COT report didn't show much change. Commercials still short about 57K SP00 contracts as of 17 April. They decreased longs in Gold and Silver and increased shorts in Natural Gas. They are especially strongly short the Euro which gives hope our dollar may stay up.
So far, I see nothing that warns of a hard down and I think this pullback should be small and we could get another upleg to higher levels.
Still, While I am somewhat bullish short term, I want to emphasize that this is a rally in a bear market. NOTHING fundamental has changed as lower interest rates are not going to make banks loan money to dot bombs that are going under, provide loans to telecoms that are about to go under etc. The bouncing of some of these infrastructure providers to double their values a couple weeks ago is insane. I just want to make sure everyone is clear that we are playing with fire here. PE ratios never got to the levels of teh beginning of the growth of tech years ago and yet their earnings are declining right now NOT inclining. While some may get healthier in time, they will not reach the types of growth they enjoyed in 98-99.
Also what very few are talking about is Argentina and it's effects on other South American Countries as well as Asia. Argentina is in a world of hurt and their problems are over flowing into Brazil etc. Note the Brazil market was down over 5% Friday. Not many people are paying attention to this. Talking to Don, he noted that there is a lot of trade between South America and Asia. This has the potential for an over night currency crisis of epic proportions. The currency swap thing is too complicated to try and spell out in depth here but basically Argentina has their currency pegged to the US Dollar but they are hurting. AG (Allan Greenspan) may have cut rates to help them and not us for all we know. Things are in bad shape down there but none of the talking heads I saw this weekend even mentioned it. Just something to keep an eye on.
Also I want to add that the Fed is injecting money still at an alarmingly high rate. Note the numbers are not that bad across the board especially to rule out an over shoot and an inflationary cycle if we do pull out of this. The unemployment report was still holding at 4.3% which is still considered too tight albeit only slightly.
A good read about inflation/stagflation risk. I posted it on the References / long articles thread here but the original is here....
gold-eagle.com
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From: patron_anejo_por_favor Saturday, Apr 21, 2001 5:07 PM
View Replies (3) | Respond to of 97133
Debt trapping underway? Latest figures from the St.Louis Fed show declines in both the adjusted Monetary Base AND in MZM. These were compiled before the panic April 18 rate cut:
stls.frb.org
stls.frb.org
The MZM decline can be explained away on the basis of "sideline money being put to work in the market"; the Monetary Base figure cannot. Despite the incredible amount of Fed pumping, coupon passes and rate cuts, the Monetary Base is back to where it was immediately after the first 50 BP rate cut. This is exactly what Noland predicted with his Law of Diminishing Reliquifications, and bodes poorly for the economy and the financial system over the next 6-12 months. The "money" being created is escaping into agency debt, higher homeowner debt through refi's and higher credit card debt, rolled into ABS's and sold into the money market's. It's NOT going into capital investment and into commercial/industrial lending, nor into commercial paper to ease debt rollover concerns of distressed companies (where presumably it is most needed):
stls.frb.org
stls.frb.org
In other words, yes, the Fed is pushing on a string here.
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nytimes.com
April 22, 2001
Market Watch: A Splash of Cold Water on Technology Stocks' Revival
By GRETCHEN MORGENSON
With Alan Greenspan doing his best to spur on the economy, many investors seem to believe that it's back to the races in the stock market. Buyers have been particularly giddy about technology stocks, pushing the Nasdaq composite index up 10.3 percent last week.
But one authority on technology stocks suggests that investors pull up on the reins a bit. Steven Milunovich, technology strategist at Merrill Lynch, says he believes that it is especially important for investors to remember that yesterday's growth stocks more often than not will falter tomorrow.
Few tech-stock investors appear to be tuned into this thinking. The Merrill Lynch technology index is trading at 166 times trailing earnings for the 100 companies in it, including Cisco Systems, EMC, Altera and AOL Time Warner. By contrast, the Standard & Poor's 500-stock index trades at 27 times earnings. Hopes for the sector are certainly high.
Too high, Mr. Milunovich said, for two reasons. First, even after slashing their revenue and earnings forecasts for technology companies, analysts have long- term expectations that are still far too optimistic, he said.
For instance, analysts expect 85 percent of companies to increase their sales by a compounded rate of 20 percent or more during the next three years. But since 1981, only 36 percent of technology companies have achieved such growth rates for any consecutive three-year period.
Today's depressed state of capital spending is another concern. Mr. Milunovich said the rate cut by the Fed last week was in large part a reaction to the severity of the capital investment slowdown.
The Fed's statement included this comment: "Capital investment has continued to soften and the persistent erosion in current and expected profitability, in combination with rising uncertainty about the business outlook, seems poised to dampen capital spending going forward."
If the Fed is right, technology earnings are probably not going to be rebounding anytime soon. And while stock market investors are famous for spotting turnarounds well before they are quantifiable, Mr. Milunovich thinks the recent rally in tech stocks has been overdone.
"Investors have been very impatient trying to call the bottom in the Nasdaq," he said. "I'm still more on the skeptical side."
His skepticism is based at least in part on a study of revenue growth at technology companies going back 20 years. The results show how hard it is to maintain high growth rates for extended periods and indicate that it is difficult for tech companies to produce outsized growth even in nonconsecutive years.
Here are the numbers: Of the 1,800 technology companies in the study, only half were able to generate 30 percent compound revenue growth for any three of the years in the study. Only 28 percent could manage such growth for any five years, and just 7 percent for 10 years.
As a result, Mr. Milunovich said investors should not rush to buy technology stocks based largely on analysts' rosy growth projections.
Yet some technology companies are trading at more than 50 times their earnings estimates. Siebel Systems, Juniper Networks and PMC-Sierra are just three of the companies in this amazing category.
"Stocks are due for a bounce," Mr. Milunovich said. "But time is going to be as important as price in getting us out of this technology malaise. Weakness could continue into next year."
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Saturday April 21, 3:25 pm Eastern Time
Fed Ready to Act if Economy Slows Further
By Ross Finley
DEWEY BEACH, Del. (Reuters) - Federal Reserve Bank of Philadelphia President Anthony Santomero said on Saturday the Fed was ready to act quickly if the sluggish U.S. economy weakens further, making clear the central bank is poised to cut rates again if growth does not rebound.
Santomero, who is not currently a voting member of the Fed's policy-setting committee, said he did not expect the economy to fall into a recession -- typically defined as two quarters of economic contraction.
He also told reporters he sees increasing signs that the economy is stabilizing.
``Should further weakness in spending materialize, the Fed has the latitude to again respond quickly and effectively. Just as I believe we have done in the past four months,'' Santomero told an audience of bankers at a regional conference.
He was speaking just days after the Fed took financial markets off guard with a surprise half-point cut in the benchmark lending rate to 4.5 percent. It was the central bank's fourth half-point reduction in borrowing costs this year -- and its second between regular scheduled meetings -- in a bid to kick-start flagging economic growth after a 10-year expansion.
Announcing Wednesday's rate cut, the Fed cited concerns that a sharp fall in business spending on investments and a drop-off in stock prices threatened to dampen consumer confidence and spending -- placing the economy at risk of an unacceptably poor performance.
The Fed next meets to set rates on May 15 and economists widely expect another interest rate cut of at least a quarter percentage point.
Santomero said he expected the economy, which grew at a paltry 1.0 percent annualized rate in the fourth quarter of last year, will continue growing sluggishly through the first half of this year before again rebounding to a healthier pace.
``I expect that growth will remain slow throughout the first half of 2001. While considerable uncertainty remains and there are risks along the way, I do not expect this slowdown to halt the economic expansion,'' Santomero said.
CAPITAL SPENDING CONCERN
Echoing the Fed's statement accompanying Wednesday's rate cut, Santomero said businesses had made progress working off a stockpile of inventories and consumer spending had held up ''reasonably well'' despite recent signs of slowing.
He said a rise in the Philadelphia Fed's April Business Outlook Survey of manufacturing -- which on Thursday topped expectations and showed a slower pace of decline than in recent months -- suggested that the decline in the recession-mired industrial sector ``should soon bottom out.''
``We are in a period of uncertainty with mixed signals from the data but there are more signals indicating stabilization in the economy than we had seen before,'' Santomero told reporters after delivering his speech.
But fallout from the rapid economic slowdown and the gloom bred on Wall Street over the outlook for earnings had the potential to further damage business investment, he said.
``These factors, together with the possible effects of recent reductions in household wealth on spending and slower growth abroad, threaten to keep the pace of economic activity unacceptably weak,'' Santomero said.
He also said the economy could sustain a growth rate of about 3.0 percent to 4.0 percent per year with an unemployment rate between 4.0 percent and 5.0 percent without accelerating core inflation beyond its current rate of roughly 2.5 percent.
AGGRESSIVE FED RESPONSE
The Fed's current interest-rate cutting campaign, which kicked off in January, showed an appropriate ``aggressive'' response to changing economic conditions, Santomero said.
And with inflation fairly tame and benign expectations for prices over the longer term, he said the Fed had the room to lower interest rates further if the need arose.
Looking forward, Santomero told reporters the labor market was ``key to future movements in the economy,'' adding that he expected the unemployment rate, currently at 4.3 percent, to rise in the months ahead if growth remained sluggish.
``Of necessity the unemployment rate will move up until we get real growth up to an acceptable level,'' he said.
biz.yahoo.com
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Saturday April 21, 2:59 pm Eastern Time
IMF Cuts U.S. Economic Growth Forecast
By Mark Egan
WASHINGTON (Reuters) - The International Monetary Fund expects the U.S. economic slowdown to be short-lived but predicts even slower growth this year than it had expected just a few weeks ago, IMF sources said on Saturday.
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The sources in Washington said the final draft of the Fund's bi-annual World Economic Outlook, due to be published on Thursday, had the U.S. economy growing at a sluggish 1.5 percent this year before picking up modestly to 2.5 percent in 2002.
With the world's richest economy slowing faster than most economists had forecast, the IMF has been revising its U.S. growth forecasts lower almost weekly as it prepares to release its WEO report.
In September, its last WEO predictions for this year had the global economy growing by 4.2 percent and U.S. economic growth at 3.2 percent.
As recently as March, a draft of the IMF's next outlook obtained by Reuters revealed that the global lender had expected the world's richest economy to grow by 1.7 percent this year before picking up to a solid 3 percent next year.
Even at that slightly higher level of economic growth, the IMF's chief economist, Michael Mussa, had said he expected the United States to ``skirt the edge of recession.''
While the IMF still does not expect the United States to dip into a full-fledged recession, the latest forecasts highlight how quickly the American economy is slowing.
In a bid to foster growth, the U.S. Federal Reserve Bank unexpectedly cut interest rates by one-half of a percentage point this week.
Since the start of the year the U.S. central bank has cut interest rates by two full percentage points as a slew of economic data showed the economy to be slowing.
OTHERS PREDICT EVEN SLUGGISH U.S. GROWTH
While the IMF forecast U.S. growth dramatically below the 3.2 percent expansion predicted in its last publication, others were expecting even more sluggish growth for this year.
In its annual Global Development Finance report on April 10, the World Bank said the U.S. economy would grow by a paltry 1.2 percent this year.
That 1.2 percent projection was well below the 2.4 percent U.S. growth predicted by the Bush administration in its budget forecast.
The IMF sources said on Saturday their World Economic Outlook would predict global growth this year of 3.2 percent, jumping to a more robust 3.9 percent next year.
Japan's economy was expected to grow by 0.6 percent this year and 1.5 percent the following year.
The closely guarded report also forecast growth of 2.4 percent this year in the countries that make up the euro zone, followed by 2.8 percent in 2002.
Separately, European monetary sources told reporters in Malmo, Sweden, that other institutions also had been busily revising downward their predictions and that with the developed world slowing at a faster pace than many had expected only a few months ago, more downgrades could be in the pipeline.
``A lot of these forecasts had been based on a 'V-shaped' recovery in the U.S. and if that is not delivered, they will obviously have to cut back further,'' one source said.
The sources said the IMF would forecast inflation of 2.3 percent in the euro zone in 2001, falling to 1.7 percent the following year. Euro zone inflation was 2.6 percent in March.
IMF sources in Washington said their research department reserved the right to make last-minute tweaks to the WEO right up until its publication on April 26.
biz.yahoo.com
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biz.yahoo.com
Friday April 20, 5:38 pm Eastern Time
Default fears spark panic on Argentine markets
(UPDATE: recasts, adds Menem, Calvo statements, market updates )
By Brian Winter
BUENOS AIRES, Argentina, April 20 (Reuters) - The ugly specter of an debt default by Argentina returned with a vengeance on Friday, as rumors of an imminent economic meltdown led panicked stock and bond traders to exit local markets en masse.
Argentina's Economy Minister Domingo Cavallo attacked the swirling rumors of default as ``irresponsible,'' but traders still appeared to be betting that the troubled economy would soon collapse under the government's heavy debt load.
Argentina's country risk, measured by the spread between government bonds and safe-haven U.S. Treasuries, widened 106 basis points to 1,051 points by Friday afternoon. The benchmark MerVal (^MERV - news) stock index closed 6.27 percent lower in heavy turnover, nearly double its normal level.
``The psychology of fear has forced a lot of traders to get out on the concerns that there may be a default. Not very many people really believe it, but there is some panic,'' said Juan Plett, an equities trader for Mackintosh brokerage in Buenos Aires.
Former President Carlos Menem, the opposition Peronist leader who ran Argentina from 1989-99, added fuel to the fire on Friday by advising people to buy dollars, and saying Cavallo's plans to add the euro to the 10-year-old dollar peg would mean a devaluation.
``I think this maneuver would devalue our currency and that is why I would advise Argentines who have a peso in their pocket to convert it to dollars as soon as possible,'' said Menem, a strong proponent of junking the peso and adopting the dollar as official tender.
``The long knives are out,'' a hedge fund manager said. ``We have an extremely vulnerable technical position and hedge funds are aggressively betting against Argentina.''
Traders were hard-pressed to come up with a concrete reason for the panicked activity, although many admitted the market was simply rattled by several months of uncertainty as the government lurched from crisis to crisis. When consulted, most analysts professed confidence in the economy.
But Friday's turmoil was a blow for Cavallo, appointed last month to boost the economy after a 33-month slump but who so far has sailed into storms over expanding the peso-dollar currency peg to include the euro as well as his demands that the autonomous Central Bank relax monetary policy.
LEVEL HEADS LOSE OUT
The swirling rumors mimicked those heard in March, when Argentine bonds and stocks cratered on fears that the stagnant economy would not produce enough revenue for the government to meet its hefty debt requirements.
Markets became jumpy again earlier this week after Cavallo proposed abandoning the currency's 10-year-old peg to the U.S. dollar, hitching the peso instead to a 50-50 average of the greenback and the euro to make it more flexible.
Even though the rejigging of the currency would not happen until the dollar and euro reach parity -- not expected to happen for months or even years -- some economists fear it could shatter already harried consumer confidence.
Menem, whose then-economy minister Cavallo introduced the currency peg in 1991, added to those fears by telling Argentines to buy dollars to protect their savings.
Meeting with investors in London on Friday, Cavallo said there was no risk of a debt default, and once again attacked bankers and traders whom he has already called ``short-sighted.''
``We will never consider that alternative (debt default). To talk of default is an intellectual exercise made by irresponsible people with no experience of how to run a country,'' the minister told a news conference.
Some economists said that default was a long way off.
``Default is not just around the corner. Argentina has the local resources and those from its (IMF-led, $40 billion) financial package to take care of its commitments,'' Martin Redrado, chief economist for Fundacion Capital consultancy, told Reuters.
The government said it could not explain the turmoil.
``We're really surprised ... about (market) sensitivity. As minister Cavallo says, nobody knows who is really behind the market,'' said President Fernando De la Rua's spokesman Ricardo Ostuni, echoing the economy minister's view that financial market troubles were mainly due to badly informed speculators.
Guillermo Calvo, chief economist of the Inter-American Development Bank, said that Argentina must send strong signals of stability in economic policy in order to calm markets.
``These things improve if there is news and get worse if there is none. The market wants news of more stability,'' Calvo said. |
