Fred,
Nice post. I like facts, personally. Though their interpretation may be open to question they have the distinct advantage of being based in reality.
The steel news is neither surprising nor new. Steel has been in big trouble for some time. For example, BS has been in a long, long down trend since the beginning of 1998, and this during a period of unprecedented economic growth and a raging bull market. During this time, BS has lost 90% of its value, compared to its early 1998 peak:
askresearch.com
WHX and LTV have been in similar dire straits during this time period:
askresearch.com
askresearch.com
X has held up somewhat better than the rest, but is still in bad shape:
askresearch.com
In fact, X may develop into an excellent long-term short/put for this reason:
askresearch.com
That is, the others in the sector will be more likely to pull X down, rather than X lift the sector IMHO. Since the peak in early 1998, X has only lost about 60% of its value, compared to 90% for BS, about 95% for WHX, and about 95% for LTV. This tells me that X has significant downside potential. But I would not short it at the moment, because it has rallied into its major moving averages, still shows technical strength, and Friday's candle is bullish. But I would look for technical weakening, since a failure at the descending moving averages is likely. I like to evaluate other things as well for potential short positions, but if it began to fail here I would then consider buying long term puts, and/or shorting the common.
The data on layoffs in the auto industry I found interesting. This is consistent with something I've been banging my shoe on the table about: the economy is not nearly in as good condition as most people think, and this has little to do with the FOMC and Alan Greenspan. If auto makers are idling their plants, what does that say about consumer buying power? What are the implications for forward earnings growth in the auto industry? What sort of impact will accumulating inventory have on future balance sheets? To the extent that one perceives this to be a rough representation of other sectors in the economy, or the economy in general, then I would submit the answer to these questions will bring one to the conclusion that we are very likely headed for rocky times.
I don't follow the auto industry, so I don't know what the UAW has been up to. But if they have been wanting to negotiate for a raise, they can certainly forget that now. But I would bet you dollars to donuts that the rest of organized labor, seeing the handwriting on the wall, will move quickly to try to negotiate for higher wages while unemployment is still low, and the economy still in what appears to be good condition, and with AG hosting a January party to celebrate happy times returning <ggg>. I think they know they have a fairly narrow window of opportunity here. A year from now, I don't think they will have any chance of negotiating from a position of strength.
If this happens (and they succeed), this will be added inflationary pressure. And this is the scenario which has given me the most cause for concern: a slowing economy moving rapidly into recession, in the setting of inflation. Under those circumstances, what might the FOMC do? And the stock market?
While the things you talk about in the auto industry are not major influences as yet, still they hint that there might well be much more to come in a similar vein from this and other sectors, particularly collateral sectors.
Regards,
Walkingshadow |
