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May 2004

May 13, 2004

Now I've Seen It All
Tuesday's Markets Should Scare Everyone
posted by Rick Gagliano

10:45 AM EST

Until 2:00 pm yesterday, the US equity indices - the DJIA, NASDAQ and S & P 500 - were all performing in a manner which I thought was understandable and predictable. Until 2:00…

At 2:00 in the afternoon, all three indices had hit bottom. The Dow was off nearly 200 points. The NASDAQ was down more than 50 points. The S & P was reeling, down nearly 20 points. Volume was decidedly on the downside, and losers were outpacing winners by about 4 to 1 overall.

I watched, satisfied that my research and understanding of market trends and timing were, as usual, on the money and accurate. I have spent many hours over many years studying the markets, determining price points, inflections, pivots, charts, trading ranges and all the micro and macro elements that make for accurate predictions and solid investment scenarios.

Now, I did think that the sell off yesterday was a bit overdone, but my generla thinking all along was that once earnings season had passed - and it has - theere would be no good news to underpin stocks. Additionally, inflation fears, rising interest rate paranoia and the overbought condition of most stocks were going to act as anchors on equities.


All of this was being played out yesterday and had been playing out over the past two weeks - the Dow has lost over 450 points in the last ten sessions before yesterday - until things changed at 2:00. I have provided charts, courtesy of Yahoo, to illustrate the sea change that took place.

All told, the Dow actually ended up 25 points, while the NASDAQ and S & P recorded only fractional losses.

I looked for reasons but was unable to find any. Maybe there were technical levels I wasn't aware of - there weren't. The Dow had entered an area of support between 9860 and 9920. It had actually broken through it. The markets were bleeding red ink. We were about to see a cataclysmic event - a market meltdown. But once again, that all changed at 2:00.

Like the Phoenix rising from the ashes, like a heavyweight champion bouncing up off the canvass, the averages went on a buying binge, a splurge of spending that would not end until the closing bell. They all closed at or very near their highs of the day, as did many hundreds, even thousands, of stocks which were beaten and bruised only two hours earlier.

I have no doubt that the nefarious hand of the Fed was the cause of this sudden change from pessimism to optimism. More succinctly, it was the so-called Plunge Protection Team (PPT) or, as they are formally known, the Working Group on Financial Markets. This group was set up after the crash of 1987 and the LCTM bailout. The Fed Chairman and other high ranking government officials have pledged to use "unorthodox measures" to ensure the stability of financial markets. Among these measures are actual purchasing of equities on the open market.

You may disagree with my assessment of what happened yesterday. Many people will. But I have seen this pattern over and over and over again and I am convinced that our financial markets are highly manipulated and controlled. The long-term effects of such Marxian-Keynesian interventionism are simply disastrous though the Greenspan Gang doesn't want to admit to that and never will admit that they are fiddling with markets.

With that, I am retiring from the stock and options prognostication game until such a time that the markets are sufficiently stable and without gross intervention - or, when Greenspan retires.

By such a time, stocks should be REALLY cheap, Greenspan will have been completely disgraced, but our nation will be - like it or not - in tatters. I will no longer publish the 21st Century Advisory Newsletter and instead devote the efforts of this column to more practical advice, particularly running a home business.

In the interim - because someday (not soon enough, however) Greenspan will retire - I leave you with this last bit of advice - get out of the stock market. Close out your 401K or any retirement plan you may have. Put the money into cash, gold, silver, art, antiques, philately, and home improvements. Enjoy life now, not later. And stop contributing to the Social Security system. It's simply the worst "investment" ever contrived.

Good luck. See you tomorrow with a different approach.


May 12, 2004

The Great Dow 10,000 Tease
What's in a number, anyhow?
posted by Rick Gagliano

8:55 AM ET

On Monday, the Dow Jones Industrial Average closed below 10,000 for the first time since December, 2003. Both the financial press and the news media took note. Was is really such a big deal, though?

Most people could care less. They are more concerned with getting to and from work, the score of their kids' soccer or baseball game or what's on the tube tonight than they are with the various gyrations in the world of high finance and economics.

But to pundits and investors, the number has some significance. I don't claim to know what that significance is, but I'm certain it's there, because everyone notices. In reality, the number is just another number, like 90210 or 634-5789. It has no mythical, intrinsic or everlasting value. Dow 10,000 is just a number people can point to as a reference, as in… "the last time the Dow was over 10,000…".

But the play of the markets on Tuesday provided a little in the way of entertainment for the Dow 10,000 watchers. The Dow zoomed up over the magic number at the open, as if it never existed. The Bulls were… well, ebullient.

As the day progressed, it soon became apparent that Dow 10,000 was an unsafe number for both sides of the market. At 10:30 it dipped briefly below 10,000 and rallied strongly. By just after 1:00 it was below it again, and then really sold off to around 9975 by quarter to two. For the rest of the day, the tussle continued. Up, down, and around 10,000 went the Dow. It was frustrating yet invigorating for the market participants, I suppose.

Finally, at just after 3:30, with less than 30 minutes left in the trading day, it seemed to give up the ghost for good. The index dropped below 10,000 and even went into the red again.

The battle of Dow 10,000 was far from over, however. Lo and behold, the market rallied and at 3.48, it had crossed the Rubicon once again. Could it hold? Would the world be saved?

Of course, we know how this story ended. The Dow finished up a respectable 29.45 points for the day thanks to a wicked 40-point pump in the last 25 minutes. The world did not end. Dow 10,000 would remain intact, at least for yesterday.

The victory for the bulls was short-lived indeed. This morning the Dow opened below the magic mark. I believe we may rally to 10,000 at some point within the next two weeks (I give that a 25% probability), but my persistent view is that we have seen the last of that particular number for a long, long time - maybe as long as 5 to 7 years.

To be perfectly honest, I don't think Dow 10,000 is a particularly important number, other than it is big and it is round. More important was NASDAQ 2000, a level breached recently and one which I don't imagine we'll see for at least another 24-36 months. The next big test for the Dow is the support area between 9850 and 9920. If that area is breached, we'll be in free fall.

To find out how to take advantage of trends in the stock market and options trading, click on the link below.

Source: 21st Century Advisory Newsletter


May 11, 2004

LOTSA DUM MONEY
The Moron-o-meter Makes another Appearance
posted by Rick Gagliano

11:55 AM EST

After a severe drubbing, the indices all ratcheted a little higher on the open. It's a certain sign that dumb money has once again appeared in the markets and there seems to be no end to its supply. It is the dumb money that must be disposed of before the market can make a meaningful move of any sort, so we're not at all surprised to see the markets responding in such a fashion.

I purposely wrote today's headline in slang lingo and all CAPS to emphasize what I think about the state of investing today. With the onset of nearly unlimited access to financial information via the internet, the emergence of CNBC as the world's full-time equities cheerleader, and the rampant overuse of message boards (notably the popular Yahoo stock boards), the world is awash in a sea of expert, non-expert, pseudo-expert, amateur and just plain erroneous opinion.

The glut of information has put pressure on investment advisors, newsletter writers, analysts and brokers to deliver solid performances ALL the time instead of just some of the time. In today's environment, mistakes are not only not tolerated, the maker of mistakes is derided, derailed and vilified by an over-zealous lot of would-be financial geniuses.

Message boards are the main culprits in my estimation. These pits of misinformation, lies and deceit are populated mostly by individuals who day trade or pretend to day trade and have nothing better to do than promote their own vicarious prognostications, analyses and, for the most part, garbage.

The message board posters are generally a rude, brutish kind, hiding behind anonymity to become stars and bullies in their own little world of make believe. They think nothing of impolite behavior which would not be tolerated anywhere in the real world because they cannot be held accountable for anything they post on the message boards and even if they are wrong on occasion, they can readily change identities and take the opposite position.

For the most part, message boards for individual stocks are a complete waste of time and energy. They may be useful as an oversight mechanism to view the level of stupidity running loose, as the number of "strong buy" recommendations may give some indication of a top or near top. But, again, they are not trustworthy in any sense.

Problems arise when real information is actually passed on to the public. This comes in all forms, including upgrades, downgrades, government statistics, expert opinion, news articles, et. al. The public has taken the view that they have not only the right but the expertise to opine, question and critique all that is disseminated in their way. This is an abhorrent untruth, dishonest intellectually and symptomatic of the malaise currently overwhelming the financial markets. Not only are the vast majority of individual investors unprepared to make quality decisions and judgments, they do, and worse, they and others act upon them.

What happens under these conditions are serious dislocations in the financial and intellectual communities. Fantasy and reality become interchangeable, truth becomes disconnected from the parties it so badly needs to inform, popular notions become accepted strategies and eventually paper losses turn into real money. It's no surprise that the majority of individual investors have shown consistent losses over the past 5-7 years - ever since the internet and CNBC became ubiquitous.

To illustrate how far removed the individual investor is from reality, just read the posts on a few message boards for an hour, watch CNBC for another hour and then go into a quiet place and try to digest what you've learned. If you do this more than once, you'll find that your views will be radically different each time, even on the same days. That's right where the individual is - constantly being tugged and pulled by various opinion sources.

So, I cranked up the old Moron-o-meter this morning and seeing the Dow up over 30 points, aimed the gadget towards infinity. The machine thumped and whizzed and lights flashed all around before spitting out readings of 1100 pure and +3.65 on the bias level. The pure reading is quite high, meaning that there is a high level of stupidity prevalent (anything over 500 puts stupidity over sanity), but the +3.65 bias means that it won't last long.

With that in mind, the following analogy. Buying stocks today (and just about everyone is) amid a general market sell off is like placing a bet on a fighter who has struggled through 6 rounds and been knocked to the canvass twice. You can get good odds, because the chances are he won't win the fight, but he might. The most likely outcome, however, is that he'll struggle even more and maybe even get KOed. It's a bad bet. Carry on, morons!

==========================================

To find out how to take advantage of trends in the stock market and options trading, click on the link below.

Source: 21st Century Advisory Newsletter


May 10, 2004

All that Glitters is not Gold
Don't forget about Silver
posted by Rick Gagliano

9:55 AM EST

In the age of kings and monarchs, gold was the medium by which wealth was measured. Indeed, from the earliest days of Western civilization, gold was prized as the stuff of kings. Great import was assigned to the yellow metal. It was hoarded, vaulted, great empires were built around it, great nations even hold it in reserve even today.

Through the history of the world, gold has been - at many times - the currency of choice, but recently -as of 1971 when Richard Nixon took the US off the gold standard - has become a speculative metal, to some, a relic of past times, as fiat currency has taken over as the standard.

A fiat currency is one which is based almost entirely upon faith. The dollar, pound, mark and franc, yen and yuan are all fiat currencies and they fluctuate as economies and nations dictate, rising and falling in value against each other in a flux known as a "basket" of currencies. Inherently, these currencies have no value save that of the paper upon which they are printed.

Gold and silver have inherent intrinsic value. Either of the valuable base metals can be used for coin or jewelry, and each has a certain amount of industrial use. They also share the trait of being somewhat rare, hard to find and expensive to mine.

While gold has received much of the attention in the speculative communities of late, silver has appreciated in value as well, though not at such an exorbitant rate. Similarly, both metals have recently made blow-off tops and declined significantly, to a point at which they are relatively good speculative investments at this time.

Recently, I advised buying gold below $380 and silver under $5.60. As of Friday, both have reached that point and may continue to drift lower. Gold is trading around the $372 mark and silver is at $5.50. The eventual bottoms of these markets should be around $345 and $4.75, respectively, but they will not remain at those levels long. In fact, they may not reach them at all.

With the US economy heating up, many have seen the base metals as bad near-term bets. But, with inflation looming and oil prices already at record highs, gold and silver will be an excellent hedge over the next five to seven years. I simply like silver because it is less expensive, thus open to more trading and appreciation in percentage terms.

To find out how to take advantage of trends in gold, the stock market and elsewhere, click on the link below.

Source: 21st Century Advisory Newsletter


May 07, 2004

The Tipping Point
Stocks pushed over the edge by jobs report
posted by Rick Gagliano

9:25 AM EST

As I have been saying for the past 6 weeks at least, the next major move in the US equities markets is going to be a downer. As earnings season draws to a quiet close (at this point roughly 90% of all companies have reported for the 1st quarter) there is no more significant good news to keep stocks at their nosebleed levels.

A few of the warning signs were evident over the past few weeks, especially the fact that even though companies were reporting very strong earnings numbers, the major indices were flat, and in the latter part of April began to move lower. The NYSE and NASDAQ Advance-Decline lines both peaked in the first week of April. The NYSE Highs-Lows index peaked the second week of April and the corresponding NASDAQ index peaked last week.

Yesterday, interest rate fears and high oil prices led to an abrupt sell off, and this morning's Labor Dept. Employment report is the final twist of the knife. The Labor Department not only reported that US businesses added 288,000 new jobs in the last month, but revised upward its estimates from the last two - February and March - and lowered the official unemployment rate to 5.6%.

As I am usually skeptical of government reports, I'll ride the tide on this one, since most of Wall Street is buying it and selling stocks. The whole twisted logic of the situation reads like a psychological thriller in which the events provide unwelcome consequences. According to my best read, and trying to simplify the picture, the jobs report comes on the heels of strong GDP growth, higher prices, higher unit labor costs and high stock and other asset prices, notably real estate. All of this is inherently inflationary, which causes the Fed to think hard about raising rates sooner rather than later. Higher interest rates will supposedly slow down the economy, stanch inflation and trim corporate earnings. It will also temper the risk-taking in highly speculative issues and eventually cool off the housing market.

So, we encounter a scenario wherein good news (higher employment) is bad for just about everything else - stocks, bonds, real estate in particular. Oh, and yes, though more people will be working, everything they buy with their hard-earned paycheck will cost more.

If you've been following closely you have been prepared for this. The stock market is set for a steady decline, the value of your home is about to drop, and gas will soon be $2 per gallon.

Enjoy today's dash for the exits on Wall Street and have a great weekend!

Sign up for my my newsletter and begin making money while everyone else is losing theirs by clicking on the link below.

Source: 21st Century Advisory Newsletter


May 06, 2004

Excursions through Moron Land in your SUV
The evils of buying high and selling low
posted by Rick Gagliano

9:20 AM EST

I am penning this article prior to the market open today in anticipation of what I believe will be the beginning of a dramatic change in investor psychology. A glance at the market futures this morning showed all of the indices pointing for a negative open, based on a spike in the price of oil and recurring fears of an interest rate hike by the Fed. I have strong opinions on both topics, as you'll read below.

As regards the price of oil, $40 a barrel is a point at which everybody needs to stop and reconsider even basic habits. The millions of Americans who insisted upon having a huge, gas-guzzling SUV or pickup truck in their garages are going to rethink their soccer mom and power dad mindsets. With gas prices closing fast on $2.00 a gallon, use of the SUV or truck for basic one or two person trips (going to the mall, the movies, commuting, etc.) is beginning to appear expensive and stupid.

If the average family (and mind you, the average American family is two adults and 2.5 kids - a total that could easily fit in any mid-sized sedan) is using just 5-6 gallons of gasoline a day (that's probably conservative) in the SUV or truck for one or two person trips, it's going to add up quickly. They're essentially throwing away $2-3 per day by driving a vehicle which is overkill in terms of size. At $2.50 a day, it adds up to nearly $1000 a year. When one begins to consider the implications of driving the all-American power vehicle around town, burning up 10 or more gallons of gas a day, the message becomes clear. YOU'RE A MORON.

Let me explain myself here. I am not cheap, but I do understand the value of a dollar. I drive a sports car. It doesn't get great mileage, but it does much better than the average SUV, and it's fun to drive. I drive alone most of the time, so it suits me well. I don't need all that extra space behind me. My gut feeling is that the average family needs an SUV about as much as they need a swimming pool. It's a luxury. And luxuries, when you're on a budget, tend to become burdens. Americans as a whole are a pretty sane bunch, but extremely gullible, vain, and prone to making bad monetary decisions (it starts at the top, with the Fed and the various layers of government and trickles down to the general populace). The fact that nearly every other vehicle on the road today is either an SUV, minivan or truck tells me that Americans are neither frugal nor visionary. When making the big vehicle purchase, they thought more about prestige, status, new car smell and the low interest rate rather than the actual cost of the vehicle and fuel economy. Few, if any, thought gasoline would cost $2.00 a gallon. Fewer still thought of buying a solid used CAR for half the price - albeit at a slightly higher interest rate - and saving every day on gas.

Now, Mr. and Mrs. SUV have a potential dilemma on their hands. Their new, fuel-sucking SUV, which they bought with no money down, has a resale value of less than what they owe. Worse yet, nobody wants it, driving the price even lower. The Toyota Corolla they trading in for it is beginning to look pretty good and they are kicking themselves every time they have to take a trip in the monster sitting in the driveway. Many of them will take a loss, selling their vehicles in exchange for a fuel-efficient car. Here's a clue: if you're looking for a bargain, look at used SUVs late this summer and into the fall. Prices will be at rock bottom. You'll be able to pick up a good one for well under blue book. Sure, you'll be spending more on gas, but you will have the SUV you've always wanted for half of what the original owner paid and probably less than a comparable sedan. It's just human nature. People do it with stocks too. They buy high and sell - when the loss becomes unbearable - low. The opposite is the correct approach.

One more point about the price of oil. Anyone who doesn't think it's tied directly to our military excursion in the Middle East, you're excused, because you just don't get it. Believe me, the Saudis are not our friends. They love our money, and that's now coming into question. If they ever demand payment in a currency other than US dollars, like maybe Euros or Swiss Francs, look for gas prices of $3.00 a gallon. The longer we stay in Iraq, the higher the price of oil will go. Sure, Mr. Bush has a guarantee from the Saudis to lower prices just before the election, but lowering oil from $44 a barrel to $38 is not much of a favor. There's a very simple dynamic at play here, and it goes like this: kill Arabs, pay more for oil. Period.

On to the Fed and interest rates. First, I said yesterday that the Fed should have raised rates already and that they shouldn't have lowered the Fed funds rate to 1% in the first place. Last night, I read a Bloomberg article on the prudentbear.com web site in which Warren Buffett said the Fed should have raised rates already, and Bill Gross of Pimco said not only that, but that they shouldn't have dropped them to 1% in the first place.

Reading that two eminent businesspeople with huge amounts of insight and knowledge are actually thinking along the same lines as me, instills me with great confidence and pride. The next step is to follow their path to wealth. I am on my way and I'm taking loyal readers with me. If you click on the link below, you can take advantage of a special offer to get my best stock picks and inside advice on trading the market over the next 6-12 months.

The government just released figures a few minutes ago on productivity and labor costs. Both came in higher, which means more fuel for the inflation scenario. Tomorrow, April employment figures are due out. If that number comes in at an increase of any more than 200,000 look out! The Fed's hand may be forced to raise interest rates in June rather than August. Like I said, they should have raised them already. We should be at 2% NOW, and the expectation is for 3% a year from now. My feeling is that, thanks to the miscalculations of the Fed, interest rates will rise steadily for at least two years. As usual, they will act too late and too extremely and whipsaw the whole economy. If the Fed doesn't act quickly, they'll have to apply steady, hard pressure which will send the economy into a tailspin. In any case, I think they've completely blown it already by pushing rates to ridiculously low levels for too long.

Enjoy today's intense stock market sell off. It's going to get worse from here.

Source: 21st Century Advisory Newsletter


May 05, 2004

The Drivel-Driven US Markets
Fed Speaks, Apparently, Nobody Listens
posted by Rick Gagliano

10:25 AM EST

"And away we go…"

Thus spoke the "Great One," Jackie Gleason, on the introduction of many of his prime time shows. I was reminded of the quote this morning, after watching the usual hilarity that surrounds any announcement by the Fed, yesterday.

When Chairman Greenspan announced that the interest rate hikes would be "measured" the giddy markets turned abruptly upwards, as though the chairman had just spoken words that would induce mass levitation on the assorted equities traded on the US markets.

What struck me as funny was not that the Fed didn't move yesterday, but made such a seemingly innocuous statement. It sounded as though other rate moves were "unmeasured" or frivolous, which we all know is the furthest thing from the truth. The Fed Board of Governors is comprised of some very serious old men with deeply rooted convictions and understanding of the economy. Despite the fact that they are all students of Keynesian economics, they are, as a group, quite serious and they measure EVERYTHING!

What would the markets' response have been had Chairman Alan said something to the effect of, "I think maybe we'll just raise rates when we like, regardless of the circumstances."? Now THAT would be something to move the markets!

So, we get a nice kick courtesy of the Fed, based on language that is essentially meaningless. The stark reality is that interest rates are going to rise, inflation is here and the economy has heated up to a point at which 1% as an emergency rate is just not going to cut it any more. I already am on record as believing that the Fed will blunder once again, raising rates too slowly and too late. They probably won't make a move in June unless the employment rate show a sizeable gain, and will likely add a quarter point at their next meeting in August. By that time, gasoline will be over $2.00 a gallon, food prices will have risen another 4-6% and Mr. and Mrs. Average Joe and Jane will be feeling the pinch of higher prices for just about everything.

If the Fed was really interested in controlling inflation - they're not - they would have raised rates already. In fact, they would have never lowered them to the absurd 1% level, creating the largest credit binge ever recorded, in the first place. Once again, though the Fed Board is made up of mostly grumpy old men, they are, on the whole, remarkably stupid and short-sighted. Eventually, all debt should be repaid, so the story goes, but by first lending at ridiculously low levels and then asking for repayment at a higher rate will simply force more individuals and companies into the poor house quicker. So much for the "wisdom" of the Fed.

Bottom line is that the Fed created first the late 90s equity bubble, then the credit binge and the housing bubble, and now they want to try to draw an inside straight by being coy and cute about how they are going to manage the coming rate increase cycle. They've blown it completely and they're trying to hold it together as best they can, but it probably won't fool investors who will be selling stocks all summer.

Adding to the insult of the insipid Fed message, we have a dunderhead President, an equally inept challenger (so, whomever gets elected, neither can fix what's broken), a spendthrift Congress, still heavy bullish sentiment from the leading financial advisors and an American public who readily believes anything they are told and you have the perfect recipe for a nice, long, slow, steady decline in just about everything except consumer prices.

Mark down today, May 5, 2004, as the official beginning of the most serious leg of the secular bear market. While 2000 had a signature of rapid and disturbing declines in the indices, this leg will be a slow, agonizing, tortuous descent into a deep abyss, at the bottom of which we will find torn copies of adjustable rate mortgages, junk bonds and cut up credit cards.

Welcome to the future!


May 03, 2004

Diamonds and Spiders and Q's, Oh my!
Daily Drift for Monday, May 3, 2004
posted by Rick Gagliano

12:10 AM EST

Borrowing a line from "The Wizard of Oz" I want to remind readers to take a close look at the index options for the three major indices. The Diamonds (DIA) rises and/or falls in direct relation to the Dow Jones Industrial Average, the Spiders (SPY) track the S & P 500, while the Q's (QQQ) mirror the NASDAQ 100.

These are all-or-nothing propositions which should not be hedged. If you are of either camp - Bulls or Bears, and who isn't? - today may be a great time to make a bet on one of these index futures. On the Diamonds and Q's you can get options, but not on the Spiders, which is probably for the best as the S & P is the least volatile of all indices.

I'm recommending December 36 puts on the QQQ - currently trading at 2.95 - 3.10 - and December 98 puts on the DIA - trading today at 3.60 - 3.90. These are long term (for us, anyway) strategies, looking out 7 months. In the event of a 2nd half general market decline, you should be able to make 30-100% profit on both of these trades.

With the markets higher today, it's a good time to jump in. Greenspan and the Fed will most likely do nothing tomorrow regarding interest rates, but probably hint that they are going to hike - which they will eventually - so it's a good bet that the markets will react negatively on that news.

My overall view is that the indices will experience a general decline over the coming 6 to 9 months, despite the best wishes of our current president. With earnings season winding down, investors will focus more on fundamentals in stocks and the overall economy which seems to be doing OK, though not great.

That said, good luck and happy trading.


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