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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (17330)	3/25/2002 9:51:28 PM
From: Box-By-The-Riviera™	Read Replies (1) \| Respond to of 74559

PM underwear with a kevlar cup my friend.

To: TobagoJack who wrote (17330)	3/26/2002 6:50:48 AM
From: elmatador	Read Replies (1) \| Respond to of 74559

Japan props the dollar up leaving room for AG to print more dollars? Now what would happen if Japan stops blowing wind under the wings of the nose diving plane?

To: TobagoJack who wrote (17330)	3/26/2002 8:04:26 AM
From: tradermike_1999	Read Replies (1) \| Respond to of 74559

Fact of the day - the S&P 500 has historically declined 13.8% after a cycle of interest rate hikes begins. Last week was an interesting week. In the middle of the week we saw Bill Gross of Pimco pen a little piece about General Electric that caused the stock to drop. I watched CNBC that day and saw GE stock recommended as a buy 26 times - from fund managers, analysts, and even the CNBC hosts themselves. 26 times has got to be a record for one stock on CNBC and deserves a special A for effort. GE happens to own CNBC and CNBC is in no way on objective news source when it comes to GE stock.. Of course Tuesday we saw a non-event Fed meeting. Alan Greenspan and his band of yes-men decided to neither raise or lower interest rates, although they made a statement that they are now neutral about rate changes. Over at the Fed futures market though traders have factored in a quarter point raise in rates by May. No one wants to believe it though. Economists say that the economy isn‘t growing fast enough to justify a change in course, while stock promoters say that the Fed won’t raise rates that quickly, because there is no inflation and Greenspan wants stocks to keep going up. Everyone says the market is wrong and they are right. However, the yield on the two-year Treasury note, the maturity most sensitive to expected Fed moves, has soared to 3.70% from a low of 2.32% in November. Similarly the yield on the benchmark 10-year Treasury note has backed up to 5.40% from 4.32% in November. The bond market doesn’t follow the directives of Abby Cohen and Joey B. Up until a week ago one question has dominated the discourse over the stock market: how much is the economy going to boom in the second half of the year and how high are my stocks going to go? But people are always asking the wrong questions when it comes to the stock market. What they should be asking is why is the CRB commodity index rising, gold going up, and long term bond yield’s rising? And oh yeah, why has the dollar topped out? These are the real questions that need to be examined. Part of their answers have to do with where we’ve been. Since the summer of 2000 there has been a collapse in corporate investment in technology spending. We have seen corporate investment spending drop in every quarter since then, including the most recent quarter which has been heralded as the end of the recession by talking heads. This collapse in investment spending caused the earnings of technology companies to drop sharply. At the same time overcapacity caused prices to drop in entire industries such as the semiconductors, fibers, and telecoms. The stock market bear market followed and in January of 2001, Alan Greenspan tried to stop the bear market by rapidly cutting interest rates. His effort failed in haulting the fall in stock prices, but it did hold the economy up by encouraging consumer spending, fueled by mortgage refinancing and credit card debt. Instead of allowing the economy to work off its imbalances itself, Greenspan gambled that he could keep the economy afloat - through consumer debt - long enough for corporate investment spending to come back. He failed, but succeeded in causing in explosion in the trade deficit and the current account deficit. Then the terrorist attacks hit on Sept 11. The stock exchange shut down for over a week. The Congress, President Bush, and Greenspan all used the crisis as an opportunity to try to bail out the economy. Bush and Congress played their role by bailing out airlines and increasing government spending by 13%, a process which brought back the budget deficit. Greenspan simply printed money like mad, increasing the money supply at the fastest rate in history. When put together the initiatives were an attempt to force the stock market to go up and force the economy to grow. They succeeded in some ways, causing the economy to grow by 1.4% between October an December of 2001. However, corporate investment spending has continued to decline and there will be no true economic recovery until it picks back up. Bush’s hope is the same hope that Greenspan had a year ago - that consumers can be encouraged to use their credit cards long enough for that to happen, although Bush has added government deficit spending to the pot. However, these bailout efforts come with a price. Printing more money and creating more economic debt does provide a temporary support to the stock market, which gives insiders and the smart money another opportunity to sell, but without creating real economic growth it does nothing but put more money into the economy. That means inflation. I believe the word inflation is the likely answer to my question of why gold is up, the CRB commodity index is rapidly rising, why long term bond yield’s are rising, and to why the Fed funds future contract is factoring in interest rate increases. It is not that Alan Greenspan will want to raise interest rates, because the economy is going to boom, but because he will have to in order defend the dollar and stop inflation. His bailouts are turning into a trap. Higher interest rates do not bode well for the long term outlook of stocks. Sure the rally might last a few more days or even a few more weeks - but a few interest rate hikes will put a cap on the market, and even more ominously probably also on the consumer. So much for “new eras.” The real recovery will come when we get to the next cycle of interest rate cuts. All of the easy money and debt has had an effect on the market since September 11th. In fact they have defined the stock market. But now, with fewer injections of liquidity into the money supply and the specter of higher interest rates, the market has began to trade sluggishly. Combine that with the fact that sentiment indicators are levels seen at market tops and it may be time to start to short stocks again Buy gold, and sell the big caps techs. Anyone buying and holding them now is going to lose their ass.