Hi t2--great to see you on our thread!!! I was computer-less last week--would run into Kinko's once or twice a day but impossible to trade well like that...tried to sell cc (June 110) on QCOM Thur morn and missed it by an 1/8 point...boy did I regret that on Friday.
Very perturbing market: here's an article I just read this a.m.:
Saturday May 20 8:33 AM ET
Wall Street Wonders if Fed Can Pilot Soft Landing
By Jan Paschal
NEW YORK (Reuters) - Another week, another worry. That's life on Wall Street. Now that the Federal Reserve has approved the biggest rate increase in more than five years and warned there's more to come, the Street's anxiety has shifted to a new concern -- whether Alan Greenspan can steer the jumbo jet that is the robust U.S. economy into a soft landing this year.
Or will the Fed chairman misjudge the distance and cause a plane crash called recession?
``There is a risk the Fed may overreact,'' said Raphael Soifer, chairman of Soifer Consulting LLC, a strategy consulting firm for the financial services industry.
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The things under the bed, dreaded by Wall Street and working stiffs alike, are a bear market and a recession.
Soifer, an analyst who followed rate-sensitive bank stocks for Brown Brothers Harriman until he retired this year to start his own firm, said there's the possibility the Fed may go ``too far, too fast'' with its credit-tightening campaign and trigger a recession like it did in the early 1980s and in 1990-1991. In each case, oil-price shock helped trigger the downturn.
``Most bear markets are started by the Fed,'' Soifer said. ''Whether this turns into a real bear market or a correction is up to the Fed.''
A soft landing, said Paul Kasriel, chief economist of The Northern Trust Co. of Chicago, ``would mean the economy would slow, but we would avoid a recession.'' (When the economy shrinks for two consecutive quarters, that's a recession.)
In other words, the Fed could squeeze inflation -- in the form of runaway consumer spending, an overvalued stock market, a tight job market and $30-a-barrel oil -- out of the economy without throwing almost everyone out of work.
``A soft landing is possible,'' Kasriel said. ``But I think there are a lot of risks that a hard landing (recession) could occur.'' Among the biggest risks he sees are rising corporate and household debt, plus higher labor costs.
Kathleen Camilli, chief economist of Tucker Anthony, a Northeastern regional brokerage house, said ``the probability now of a soft landing is 50-50 and getting slimmer every day, particularly with the extent of tightness in the labor market.''
What's more, ``there's a 50-50 chance of a recession, with the chances rising by the day,'' she added.
``There are two very good leading indicators of recession,'' Camilli said. ``First, the stock market is telling us we're headed into a bear market.''
Stocks slumped on Friday, after the Commerce Department said the U.S. trade deficit in March reached a record $30.2 billion, driven by the highest prices for imported oil since November 1990 during the Gulf crisis. The Dow Jones industrial average (^DJI - news) fell 150.43 points, or 1.40 percent, to end at 10,626.85. The Nasdaq composite index (^IXIC - news) slid 148.31 points, or 4.19 percent, to 3,390.40. The Standard & Poor's 500 index (^SPX - news) lost 30.26 points, or 2.11 percent, to 1,406.95.
For the week, the Dow edged up 17.48 points, or 0.169 percent, while the Nasdaq lost 138.67 points or 3.94 percent. The S&P 500 slipped 14 points, or 0.99 percent, for the week.
The Nasdaq, loaded with once high-flying technology stocks, is down 33 percent from its March 10 record high of 5,048.62. Wall Street usually defines a bear market as a drop of 20 percent or more from its peak. A correction is a drop of 10 percent or more from the high.
Since Dec. 31, the Nasdaq has fallen 16.7 percent.
The Dow Jones industrial average is off 9.4 percent from its 12-month high of 11,722.98 set on Jan. 14. Since the end of last year, the Dow is down 7.6 percent.
The second leading indicator of bad times ahead, Camilli said, is that ``the yield curve is inverted, which usually implies a recession.''
An inverted yield curve means the yield on short-term U.S. government debt exceeds the yield on longer maturities. Usually, long-term debt yield exceeds that of shorter maturities.
The yield of the two-year U.S. Treasury note, at 6.92 percent late Thursday afternoon, was 37 basis points above the benchmark 10-year note's yield of 6.55 percent.
On April 14, the day the Dow and Nasdaq fell to earth, the spread was 46 basis points on the two-year to 10-year notes' yields, Camilli said. (A basis point is one-hundredth of a percentage point.)
``You have to go back to 1982,'' she noted, to find the last time that the spread, or difference, between the two-year and 10-year notes' yield ``was wider than it's been this spring, and then it got as wide as 65 basis points.''
Some blame sky-high oil prices for the last recession, Northern Trust's Kasriel said. The catalyst was Iraq's invasion of Kuwait in August 1990, which led to the Gulf War in January 1991.
But Kasriel blames ``the near collapse of the banking system in the late 1980s. In 1990, our banks were incurring very large losses in terms of their loan portfolios, depleting their capital, and making it difficult for banks to extend credit.''
That recession lasted only ``about nine months,'' Kasriel recalled, noting the peak of the business cycle was in July 1990 and the trough, or bottom, was in March 1991.
``But the recovery was unusual,'' he added. ``It took a long time for this economy to recover on a sustained basis.''
The unemployment rate tells the tale: In June 1990, the nation's jobless rate was 5.2 percent. By March 1991, when the recession bottomed, the jobless rate had risen to 6.7 percent.
And ``even though we were in a recovery, the unemployment rate went up to 7.8 percent in June 1992,'' Kasriel said.
``We sort of had a soft landing in 1995,'' Kasriel said. ''The economy was very strong in 1994 and inflationary pressures were building when the Federal Reserve started raising rates. In 1995, the economy slowed down. We did not go into recession. The inflationary pressures abated.
``Now we're in a situation similar to 1994,'' he added. ''It's not just the economy being strong. But there's a broader base of price increases in goods and services, and an acceleration in labor compensation costs.''
Tucker Anthony's Camilli said she believes the Fed will keep raising interest rates ``until they see some signs the rate of growth in the economy is declining. This economy is very strong.
``I just got back from Portsmouth, N.H.,'' she said, ``and I was told of retail businesses that had to shut down because they couldn't find labor -- not pay up -- but couldn't find labor. The unemployment rate there was 1.6 percent.''
The five small tightenings'' the Fed did between June 1999 and before May 16 ``have done virtually nothing,'' she added.
On Tuesday, the Fed gave the market what it expected: a 50-basis-point rate increase, pushing the fed funds rate target, or the rate charged for overnight bank loans, up to 6.5 percent -- the highest since January 1991, during the Gulf War, when the economy was coming out of recession. Some of the nation's biggest banks immediately raised their prime rate, or the rate charged to their best customers, to 9.5 percent.
``I don't know what trigger of interest-rate increases it will take to slow the economy,'' Camilli said. ``It may actually take a 10 percent prime rate and we may have that by August.''
Such a prediction might chill those who remember the 21 percent prime rate in 1980-1981, during a recession brought on in part by skyrocketing commodity prices and the highest inflation this country has seen since World War II.
Robert Stovall, a veteran market strategist who joined Prudential Securities after selling his advisory firm to the big brokerage house this year, recalled the mortgage rates of 18 percent to 19 percent that marked the recession of 20 years ago. He predicts the Fed's current campaign of rate increases will hurt small business people and consumers by the fourth quarter of this year and early next year because ``they've pushed up mortgage rates and the prime rate.
``The Fed has dug itself a trench,'' Stovall said. ``A soft landing is going to be very hard to achieve.''
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