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Dec 20
E - Misery
It is very sad to
watch what is happening in the stock market today. There is some major
damage that could cause exceptional behavior from those in control at the
Federal Reserve. It is the rate of change that determines the appropriate
rate of counter measures that can be taken. Money heaven currently seems
to be becoming a very crowded place.
Dec 14
Expiring Shade Of The Old
Economy
The expiring shade of inflation may be subsiding to the point that the
Federal Reserve can start to fuel money expansion again by lowering
interest rates a notch. There has been enough vanishing wealth this year
to correct any surplus that existed. Everything happens so fast these
days. It may be time for the true new economy leaders to head us in the
right direction.
Nov 26
Bulls Eyes
The next two months
usually brings the strongest time in the stock market where most of the
gains of the whole year are experienced. Central banks around the world
seem to be on hold with hopes that oil prices may fall and labor costs may
quiet as each economy cools. This may be a perfect time for a relief rally
that could take us back to the highs of the last twelve months.
Oil may be the most important element to consider that could make or brake
the equity markets. Consider the Caspian Sea as it develops into a major
production center to balance other political forces in the world. Vastly
improved world commerce should increase our exports as completion of the
Russian oil transport pipelines become strategic economic improvements
that strengthen the regions economies. The next
secretary general of the oil cartel
may help the situation with strong leadership and market savvy.
One of the strongest
areas may be in the stocks of the companies that will improve corporate
communications and productivity. The internet retail area may show the
stress and strain of increased competition and shrinking margins. The
biotech and pharmaceutical sectors should show great performance, but
should be shielded from unfortunate surprises. While one stock in an index
fades another rises such as the balance between GE and MSFT, thereby
keeping the indexes steady and strong.
May 23
Number Crunching
How to find an entry
point in any stock? Historic valuation measurements seem to be back in
sink again and to find the right point to commit cash may be found by
looking back to previous times in history where the rate of change in
either earnings or revenue are compared to interest and inflation rates of
change at similar points in time.
February 11
Soon every investor will
have the majority of their investment money in only two sectors of equity
ownership. Everything else will fall away as dead money investments. The
life source can flow as long as investment money continues to pump life
support to the stock price streaming to higher levels. Once everyone is
caught in the tinny thin capillaries of the investment world, will the
ability to turn and go elsewhere be too tight for the blood to flow fast
enough to allow all to survive. Falling price action tends to be many
times faster than rising price action. So, if you like seeing 10 or 20
percent moves higher in a day, you might also like 20 or 40 percent moves
lower.
The greatest controller
of inflation in the last four years has been investment in the equity
markets by taking money away from spending and holding it in stocks.
Spending may increase if the investment trend slows and less money is
invested in financial instruments. This causes a “catch 22” situation for
the central banks of the world knowing that by raising interest rates to
slow the economies could cause a sloppy environment for six to eighteen
months where the equity markets fade and spending increases. Once interest
rates go high enough to start getting investors putting their money into
interest bearing investments such as corporate bonds would the fight
against inflation subside.
The .COM’s of the world
have an attitude that one or two percentage points won’t affect them. This
attitude was formed because of the ease of raising cash by selling printed
paper with the hope of riches later. Instead of later, these riches come
quickly in the stocks rapid appreciation to levels projected out many
years. There will be a day again where warrants would have to be issued
with every share as an incentive in order to raise the same kind of cash
in an IPO. The day may come when interest rates go high enough to lower
this level of speculation. Maybe the Casino’s of the world will become
more popular than the equity exchanges, especially if they create an IPO
game unaffected by the central banks of the world.
Habits are hard to
break, have you noticed that the split heads are not getting rewarded as
in the past after a stock splits. There is a bad habit being broken after
a little education and maybe the IPO scene is next.
February 7
The name of the game is
rate of change. Measurements made relative to interest rates rate of
increase, revenue rate of growth, earnings rate of growth, equity rate of
appreciation, real estate rate of price appreciation, etc., may be
shifting to a very different interpretation of value. Money seems to be
thrown at stocks more out of habit than economic reality. Once April
passes there could be the final reckoning to pay because the rate of
increase in the interest rate environment may be changing comparatively as
fast if not faster than the rate of other asset appreciation thereby
causing money to flow more into interest bearing financial instruments
than to equities with no obligations of any kind with respect to capital
preservation.
January 14
Once again, there could not be more of a
warning than what Mr. Greenspan said last night. It is really sad because
this time around there are so many critical economic situations that have
to be contained. Once they are so obvious that the media starts changing
their tune, it will be too late. Remember how the major business media was
saying that the third interest rate hike was the last. Well, once again
the focus is to short term and it will take the fullness of time to play
things out.
On November eighth, I wrote Multiple
Moves and now you are seeing it played out. One of the most important
points of mine is that interest rates have to go much higher to have an
effect that the Federal Reserve wants. This level of interest rates has to
be competitive with other investments in order to draw the cash away from
such instruments of return.
Currently our economy is experiencing
strong retail sales growth with the relationship between the Treasury
yield and the return on equity in the stock market as it is. When this
changes to a more competitive situation, money that had been attracted to
the stock market and bidding up prices there may soon shift to spending on
real assets under the notion that inflation could be starting and real
assets can appreciate better than a financial instrument. This psychology
may start with the endorsement from the Federal Reserve by addressing
their view that inflation seems right at the horizon and the battle needs
to be fought before there is any momentum established. Hence, the small
quarter point tightening moves as the Fed tweaks our economy with eagle
like observation of the interrelationships of global capital flow. Daily
examination of economic statistics will be analyzed and scrutinized in
order to justify any action taken, so don’t be put to sleep by the hind
sight media reporting journalists. If you get caught here it will be your
own fault for being taken by the brazen nonchalant naiveté of others.
January 2
It is a wait and see
situation in the market. I may be going more to cash until the interest
rate situation becomes more evident. Much of the portfolio may be called
away come option expiration day which is fine because I expect the year to
be fairly flat with even fewer special situation stocks performing like
the 28% that gained 50% or more in 1999.
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