GST,
I know someone that predicted this a long time ago: <G>
"WALL ST WEEK AHEAD-Craving cash amid tighter money
By Richard Melville
NEW YORK, Aug 8 (Reuters) - After years in Wall Street's
doghouse, cash, if not quite king, is in hot demand.
With U.S. financial markets jolted in recent weeks by the
prospect of higher interest rates and bracing for a second
monetary tightening by the Federal Reserve, it is hardly
surprising that some Wall Street strategists are raising cash.
What is more troubling to some analysts are developments on
a different cash front.
A confluence of factors, ranging from margin calls on
Internet stock laden day-trader accounts to a shift in fund
flows out of the United States and into other markets, may
already be stealing the ready pool of funds that in the past
has supported stocks on every market dip.
While daily figures on international capital flows are
unavailable, one key barometer of international sentiment, the
U.S. dollar, has weakened considerably in recent weeks, said
Hugh Johnson, chief investment officer at First Albany Corp.
"Based on the performance of the dollar and the performance
of our financial markets, it's safe to assume we're seeing some
kinds of outflows from both our bond market and our stock
market," he said.
If the outflows represent a meaningful shift in sentiment
by international investors toward the United States, that could
quickly translate into lower stock prices.
"One of the strong tailwinds for U.S. markets has been the
inflows of funds from overseas," Bill Meehan, chief market
analyst at Cantor Fitzgerald, said. "Not only would that
abating have a detrimental effect, reversals could be
devastating."
The market's retreat over the past few weeks comes at a
seasonally quiet time for investors. Second-quarter earnings
reports are nearly all in and Dow component Wal-Mart Stores
Inc. <WMT.N> will report results on Tuesday.
On the economic front, the calendar is also light, with
Friday's Producer Price Index the highlight. Economists polled
by Reuters expect a 0.3 percent rise in wholesale prices and
just 0.1 percent when food and energy prices are excluded.
Indeed, with respect to both earnings and economy, the news
has tended to surprise on the bright side, with growth stronger
than expected and inflation still at bay.
In some ways, the change in view on the U.S. market, at
least from an international point of view, has much to do with
the fact that some global laggards -- most notably Japan --
appear on the brink of growth spurts after prolonged slumps.
No one can say for certain whether recovery is at hand in
Japan, but markets rarely wait for certainties and with U.S.
stocks priced richly, the reward scenario offered elsewhere is
attracting players.
If U.S. stocks enjoy lofty valuations, no group populates
the stratosphere like the Internets, even after their
precipitous declines over the last couple of months.
The losses in the speculative group are why Wall Street's
margin debt tab is again raising concerns.
New York Stock Exchange member firms' customer margin
accounts, which allow investors to borrow against a portion of
their portfolios to purchase additional stocks, surpassed $170
billion in April, reaching $178 billion in May before edging
back by about $1 billion in June.
That represents a 25 percent increase versus December,
1998, growth that outpaced the 19 percent gains in the Dow
Jones industrial average, for example. The growth also came
after many retail investment firms such as Charles Schwab Corp.
<SCH.N> were tightening margin rules, requiring investors to
put up more cash for trades.
With Internet stocks falling sharply -- America Online Inc.
<AOL.N> has tumbled 50 percent from its highs, eBay Inc.
<EBAY.O> nearly 65 percent and uBid Inc. <UBID.O> a
bone-jarring 90 percent -- firms may soon be calling on
investors to pony up cash to maintain their margin account
balances and liquidating positions for those who cannot.
That may mean ...
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