lewis today:
Print Version September 12, 2002
Bush Says No War Without UN Approval, But Stocks Are Bombed Instead
Asia was fairly quiet last night. Europe, however, was down about 3 percent this morning after Phillips Electronics warned (see more below), and the US futures were also weaker. We opened down and dribbled lower until President Bush began speaking to the United Nations. At that point, we slid to our lows of the morning. But when Bush finished and hadn’t made any extreme threats (apparently indicating that he would wait for a UN resolution before invading Iraq), we had a bit of a relief bounce. The bounce didn’t last long though as Uncle Al began mumbling about government deficits on the Hill (what would we do without this man to point out the obvious like this?), and we rolled over to new lows for the day. We danced along the bottom for most of the afternoon until the last hour where we made a swan dive into the close, finishing on the very worst levels of the session. Volume was fairly light once again (1.2 bil on the NYSE and 1.2 bil on the NASDAQ). Breadth was more than 2 to 1 negative on both exchanges.
Phillips Electronics warned over in Europe this morning that chip revenue would fall sequentially by 13 to 15 percent in Q3. That had the semis weak right from the open. INTC and MU both fell about 5 percent to just shy of their lows for the year. 5 to 7 percent moves down were the norm in the equipment stocks, where the brunt of the damage was once again. The SOX was dumped for 6 percent to just shy of a new low for the year.
MSFT followed up yesterday’s loss with another 3 percent slid, which brings it back to its low for the week. CDWC was also off 5 percent. DELL seemed to hold up the best out of the PC sensitive shares for whatever reason, as it only lost a hair.
Financials were weaker as well. The BKX fell 3 percent, and the XBD fell 2 percent. The derivative king fell 4 percent to a new low for the move, which is worth noting since it is the derivative king. GE fell 3 percent to just shy of a new low for the move. The subprimes were all whacked for 5 or 6 percent, but then again they’ve all been in giant short squeezes and have just now finally turned down from their July bounce highs. So, I guess larger moves should be expected. FNM and FRE both fell 3 percent.
Retailers were beat for the most part. WMT continued yesterday’s selloff with another 2 percent slide. The restaurants were also dumped. The fast-food joints were hit particularly hard. MCD, SONC, JBX, and WEN were all whacked for around 4 percent to new lows for the year. Sure, the consumer may have a bit of home equity left that he can try and tap in order to stay afloat (Enron wasn’t bankrupt as long as it had one last line of credit to tap, right?), but with the CRB sitting at an almost 4-year high, the consumer is going to be squeezed by higher expenses in gasoline, and other basic commodities along with all the money he is still losing in the stock market. Eating out will be one of the first discretionary items to be dropped, and the data continues to reflect that as we saw with JBX’s warning just a couple days ago.
The homebuilders were mostly lower but pretty much inline with the rest of the market and continue to hold up rather well. I’ll be honest, with all of the bearish talk out there about the housing bubble in the WSJ etc. combined with the way these housing stocks don’t seem to want to go down, it almost makes me think that they may have another run left in them before the housing bubble end in exhaustion. Bubbles tend to go on a lot longer than you think. After watching Internet stocks with no assets and no revenue achieve billion dollar market caps, I try and give the “nuts” the benefit of the doubt in all things. I’m keying on HOV and KBH. Thus far, HOV seems to be holding together fairly well after making a new high this week, and KBH is close to one itself. If these two stocks continue higher, housing bubble bears better be careful. Housing bubble bears won’t be wrong, they just may be a bit early (myself included here).
Consequently, while I was short some of these homebuilders for a short period of time back in July, I don’t currently have a position in any of them on the short side (not that I would ever be long them either). I think there are simply much more ripe targets out there at the moment with less risk if you’re on the short side. Obviously, if the housing bubble manages to bubble along, that also means that the economy might limp along as well (and let me emphasize limp), but that doesn’t mean that the rest of the stock market won’t continue to slide lower again this fall. It just means that the bear may not get a complete knockout blow in October. But he could certainly give an uppercut to stocks that makes them black out for a bit. In any event, we’ll just have to se how things progress.
Oil slid almost a dollar after President Bush apparently indicated he would not go into Iraq without a UN resolution. The XOI and OSX both fell a little over 2 percent. Gold was up about dollar this morning in London, setting up a small gap up in NY. We continued to rally another couple dollars or so but fell back to near unchanged after the aforementioned indication by Bush that the US would not go it alone. Once the opening gap was filled, however, the metal turned higher once again and rallied into the close to end near the high for the day, up $2.30 to $320.30. The HUI rose 3 percent to just shy of a new high for the move. The gold shares continue to steadily climb higher. Stocks like RGLD, MDG, and GLG (which are all favorites of mine I might add, especially RGLD) have all made (or have moved within spitting distance of) new all-time highs this week. Is it getting frothy in the gold shares? Hardly. One thing I watch as a sentiment indicator is ASA’s premium or discount to its NAV. The discount as of last Thursday had soared to almost 12 percent, hardly an indication of rabid bullishness. Most gold bulls have seen so many failed rallies that they expect this one to collapse just like all the rest, but it won’t in my opinion. And we could be on the edge of a major move higher. The CRB was off a touch, led by the weakness in oil.
The US dollar index slipped a touch. The yen rose a hair, and the euro rose a touch. The ECB, incidentally, refrained from lowering interest rates this morning as expected. Don’t look now, but the ECB’s reluctance to cut rates at the drop of a hat may just get the euro some respect and send it further on its way to becoming a “real” currency. Treasuries were a little higher to just shy of a new high. The yield on the 10yr fell to 3.96%. If we do attack Iraq by ourselves or even with the help of the British, which seems almost inevitable to me, we’re going to pay for almost all of it. I can’t imagine what that sort of supply hitting the bond market is going to do to long-term interest rates when the federal government is already running deficits as far as the eye can see. War is always inflationary, period. Throw in wartime government spending with a Fed that is printing money as fast as it can, and all I can say is… got gold?
Can we take out last week’s lows on this leg down before expiration? I originally had my doubts, but today was so ugly that maybe we can? If we do make a new low for the move, the next stop is likely the July lows. So, keep those seatbelts handy.
Lastly, I apologize for yesterday’s lack of paragraphing. We had a software glitch that wasn’t caught until this morning.
For those that want to email me, you can reach me at Lance Lewis.
Disclaimer: Lance Lewis' Daily Market Summary is not intended to constitute investment advice or a recommendation to buy, sell, or hold any security.
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