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Market Matters A daily recap of all things financial Don Bravo No rest for the Wicked - March 24, 2005
On a day that, for the most part, seemed to offer a bit of a relief from the recent avalanche of selling, investors were greeted instead with the harsh realities of a serious, growling, ravenous bear market, as late day selling erased gains earned in the morning and early afternoon.
The Nasdaq was up more than 18 points, reaching a peak of 2008.63 just before noon, but then relinquished just about all of those gains to close - for the second day in a row - with a fractional gain, 0.84.
The NYSE Composite suffered a similar fate, higher by more than 40 points at mid-day, but closing up only 1.62, to finish at 7128.80.
Today's culprit, according to the usual suspect media hacks who churn out copy for the mainstream, was oil. The price of a barrel had dipped into the $53 range before spiking today to close at $54.84.
While oil and inflation concerns may be easy marks for financial headline writers, the reality of the current malaise in equities is more likely to be found in persistent under performance in various places, such as slack demand for labor, flat to declining wages and disposable income, the troublesome federal deficit and massive trade imbalance, and the growing view that stocks are simply overvalued.
The durable goods figure that was released today (+.03) was a disappointment as well and on the heels of GM's recent announcement of a huge miss in 1st quarter earnings is a sign that consumers are close to being tapped out.
Make no doubt about it, the generals on Wall Street are and have been selling for three weeks, and the selling would be more voracious if some wizened veterans hadn't exercised some restraint and discipline. In that regard, some might conjecture that the market is being managed lower, also not a pretty picture.
As usual, the insiders are mostly out of the market with profits, leaving the small investor with money tied up in mutual funds, IRAs, 401Ks and other no-so-liquid traps with most of the losses.
The internal numbers were a little more encouraging. the A/D line on the NYSE was 19-13 to the good, while the Nasdaq was a bit closer to even at 8-7 for the gainers. New Lows continued to overpower New Highs, however, 57-32 on the NYSE and 79-41 on the Nasdaq.
Bonds were mostly flat, with the two-year note adding 4 BPs to yield. Gold gained a couple of bucks and the dollar was mixed, though up against the Euro and Swiss Franc.
If ever a day looked like a good one for a bounce, today was it. Over the previous seven sessions, the NYSE shed a whopping 126 points, the Nasdaq, 61. With the exchanges closed tomorrow for Good Friday, we can only hope that the Easter Bunny has something in his basket for mom and pop investor that will help make next week a bit sweeter.
Happy Easter,
Stock slide continues, deepens - March 23, 2005
Today was a primary example of why I don't follow the Dow Jones Industrial Average. The headline number will be Dow down 14. 49. But the reality of the situation is far different than that simple assessment would imply. Declining issues outnumbered advancers by a 3-1 margin on the NYSE Composite. New Lows trounced New Highs on both exchanges: 102 to 28 on the Nasdaq and a spectacular 143 to 12 on the NYSE.
The Nasdaq finished higher by a paltry 0.88, while the NYSE shed another 31.79. Just for the record, The NYSE has marked the day with close on the downside 10 of the last 13 sessions, and the Nasdaq 9 of the last 12. The few higher closes were nothing particularly special, either.
Volume has been terrific on the Comp. Today marked the fourth consecutive day that volume on the NYSE outdid that on the Nasdaq. All four days the index closed lower. Massive amounts of money are being moved. The shift would seemingly be from mainstream stocks to techs or to bonds, which are suddenly becoming more attractive.
Today's A/D line on the NAZ was negative 2-1, but upside volume was at 61% - exactly that of the NYSE down volume. People were buying a lot of a very few stocks while selling a lot of everything.
The move from mainstream stocks to tech, I believe, is desperate money. Tech stocks, for a large part are among the priciest, though they do represent growth in a murky kind of way. The number of new lows is indicates that the general indices should go even lower, so buying now is somewhat akin to imposing an impatience tax on oneself.
If you're not out of this market, you should be. There hasn't been any buying enthusiasm in three weeks and earnings are more than two weeks away still. Besides, most stocks are massively overvalued and the market is hard at work, trimming the fat.
Oil was up .59, though it remained below $55. The dollar rose sharply against most major currencies, and gold lost another $6 to $424.40.
Bonds solidified today after a sharp sell-off yesterday. Yields continue to rise, and considering the current makeup of the Fed, they will continue to do so. The Greenspan gang is so far out of touch with what's really happening on the American economic landscape that they'll likely continue tightening until it's overdone, spinning the whole mess into disequilibrium.
I think the Fed should not have raised rates this last time and believe they should have a neutral stance right now until the economy shows some real signs of life and the government begins to actually reign in its spending (cold day in hell).
The CPI figure today was higher than the estimates, which, being that the estimators are nearly always wrong, means absolutely nothing. Tomorrow, weekly jobless claims. Oh, joy!
Greenspan Slams Markets - March 22, 2005
Federal Reserve Chairman seemingly dropped a bomb on Wall Street today, sending stocks skidding lower by roughly 1% on the major averages. The trouble is, everybody knew it was coming, but they were still shocked, apparently.
One questions the integrity and knowledge by the bastions of capitalism, these investment bankers, brokers and dealers, at times like this. A simple change of phraseology from the fed head sends stocks screaming for mercy, turned buyers into immediate sellers and generally ruins what was otherwise the best day Wall Street had seen in some time. The indices had been pleasantly higher all day, but when the news hit, the Dow lost nearly 100 points in the next half hour, as all of the averages went from green to red in a very big hurry. And it got worse after that.
What happened was at 2:15 in the afternoon, Chairman Greenspan delivered the message from the Federal Open Market Committee (FOMC) of the Federal Reserve Bank that the lending rate to member banks would be raised .25% from 2.50 to 2.75%. Simple. Easy, no big deal.
What the hot-shots on Wall Street got was a completely different message, coded in the obscure parlance only the Fed can dream up, saying the the boys behind the steel doors saw more risk of inflation ahead. The committee dropped the word "measured" as to how it was going to deal with inflation and inserted this:
"The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Output evidently continues to grow at a solid pace despite the rise in energy prices, and labor market conditions continue to improve gradually. Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident. The rise in energy prices, however, has not notably fed through to core consumer prices. The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."
The Street took it as a clear sign that inflation is a problem, and that the Fed funds rate, which has been steadily increasing .25% each meeting, may now accelerate.
Sure enough, prices, especially for oil and gas, are rising. Will curbing credit with rate hikes slow inflation down? Maybe, a little. In the meantime, those higher rates are going to strangle the American economy in general and home buyers in particular. And when home buying seizes up, alongside consumer spending, well, that's usually a recipe for stagflation, or worse, recession, or even worse, considering the credit excesses that have to be worked out, but I'm getting a little ahead of myself here.
On the day, the NYSE Composite took a serious pounding again, dropping a whopping 70 points, to close at a two-month low of 7,158.97. The Nasdaq shed another 18 points to close at 1,989.34, the first time it's closed below 2000 since November 4, 2004, and the lowest close since November 2nd, 2004. The S&P 500 closed at 1171.71, off 12.07, it's lowest since January 28. The Dow chimed in with a loss of 94.88 to close at 10,470.51. It hasn't seen that level since February 1st.
The precipitous decline on the Nasdaq not withstanding, the other averages, especially the NYSE Composite and the Dow, have a lot further to fall before anybody is going to shout "fire." We are in the very early stages of a resurgent bear market, the same one that started in 2000, and was cut short by our invasion of Iraq in March 2003. Two years have passed since then and stocks have been on a veritable tear - until lately.
The wheels are beginning to come off and there is plenty of smart money already out of the market. Some of the smartest money, that of Warren Buffett, for instance, has been out of this market for a long time. Buffett's been trading dollars for euros, franks and yen, as fast as he can, and with good reason.
Inside the headline numbers, we note that up volume was dwarfed by down volume today in a 3-1 ratio, decliners led advancers by 3-2 on the Nasdaq and nearly 3-1 on the NYSE Composite. New lows outdid new highs once again, 78-62 on the Nasdaq and 82-62 on the Comp.
Also reacting to the news were bond traders, who hammered prices down like so many penny nails. The yield on the 30-year soared to 4.90, the 10-year to 4.62. The 2-year note rocketed to 3.81%. Oil prices eased a bit, and the dollar strengthened, though that move is seen as short-term at best. Gold and other precious metals fell broadly.
Tomorrow's CPI should be somewhat of a salve to bruised investors, as it is expected to be in line with expectations, but the heavy air of gloom is becoming pervasive and an outright crash, something along the lines of 400-600 points on the Dow, could occur at any time in the next three weeks. Otherwise, traders will just watch and suffer as wealth of America evaporates.
Slow Motion Crash - March 21, 2005
Monday was another banner day for stocks as all major indices slumped to multi-month lows intraday. There was a recovery, as usual, just as the prices seemed about to tumble into an abyss. The overall trend continues to be to the downside, except for the glorious Nasdaq - which has already bourn much of investor's angst in the recent slide - which only closed down a fraction of a point.
Two items of interest occurred today of which investors should take note. First, the volume on the NYSE exceeded that of the Nasdaq today. This is an odd occurrence, but usually is a significant sign that a major blow-off is about to occur. The last time this happened more than once was during July and August of 2002, when daily allegations of corporate crime and slime were all the rage of the press. Stocks slid precipitously back then.
Secondly, the persistent trend of early-day selling is beginning to take its toll on the market. Usually, in orderly downturns, there is buying in the morning, as traders with confidence jump on perceived bargains. Lately, that hasn't been the case, as selling has been particularly pronounced right out of the gate.
What the confluence of these forces - more volume on the NYSE and early-day selling - seems to be indicating is a tectonic-type shift in investor sentiment, from positive to negative, or for those realists amongst us, from pessimism to outright fear.
There isn't a whole lot to be optimistic about these days. The markets continue to slide, and that only exacerbates the notion that the twin towers of obligation and excess - the federal deficit and the foreign trade gap - are widening, not contracting, and that neither the Fed, the President, the Congress or even Warren Buffett himself seem to be interested in doing anything to alleviate the deleterious effects of that trend.
Tomorrow, Fed Chairman Alan Greenspan will issue another .25% rate increase to the baseline Fed funds rate, pushing that benchmark to 2.75%. Borrowing money, it seems, keeps getting more and more expensive, just like everything else. In the chairman's mind, this 7th-consecutive rate hike is keeping the lid on inflation, which, one supposes, is a good thing, but it also acts as an anchor on business development in an economy that is beginning to look more like it is stagnating rather than expanding.
For the day, the NYSE composite lost another 47 points. That index is now down 212 points in the last 11 trading sessions, dating back to March 7.
On the NYSE, declining issues led gainers by nearly a 3-1 margin. On the Nasdaq, the edge to decliners was 8-7. New lows once again had the advantage over new highs, 70-55 on the NYSE and 97-48 on the Nasdaq.
In addition to the expected Fed rate hike tomorrow, investors will be looking for signs of inflation upon the release of the Producer Price Index. The Consumer Price Index is scheduled for release on Wednesday.
Gold was oddly lower by more than $5, checking in at $430.50. The price of a barrel of oil spiked over $57 earlier in the day, but settled at $56.62 on the NY Merc.
At 4:39pm EST, the Associated Press reported, Dow Closes Down 64 on Inflation Fears. Simple solutions for simple minds.
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