a piece of russell commentary today
September 4, 2001 -- News: NAPM Index was up more than expected, suggesting that maybe the factory slump is ending. On the news the market surged early in the session and bonds got hit hard. Bonds were down on the theory that the Fed might be through lowering rates. On the news the dollar surged higher.
Comparisons are often useful or at least informative. This from last week's Investor's Business Daily. "Depending on how you count it, American investors -- who make up more than half of all households -- have lost somewhere between $4 trillion and $7 trillion in wealth in the past year. That's roughly half of the value of our total Gross Domestic Product."
But let's take the lower figure of $4 trillion. As an interesting comparison, according to the latest D-J figures, the total market cap of the D-J Industrial Average is $3.3 trillion. So as of now, the bear market has wiped out values exceeding the total worth of the D-J Industrial Average. That kind of massive loss has to have its repercussions, not only as a forecaster but as factor in the economy, as actual values gone down the drain.
Some of the repercussion of this stunning loss are now beginning to appear. For instance, on the front page of today's New York Times we read the headlines, "Waiter, Hold the Foie Gras: Slump Hits New York Dining." And the article starts, "For months, restaurants in New York City seems impervious to the bleak economic news, but recently their phenomenal double-digit growth in sales has come to a screeching halt
"The unluckiest have seen business drop as much as 30 percent, and the city's top restaurants, the place whose stature makes them the lest vulnerable to a cooling economy, are starting to feel the chill. . . . Gone are the $10,000 bottles of Bordeau at Le Bernardin, the $4,000 dinners out of the wood-fired over at Beacon. Now it's more modest dining, three courses of comfort food for $20 at the Metropolitan Hotel and half-price wine with the pan-Latin fare a Chicama."
And another article in today's Times starts with headlines, "Manhattan Hotels Strive to Find Heads for Beds." The article continues, "The occupancy rate in Manhattan hotels fell nearly 12 percent from April through June compared with the same three months last year. . . For all of 2001, Price Waterhouse-Cooper is predicting that hotels in Manhattan will reach an average occupancy rate of only 76.5 percent, down from 84 percent a year. Many hotels have had to pare rates to entice guests through the door, their revenues per room have taken even more of a hit. etc. etc."
And from page 2 in today's Wall Street Journal we read the headlines, "Bargain Hunters Target Commercial Real Estate." The piece starts, "After years of climbing, prices of US commercial real estate have finally started to fall, and real-estate 'sharp-shooters' are taking aim. Local real-estate operators have begun raising money in anticipation of bargains, especially for office buildings and shopping centers, even as other investors shun the sectors' rising vacancies and sliding rents. . . . Meanwhile, equity capital and competing offers are getting scarce."
So that's what's happening in the upper echelons of the economy, and as I've said before, the rich, the big investors, the "smart money," are the first to realize what's happening. And this group is doing two things -- cutting back on their own spending and looking over opportunities in sinking industries.
Squeezed by the near-collapse in the global sales of computers, over the weekend Hewlett-Packard announces that it will buy Compaq in a stock swap of $26 billion, making the new company almost a big as IBM.
Ah, the poor US consumer, as usual, he's the last to know what's going on. Even the daily lay-offs have failed to hint to consumers that all is not well, and that the government's soothing words are just that -- words.
Here's a significant bit of history. In the second quarter home prices shows an 8.6% increase over the same quarter last year, according to the Department of Housing and Urban Development. I say "history," because I'd bet that the second quarter represented the peak of home appreciation. I would seriously doubt whether it's going to get any better as we go forward.
If or when housing starts to sag, consumers will pull back on their spending, thereby following the path that the wealthy class have already taken. From reports from subscribers all over the nation I hear that (1) housing transactions are slowing down, and (2) housing inventories are rising. The next step will be easing in home prices.
Meanwhile, it's dawning on investors that the earnings that corporations are announcing are as phony as the old "three-dollar bill." States an executive of Northern Trust in Chicago (quoted in today's WSJ), "I am very nervous. I don't think people are believing anything that any company says now. I think people want to see the white of their eyes on the earnings front."
Writes Gretchen Morgneson ("Market Watch") in Sunday's New York Times, "But something else is weighing on stocks. That is the creeping realization among investors that the momentous earnings reported by many companies in recent years may have been digitally remastered to include a lot of hype, embroidery and fluff."
So as far as announced earnings, who knows what in hell these corporations are actually earning or losing. It's happy hunting for America's accountants, and "anything goes" (including regular expenses, which are taken as once-in-a-lifetime expenses and therefore not included in "operating earnings").
Today's market started out as I expected it would (see yesterday's site) following last week's three consecutive days of triple-digit losses in the Dow. This is what I would label as "snap-back" action, but in my opinion it simply provides an ideal time for cleaning out whatever stocks you half left in your portfolio.
The market opened with a huge upside surge in the Dollar Index, up 136 as I write with the Index at 115.03. Conversely, the September euro plunged a giant 176 to 89.21. The euro suffered an "island reversal," meaning that it gapped up on August 15, milled about for 13 days, and today it formed a giant gap on the downside.
This "island" with a gap on the upside and then a gap on the downside indicates that the euro "has had it" for quite a while, and is in what I would term a major top-out.
Why? Here's my guess -- the euro is plunging on the perception that the weak US economy is still stronger than the European economy. The fading euro might also have something to do with the inauguration of the new currency at the first of the year. Maybe foreign exchange traders have doubts about the viability of the euro. There are many questions, but what we know is that the euro took a dramatic dive today. And "island reversal" pattern tells me that the euro may have topped out "for the duration."
In fact, looking at the "island reversal" and the extend of today's drop in the euro, I have to wonder whether the whole rise in the euro since the July 5 lows wasn't simply a rally in an ongoing bear market in the euro.
A thought -- With a rally in the stock market today (read below) and the rally very possibly carrying further, the perception could be that "the US economy may be on the verge of getting better," and this could account for the sudden surge in dollar strength and the sudden collapse of the euro. |
