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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: LABMAN who wrote (27925)	8/3/1999 4:40:00 AM
From: IQBAL LATIF	Read Replies (3) \| Respond to of 50167

It was profit taking based on the fears of rising interest rates.. undoubtedly this will be the case until 24th of Aug the date of FOMC. With Exports rising and industrial production increasing, the new economy is facing a real test now that is will the new paradigm able to face the test of 'break of employment- growth relationship' in wake of increasing global demand or we wil see the horrors of inflation of 70's haunt us all over once again? The potential 'bear camp' those who think we are sititng on the tip of 'biggest tulip mania' imagine that later version of events will set soon the death of the bull market. Last year we had global recession where US had to carry the burden of global growth, right now all engines of Global economy are charging upwards hence we are seeing renewed creeping threat of inflation. ECI inched up solidly from a low base that has send jitters down the spine of investors. After all it was low inflation and low interest rate environment that led to this tremendous growth. I think that last week sell out was based on slowing economy and rising wages fears, that was due to two extreme numbers ECI and GDP. Purchase Manager numbers at 60 did not help either, yesterday NAPM number was lower than expected that resulted in a rally however due to the prevailing fears all these rallies are bound to fail until we have stream of numbers meeting AG's criterion of non-inflationary growth and easing of job markets that is how uncertainity gets out of the way. This recent preemptive strike at the markets and demise of celeberations on occasion of huge earning season is a typical AG ploy, capping the top of the market otherwise without his introduction of 'interest rate rises' and 'aggressive stance' towards inflation , we could have seen a major rally on back of unprecedented good earnings. A bull market that is backed by good corporate profits is a long bull market and that is what AG has done, the market is willling to test the supports and levels are being given some time so that underlying earnings may justify these levels. This delay in the assault to new highs for a quarter or two is pahse of consolidation is a must for the market. The undeniably attractive forward multiples of this market with passage of some quarters of rising corporate profits and listless trading rahter testing of old supports in long run justify a certain level of market. Imagine those who thought last year that 8000 is a joke are now looking at 8000 to go long. This is what AG brings on the table a sustainable growth where extreme valauations may not result in extreme economic shocks. This market needs to justify the 10,000 level and that would take good corporate earnings and a stable momentum, for that retest of 9600 is a must. We are seeing in my opinion a lot of good for the long term health of this market, any good marekt should sustain these set backs, the major problems that is Global inactivity is now addressed, rising Oil prices have helped the major debtors, the problem of falling prices that led to near financial breakdown of emerging economies is nearly over. We have no inflation right now, the price stability is nearly established, one day they think that economy is slowing down and inflation rising they sell, the other day after PMI it was very strong economy and rising inflation and they sold yesterday it was weak economy and rise in prices paid and we sold. This is nothing but sign of market looking for direction, I think as I have suggested many times we have to look for individual stocks that I think will perform well, on the other hand 1250 area on SPU looks very likely to be tested. Selectivity and nimbleness is what this market requires, I do sell the strengths but I went long on SUNW yesterday Jan 75's. I use these calls as a hedge to sell naked SPU call options and buy SPU puts when I see my levels taken out, the 8$ I pay will mostly be recovered but without a long hedge I would never sell naked SPU calls. I think we have seen this kind of economic back and forth for last five years, the productivity gains are not going to disappear overnight, nor non-inflationary growth will be a dead phenomenon, the market has its extreme in interpretation and since last year when we wnet down to 1310 on Comp it was one such example that was on fears of global deflation and over capacity. Where are all those prophets of doom who were predicting the break down of global financial systems just last year. Now they are looking a fall in these markets on grounds of strong profits, these very smae people wewre saying htat they would be no proftis, how much NDX 100 companies are impacted by inflation rather most of them are 'price deflators' like mSFT or INTC or DELL or AOL most of them are lowering prices and not increasing it. I think any economy growing at a 3% GDP growth rate for last 5 years should have some rise in income too. Falling wages and low consumption os the biggest threat to this US growth engine, a sustained growth and with info tech providing price stabilisation we are going to enter the next decade still on a high note. I look at all of this purely as a trader and I think that all this non-sense is fully evaluated by the market for last five years, the inching up of ECI from a low base is nothing worrying however it worries everyone as the labour market are very tight. The tendency to pass the price hikes from producers to the consumer is near impossiblity,that would not change. The monkey's are ancing with sense of anticiaption but a trader should look at outside levels keep a lot of 1250 puts and close them and make right moves a little ahead of hte pack, this market afte two interest rate rises will be one explosive market, and same would be the bond market, it is right now in discounting process but once rumours and facts are done and dusted with it will be on actual news act quite the opposite. IBM MSFT NOK profts will continue to grow at much larger pace once global demand picks up, imagine if US alone could do so much how much global demand will add to the bottom line? It has to be productivity and communication leap forward with its falling connectivity prices and overall technology falling prices that are going to break this new inflationary threats. However, from falling wages and falling prices to stable wages and stable prices we will see some big shake up. Last 6 years we have seen a major cycle in US that is in my opinion sustainable. Nothing is wrong with the basic model, I think an active Fed is required, pro-active stance is what the market wants, we have moved to new levels and to maintain these levels we need to touch supports and re-establish the old truth of 'shake out and test of weak hands'. Market at 1250 would totally discount two rises. However, the long bond is already nearly at 113 the low I think may hold. it is the long money that is already working to slow down for example mortgage demand. Few more rate rises soon will led to a huge rally in bonds and in the markets from 1250 or 1220 base or DJI 9600-9800 support. Imagine this market rocketing upto 15000 and than retreating to 9600 that would have set a big redemption possibility, in my opinion this is the worst revenge of the markets on the naysayers, to cleanup the act and retreat from 11400, reorganise in wake of rising global demand where US alone is not the oasis of stability and make a new attempt to old highs even higher as corporate profits grow, nothing cuts 'industrial' profits more than inflation, as we work to clear that threat since we think we still are a industrial country and not a service country, our productivity will increase. Imagine US corporate profits as global demand picks up. Those who wanted to pick MU at 9 will just keep looking at it and so would the one's who were looking to pick INTc at 32$ pre-split. This is not a new issue we have discussed it several times before, you will see that price rises will not be passed. The gap between cap utilisation and industrial production still exits although we are seeing great growth on both fronts.

To: LABMAN who wrote (27925)	8/3/1999 4:40:00 AM
From: IQBAL LATIF	Respond to of 50167

This is something from Forbes... Make no mistake about it: The summer rally is over. Not that it was much to speak of in the first place. It fizzled out in mid-July after a mere three weeks, and since then the market has slumped back to pre-rally levels. What's holding back Wall Street? The answer is simple: interest rates. Bond yields jumped last week amid signs of burgeoning wage inflation. Higher bond yields sent the stock market lower in textbook fashion. And the bond market will continue to set the tone for stocks this week, with the crucial jobs report slated for release on Friday morning. In the end, interest rates are the single most important determinant of stock prices. Sure, corporate earnings growth is great. But even good earnings can't sustain the market on their own. Over the past few years, valuation growth has outpaced earnings growth by far. Price to earnings ratios for the companies in the S&P 500 Index of large-cap stocks are now at their highest level in history. Such sky-high valuations are only justifiable in a low-interest, steady-growth environment. And now interest rates are rising again with the anticipation of another rate hike from the Federal Reserve. Fed Chairman Alan Greenspan has indicated several times over the past few weeks that he has his finger on the rate trigger. The main culprit: creeping wage inflation. For Greenspan and his cohorts on the Fed's Open Markets Committee, wage inflation is the greatest threat to stable economic growth. If the labor market gets too tight, the theory goes, wages will begin to rise too quickly. And wage inflation will soon spill over to consumer prices and eat away at economic growth. Last week's employment cost index, which rose at its fastest pace in eight years, seemed to suggest that the labor shortage is finally beginning to translate into bigger paychecks. That shouldn't be a problem as long as productivity growth offsets the rise in labor costs. But the rise in labor costs couldn't have come at a worse time. The economy may finally begin to cool down, as last week's gross domestic product report for the second quarter suggested. In other words, paychecks are beginning to balloon precisely at the point where productivity growth may be peaking. Against this backdrop, it's no wonder that Wall Street is nervously awaiting this Friday's unemployment report. Greenspan said in his semiannual report to Congress last week that a further decline in the jobless rate from its recent range of 4.2% to 4.3% would be "one indication that inflation risks were rising." Most analysts expect the unemployment rate to remain at around 4.3% in July, the same as it was in June. But at the same time, labor costs probably continued to rise as employers struggled to find skilled workers. If productivity growth and labor costs are indeed parting ways, Greenspan will have little choice but to raise rates. And he'll have to act fast. It's too late to step on the brakes once you've driven off the cliff. What's more, fears of a Y2K-fueled economic downturn will prevent him from tightening monetary policy early next year. With the next Fed meeting scheduled for Tuesday, August 24, Wall Street is facing four rocky weeks.