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Ricchio Report
Mario Ricchio
June 19, 2002
A long Rant from a Major stock bear...
Is somebody playing a game with the stock bulls?
In my opinion, smart money is smacking gold stocks on low volume and propping US stocks on
low volume to get out of US stocks and begin to accumulate more gold stocks.
In volume terms, a sell-off on low volume is bullish, shakes out the weak hands and bring smart
money back into the market. In contrast, if a market rallies on low volume, big players are
jamming stocks to convince weak hands back into the market so they can distribute their shares
to them.
This brings me to my next point: If your Goldman Sachs or Morgan Stanley and trading volume
diminishes so do commissions and profits. What these investment bankers see is vulnerable
corporate America balance sheets in need of cleaning. Is Goldman there to help the company? Of
course but they also want to profit from it. Goldman (and all investment bankers) is going around
and pushing companies with poor credit ratings to issue stock in an effort to pay down debt.
Deleveraging makes the company more viable in a slowdown and makes Goldman richer as they
get the deal done. What I'm trying to say is that a lot of stock supply is hitting the market in the
form of secondary offerings, IPOs, spinoffs etc. Tyco's CIT group is a perfect example. Tyco can't
borrow without paying up and they need to clean the balance sheet, so they are looking to spin
the unit off and raise cash. Who do you think wants the deal to get done, you got it the
underwriters. There is a lot of supply hitting the market and more is coming before July 4 holiday.
So I would expect the investment banks to prop the stock market or better yet just prevent huge
downside action. They will try and stabilize markets so this STUFF gets priced.
This is not a bullish factor for the market. New supply hitting the market longer term brings down
the market as demand (inflows) can't match new supply. Factor in Bill Gates (corporate insiders)
selling on any rally the stock options they have vested and equity stakes and the overhang is
deadly for the bull market.
In a nutshell, what I am telling you is that the reason the market is stabilizing is due to In. Bank.
trying to get this junk on the market. They will stabilize the market and bring the new supply on.
Once this supply hits the market and Goldman makes its money the market will fall. I would look
for the market to retest 980 by late July or Early August. Until then, all declines will be moderate.
So the conclusion is simple: The big money knows what the investment banks are doing so they
let them bring the market up on low volume and the big money will clear out of their holdings.
(They) also know that when the sh*t hits the fan, you better own gold or gold stocks, that's why
smart money doesn't want to let gold fly right now. They are trying to shake out the weak hands
so they can buy their gold and gold stocks right before this bull market LAUNCHES. Make no
mistake, this jamming in stocks and bopping in gold is one big game used for distribution on one
hand and accumulation on the other. The loser, again, is the investing public that bites hook line
and... you can figure the rest out.
As for the currency question, I still believe the Euro dollar exchange rate is the biggest out there
for the US stock market. Europeans are big net buyers right at the top of the US stock bubble and
now are holding massive losses. Couple in an exchange rates that's going against them, I would
bet that at parity, the selling becomes rampant and the dollar tanks. It's a threshold that's hard
to quantify, so psychologically I think the break point for foreigners to say enough is a enough to
the US capital markets is Euro parity with the dollar. Now, if foreigners, led by Europe begin to
dump en masse combined with supply from US companies trying to restore the balance sheet and
the insiders selling from the not so sanguine corporate insiders, one can see that supply will far
outstrip demand.
On the current account deficit: The US current account deficit is simply unsustainable. Foreign
direct investment is plunging into the States and is only being covered by portfolio inflows. The
problem for the US dollar is how can they continue to attract inflows into stocks when foreigners
are holding major losses in their portfolios and don't have the advantage of a strong dollar to
make repatriation profitable! If anything, not only can the US not cover the current account deficit
without devaluing the dollar. Some dollar bulls will hope the fed raises interest rates way above
current levels to attract money or let stocks fall low enough to find foreign buyers.
On the first point, Greenspan will not raise rates or else the housing bubble goes pop before it
should. So the rate of return on investment isn't there. As for stocks getting low enough to find
buyers. If the stock bubble pops, foreigners won't add new money to support dollar they will be
trying to get out of past investments.
Basically, I look at this way, the dollar is screwed. It's in a big box. Greenspan can't raise rates to
support the Dollar because the US economy is big fragile bubble looking for a needle, and the
dollar can't be supported by letting it decline because foreigners will dump stocks and kill the
economy pushing the dollar even lower. If the economy weakens and bubble blows, the dollar has
no chance. The dollar can't rally if rates are raised as it crushes the debt burdened consumer but
it couldn't rally if rates were lowered as folks figured out there was no economic recovery. Stocks
and bonds are not values, as such, they can't attract new. By the time bonds and stocks become
values again will be years away and the US economy will be in such worse shape no one will want
to touch the currency as everything bottoms out.
That's why the smart money is propping stocks and bopping bonds, they know they have to make
asset allocation switches before this scenario plays out.
Obviously this is just my opinion on the matter, I could be wrong. Only time will tell. A conspiracy
theorist at work, you got it. Take the rant for what its worth...
Have a great weekend.
Editor's note, crikey his weekend starts early. Nice one, Mario. |
