it the
expectation of great second quarter earnings, the lack of inflation, too much money chasing too few
stocks? What is it, Bob?
DRACH: Well, basically it's a lot of excessive speculation. The market was pretty choppy for two,
three, six weeks maybe coming back into the last two weeks. Then they had a big push in institutional
window dressing at the end of the quarter. At the same time the Fed met. They took the pressure off.
The public came in, up she goes. So, that's your main impetus, it's not, it's certainly not corporate
earnings. And it's certainly not standard fundamentals.
KANGAS: OK.
DRACH: So, you've had a combination of structural things that gave you this push, which is fine.
KANGAS: Do you think that this push is ending for the moment?
DRACH: We've published a "sell" indication today.
KANGAS: A "sell" recommendation today?
DRACH: Yes.
KANGAS: On the market in general?
DRACH: Yes.
KANGAS: OK.
DRACH: You see, the speculation you can measure. We've had a very rapid increase in margin debt,
for example. It's now $180 billion on the New York.
KANGAS: Yes.
DRACH: Put-call ratio, sentiment indicators, these are speculative measures. And you know you're not
going to get help from the Fed at least lowering rates. So, you're losing your support mechanism, you
have the Exchange beginning to move to the short side. So that's why we're leaving.
KANGAS: This brings up the question about the Fed. The first of tonight's "Ask the Market Monitor"
questions, the first one comes from New Mexico. It's from Bob Boland of Los Alamos, who watches
us on KNME. And Bob wants to know, "what is your opinion of the Fed's change to a 'neutral
stance?' Might this extend the long-running bull market?"
DRACH: Yes, it did change the neutral stance after raising rates June 30.
KANGAS: Right.
DRACH: What comes out of their mouths doesn't make much difference. It's what comes out of the
actual act.
KANGAS: OK.
DRACH: And I think he would be well-served to keep in mind that it's rare for the Fed to make a
singular move in a direction. The average is around three.
KANGAS: Mmm-hmm.
DRACH: So whatever the Fed says, history says they're going to persist in that direction.
KANGAS: OK.
DRACH: And also, it's important to note the Fed usually follows. They were catching up to freely
traded rates.
KANGAS: OK.
DRACH: They sometimes lead, but they generally follow. Too much energy is wasted by analysts on
the Fed. Watch the real bond market.
KANGAS: All right. Second question from La Rue, Ohio. Rick Sigrist, who watches us on WBGU in
Bowling Green, asks, "the Internet stocks seem to be in a mania phase. What would cause these
stocks to crash or collapse? And do you believe they will collapse?"
DRACH: Oh, eventually, because they'll have to come to earnings.
KANGAS: Mmm-hmm.
DRACH: But we've been on the Web for the fifth year now.
KANGAS: OK.
DRACH: And a lot of experience with it. It's wonderful. It's going to grow. But you have to have
earnings eventually.
KANGAS: OK.
DRACH: So, yes, eventually the day of reckoning will come. It'll be like new radio back in the '20's.
KANGAS: Your last appearance with us as a "Market Monitor," August 21 of last year: 3M
(NYSE:MMM), Federal Signal (NYSE:FSS), Motorola (NYSE:MOT), KeyCorp (NYSE:KEY),
Torchmark (NYSE:TMK), Culp Corp (NYSE:CFI) Genuine Parts (NYSE:GPC) and UST
(NYSE:UST) all up. Six out of eight were up. Are you selling any of them?
DRACH: Well, we're basically, in the more refined models, we're selling out basically everything.
KANGAS: Speaking of models, we have a Web page model here for you. We'd like to throw it up.
Since May 1995 you've been doing your model portfolio for NIGHTLY BUSINESS REPORT, and
it's way up.
Annualized gain, 36.4 percent. And out of the trades you've made, total position 169, 157, or 93
percent have been profitable.
DRACH: That's our count every day.
KANGAS: A lot of people don't realize you do this kind of work.
DRACH: Yes. But this is educational thing.
KANGAS: Right.
DRACH: Just to demonstrate to people how you can make money just by internal shifts in the market.
KANGAS: Well, you've done very well for us and we appreciate it very much.
DRACH: Well, its there.
KANGAS: OK.
DRACH: It shows how easy the market is.
KANGAS: You have a "sell" signal out. You have no "buys," is that true?
DRACH: Well, we'll always buy something in this kind of modeling to show relative discounting.
KANGAS: What?
DRACH: Federal Signal we'd still stay with.
KANGAS: FSS.
DRACH: Yes. ServiceMaster (NYSE:SVM).
KANGAS: OK.
DRACH: Now, if the market gets in trouble, eventually the high-quality drugs will bail you out.
KANGAS: OK.
DRACH: Whatever you buy, you better be happy to live with.
KANGAS: The Lilly's (NYSE:LLY), the Pfizer's, the ...
DRACH: Abbott (NYSE:ABT), Schering-Plough (NYSE:SGP).
KANGAS: OK. Those are your favorites?
DRACH: Yes. That's who I'd go to if I had to be there.
KANGAS: Would you buy bonds here?
DRACH: No.
KANGAS: You were right about it last time. The long yield was 5 1/2, and you said don't buy them.
And of course we went over 6 just recently.
DRACH: You can also look in sectors, like the model does here.
KANGAS: All right. All right. So, you're on a "sell" signal right now, but there are a few issues you
mentioned you liked you would buy.
DRACH: Yes.
KANGAS: OK. Bob, thanks very much.
DRACH: Thank you.
KANGAS: My guest "Market Monitor," Bob Drach of Drach Weekly Market Research.
quote.com
|
