MARKET REVIEW: BEWARE THE IDES OF MARCH
The Daily Reckoning - Weekend Edition - March 13-14, 2004
Paris, France
By Eric Fry
March is a funny month; it's a wonderful time of year to
be a daisy, or an amorous sparrow. But not a great month
to be a dictator, as Julius Caesar and Saddam Hussein both
discovered.
March is also a funny month for the stock market... sometimes wonderful, sometimes awful. Interestingly, mid-March has witnessed very important trend changes in each of the last four years. In mid-March 2000, the Nasdaq reached a record 5,132... before plummeting 65% to 1,794 by mid-March 2001. Then, the post 9/11 rally took the index to an important peak of 1,942 in mid-March 2002, representing the start of 2002's long decline. Most recently, mid-March 2003 provided an excellent entry point to a year-long rally.
Is March 2004 another critical turning point in the stock
market? Despite the market's strong showing on Friday,
when the Dow bounced 112 points and the Nasdaq surged 2%,
the major averages still limped into the weekend with
large losses. The Dow slumped 4.4% during the week to
10,240, while the Nasdaq fell 5.1% to 1,985. Both averages
are in the red for 2004.
Perversely, the dollar rallied while stocks tumbled. The
greenback gained more than 1% against the euro to $1.221.
As the dollar strengthened, gold slipped back below $400
an ounce. For the week, the semi-precious metal fell $6.00
to $395.25 an ounce.
Weighing on stocks this week was the now-familiar news of
an ever-widening trade gap. The U.S. trade deficit widened
in January to a staggering $43 billion. The inflating oil
price, which closed the week over $37, added $200 million
to the tab... despite the fact that the U.S. imported 8
million barrels less than the previous month. Exports were
hit by a sharp drop in beef sales - the result of another
mad cow on the rampage. Beef sales are expected to decline
further in February.
But shouldn't the declining dollar be soothing this giant
deficit? Not necessarily. The trade balance with China, by
far the largest source of imported goods, is independent
of currency movements because the Chinese yuan is pegged
to the dollar at a fixed exchange rate. The dollar and the
yuan, therefore, are monetary conjoined twins. In January,
the closely watched deficit with China rose from $9.9bn to
$11.5bn - a 22% jump over the same month last year.
"The dollar devaluation campaign is twice a failure," we
noted earlier this week. "Isn't the weak dollar supposed
to boost job growth here at home, while narrowing our
trade deficit overseas? But neither one is happening. In
February, the average length of joblessness rose to 20.3
weeks, the longest since January 1984."
Evidently, investors don't care much about jobs... as long
as stocks are going up. For the last 12 months, Wall
Street has been gripped by "irrational exuberance - part
deux." But there's a new twist this time around: In 1994,
when Greenspan coined his famously ill-time phrase, he was
trying to dampen excessive investor optimism. But today,
he's encouraging it... which is one more reason why the
stock market is probably much closer to a major top than a
major bottom.
One year ago, the U.S. was about to blitz Iraq, determined
to topple a crazed dictator who had amassed - we believed
- a massive cache of highly destructive weapons. Investors
were nervous. Who knew that the perceived threat would be
a chimera? Who knew that instead of finding and destroying
Saddam's weapons of mass destruction, we would instead
pummel the "rogue nation" with our own WMDs, while finding
little more than firecrackers buried in the sands of Iraq?
One year ago, the U.S. economy was muddling along,
unemployment was rising, and corporate earnings growth was
non-existent. Buying stocks back then seemed like a risky
proposition. But the stock market soared anyway. Today,
the economy is humming, investors are confident and the
chairman of the Federal Reserve throws caution - and
billions of newly minted dollar bills - to the wind. These
are the good old days, revisited.
Unfortunately, our national debt is now larger, our trade
deficit is breaking records, the consumer is more "upside
down" than ever before and the world's growing ranks of
terrorist organizations continue to amuse themselves by
blowing up people they've never met.
And one more thing: the economy is adding jobs at an
abysmally slow pace. In fact, U.S. payrolls have increased
by only 122,000 jobs since March of 2003.
No doubt, this week's sharp selloff will be seen as
another great buying opportunity by the lumpeninvestoriat.
Most likely, it isn't... If March 2004 continues the
pattern of the previous Marches of this Millennium, the
stock market is on the verge of a major trend change...
Et tu, Mr. Market?
Regards,
Eric Fry
The Daily Reckoning
THIS WEEK in THE DAILY RECKONING
DEBT AND DYING (3/12/04)
by Bill Bonner
"... So far debt is probably brightening more lives than it darkens. As long as interest rates are low and
falling... and asset values do not fall... the lights should remain on for most people. It's when the juice stops flowing that the trouble begins. That's when you wish you hadn't borrowed so much... and feel faintly like blowing your brains out... "
dailyreckoning.com
THE VALUE OF GARBAGE (3/11/04)
by Dan Ferris
"... The worst failures, the companies run by the most
devious managers, made investors twice as much money in
2003 as the most successful businesses, run by the most
capable managers. The reason why lousy companies bring you
great returns is simple. Since nobody wants to own them,
their share prices get far cheaper than those of the
popular, successful companies most investors want to buy.
Right now is an especially good time to focus on the
losers... "
dailyreckoning.com
MAKE IT STOP! (3/10/04)
by John Myers
"... As strong as America's economy is right now, the
question remains - is it sturdy enough to handle the
massive debt load it is towing? If America is NOT strong
enough, then the economy could be whipsawed, facing
inflation on one side, deflation on the other. If that
happens, I can picture President George W. Bush screaming,
'Make it stop!' and Fed Chairman Alan Greenspan yelling
back, 'I can't!'... "
dailyreckoning.com
PULLING OUT THE RUG (3/9/04)
by Kurt Richebächer
"... The Greenspan Fed has discovered a new, amazingly easy and quick way to create higher consumer spending virtually from thin air - by way of so-called wealth creation through asset bubbles. Measured by real GDP growth, it seems a successful policy. But measured by employment and income growth, it is an outright disaster. There is now quite a variety of accidents waiting to happen in the markets, but the most predictable and biggest risk is a dollar crisis... "
dailyreckoning.com
THE PEOPLE'S BUSINESS (3/8/04)
by The Mogambo Guru
"... It's not just the money [that Greenspan prints up]!
Think of the U.S.'s veritable army of faceless government
employees. And there is a large spillover into the private
sector, as all that money from the programs and the
salaries of the government employees gets spent and
reverberates throughout the economy. And I will go farther
than that and say that the combined local, state and
federal governments ARE the damned U.S. economy. And
Greenspan wants to rein in THAT ravenous beast? Hahahaha!
The man IS a fool! Hahahaha!... "
dailyreckoning.com
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HEADLINE, NEWS And INSIGHT:
Record Trade Deficit; 'Blah blah blah' Says The Market
by Dan Denning
"... The [recent Dept. of Commerce international trade]
report shows a country that continues to consume more than
it produces, yet whose currency rises on the news. Go
figure. Why did the dollar go up when the fundamental
numbers show the balance sheet of America getting worse?
Who knows. The easy explanation - the one you'll read in
the mainstream press - is that the U.S. is a bigger
"growth" story than Europe. If you're talking about
growing deficits, that's surely true... "
dailyreckoning.com
Signs The Housing Economy Is About To Crash: A Satire
by Robert Blumen
As the baby boomers have remade the economy in their own
image, they've increasingly relied on their homes as a
source of 'wealth'. Soon the entire economy will hinge on
the rising price of the single family home. Satire? Or
reality, you decide.
dailyreckoning.com
The Bureau of Labor Statistics Magic
by John Mauldin
"... Current headline Bureau of Labor Statistics
unemployment rates are not the whole story. The magic of
statistics is that if you get to define the terms, you can
make the numbers say what you want them to say. No great
conspiracy here, but the unemployment numbers are
developed in such a way that unemployment is understated.
Let me throw you some odd statistics... "
dailyreckoning.com |
