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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA -- Ignore unavailable to you. Want to Upgrade?

To: J.T. who wrote (16729)	3/29/2003 2:17:37 PM
From: Alex MG	Respond to of 19219

John Mauldin excerpt... A Quick Look at the Economy Housing starts are down. Initial unemployment claims are down, although still high and lay-off announcements seem to be falling off. Everything is slowing down, but nothing has stopped. The euphoria that greeted the start of the war is now fading, as investors realize it might be (gasp) weeks or months to mount and conclude one of the more ambitious military ventures in history. Thus uncertainty sets back in. Charles Krauthammer notes: "By Monday the media were in full quagmire mode. Good grief. If there had been TV cameras not just at Normandy, but after Normandy, giving live coverage of firefights at every French village on the Allies' march to Berlin, the operation would have been judged a strategic miscalculation, if not a disaster. The fact is that after a single week we find ourselves at the gates of Baghdad, servicing the longest supply lines in American history, with combat losses astonishingly low by any standard." We face an enemy which hangs a woman for waving at a coalition solider, shoots its own troops to get them to march and die, surrenders and then opens fire, shoots women and children who try to get food and water, hides behind women and in hospitals and literally sets a young girl on fire with the kerosene she was trying to smuggle to her home. This is not a climate where the Iraqi people feel free to welcome us or for the average soldier to surrender. Yes, this might take longer, but the outcome is no less sure. However, the US economy seems once again focused on the uncertainty. The longer this war goes on, the more concern I have about an outright recession beginning later this year. It is quite possible that oil will not come down as fast, even after Iraqi oil is back online. Nigeria is becoming a major problem, and 800,000 barrels per day have been pulled out of production, which is a huge number. Venezuela is still problematic. The combination puts world oil supplies in jeopardy. If it's not one thing it's another. The US Senate has cut the President's tax cut in half, and as long time readers know I believe the stimulus from the tax cut will be needed to avoid or at least postpone a recession later this year. Given the problems in the economy, which I will address in detail in a future letter, this is not a good omen. Thus, with the prospects for a longer war, an uncertain consumer, the "oil tax" from high oil prices not going away any time soon and the smaller tax cut stimulus, this was not a good week for the Muddle Through Economy. We will stay tuned. One final note before I close: central banks no longer can control their currencies because of the massive liquidity of the world currency markets. This is a good thing. Further, any currency which does not have sufficient liquidity will be automatically under-valued, because there is increased risk in holding the currency. Liquidity, the ability to be able to sell on a seconds notice, helps take away the risk premium associated with illiquid investments. Now some observers are calling for controls on hedge funds which can "short" the market. Shorting, they say, is one of the reasons for the bear market. "Hedge funds bad, bull markets good" is the simplistic reasoning. Much of the whining is from companies who cannot make a profit. Hedge funds provide liquidity, pure and simple. If you take away the ability to short a stock, you will increase the risk premium on that stock because it will drive away investors and liquidity. If you want to induce a stock market crash, and I mean a real crash, not a slow drawn out secular bear market, then all you have to do is reduce the ability to short in this market. It will dry up liquidity faster than you can say 1987. If hedge funds cannot "hedge" their risks, they will simply withdraw from the market. That will take away liquidity and drive up the risk premium. This may seem counter-intuitive, but hedge funds did not create the bubble and are not responsible for the bear. The writer we analyzed earlier decided falsely that the US reason for starting the Iraqi war was because we wanted to maintain a strong dollar. He looked for a reason to justify his beliefs about the US, and found a conspiracy. Those who suggest that this bear market is the result of hedge funds who short stocks look for a scapegoat to blame their own failures to properly manage risk and invest or to manage their companies and make a profit. The best antidote to someone shorting your stock is to make a profit and increase them every year. If you can't do that, then don't whine when your stock price goes down.

To: J.T. who wrote (16729)	3/29/2003 2:49:06 PM
From: Alex MG	Read Replies (2) \| Respond to of 19219

<<DOW 1,500 Point UP WEEK DEAD AHEAD by the end of April.>> While the greed-driven euphoric war rally was certainly exciting, three hard facts conspire against its very survival. First, the US equity markets were far too overvalued to reach a serious long-term bottom before the war rally began and they are even more overvalued today. Second, the war rally didn’t emerge out of fear as no distinct interim-bottoming signature heralded its birth. Finally, when the war rally failed at the S&P 500’s 200dma, a powerful topping signature was witnessed, suggesting that the markets are destined to plunge soon. In the absence of a major VIX spike, speculators have to assume that the war rally is purely emotional based on irrational euphoria and that it is probably already dead! From a technical sentiment perspective, the awesome war rally looks to be fake, a purely emotional buying panic and short-covering bonanza spawned by a distant foreign war not even remotely related to the US stock markets. zealllc.com