Posted on 03/25/2002 4:07:33 PM PST by TigerLikesRooster
Market WrapUp for the Week
Monday's Stock Market WrapUp Reality Check First Quarter Results Coming This month marks the two year anniversary of the stock market peak for the S&P 500. Two years ago on March 24, 2000 the S&P 500 closed at 1,527. It hasn?t reached that plateau since. As of today, the index is down close to 26% from that level, with the index trading at close to 62 times recent earnings on a GAAP basis. The market remains overvalued by every benchmark and standard used for valuation because of bear market earnings falling faster than stock prices, leaving stock prices high by comparison. The hard part for Wall Street will be to sell investors over, hoping that the miracle in earnings materializes. Analysts are keeping their fingers crossed that companies will start giving upbeat assessments during their pre-announcements for the second half of the year. Stock prices, which have now turned negative for the major indexes with the exception of the Dow, indicate investors aren?t buying the turn-around story. If companies don?t give upbeat reports for the next quarter, stock prices will then be in for a major readjustment. The one positive element for stocks has been the Fed?s aggressive easing in interest rates. Now that positive factor is going to be taken away with the Fed talking about raising interest rates. In addition to higher interest rates, energy prices are rising again with OPEC vowing to make no change in production until prices hit the $30 a barrel mark. These are the negatives that are now influencing stock prices. However, the main threat to the stock market remains earnings. Wall Street has sold the investment public on the recovery scenario, the same recovery scenario they have been touting the last two years. If that doesn?t start to happen stocks are going to take a hit. There are already signs that equity managers are taking profits in short-term trades in fear of losing gains if the markets head south on bad news. First Call/Thompson Financial, which tracks analyst?s earnings estimates, believes analysts are still too optimistic in their profit forecasts. This could translate into analysts? revisions in the months ahead if companies don?t deliver the earnings that have been estimated. First Call thinks a 5% gain in pro forma earnings is more likely than the 10 to 17.5% estimated by Wall Street firms. Losses Reported The Perfect Financial Storm Under traditional monetary policy the Fed relies on the buying and selling of Treasury bonds to affect short-term interest rates. If that doesn?t work in the future, the Fed may consider buying any asset class to monetize. This is a rather frightening thought when one considers the implication of these comments, or the fact that they are even considered. It would be tantamount to admitting the outright failure of monetary policy. The predicted outcome could backfire on the Fed with a complete loss of confidence in the financial system and in financial paper of all varieties. Under these circumstances, we would find ourselves in "The Perfect Financial Storm." The Markets Today The price of gold is flirting with $300 an ounce despite desperate efforts by central bankers to knock the price down. The rise in gold may be signaling trouble lies ahead for the financial markets. The Fed has been dismissing gold and a weakening U.S. currency. Normally a weakening currency, a rising trade deficit, and an expanding government budget deficit is the kind of environment that drives up gold prices. During periods of monetary upheaval, gold performs well like it is doing now. This is causing central bankers to stay up late at night. Once people lose confidence in paper, which is what is happening in Japan right now, the confidence isn?t gained back easily. The Fed must be watching with horror at the financial nightmare in Japan. They could be looking at the very same scenario here in the U.S., which is why they may consider monetizing the entire financial system. The problem for the Fed is it won?t work, and it could cause the them to lose all of its creditability. Investor gullibility is the best thing the Fed has going for it. Investor optimism rose in March to 121 from 92 in February, the highest level since November of 2000. Over 71% of investors now feel it is a good time to go long on stocks. Most investors polled in the recent investor survey now believe the worst is over for the U.S. economy. Contributing to that sentiment has been the recent run-up in stock prices. The little guy is voting with his pocketbook. Trim Tabs reports that $4.1 billion flowed into stock mutual funds in the latest week ending last Thursday. The little guy is buying at a time the pros are selling as pointed out in last week?s COT graph. Volume came in at 1.05 billion on the NYSE and 1.41 billion on the Nasdaq. Market breadth was negative by a wide margin of 22 to 10 on the big board, and 22 to 13 on the Nasdaq. Treasury Market Overseas Market Japan's Nikkei 225 stock average fell to a three-week low, led by Sony and other exporters on concern the U.S. Federal Reserve may raise interest rates, curbing demand from Japan's largest market. Nikkei fell 0.7% to 11,261.09. The Topix index shed 0.3% to 1073.20, with computer-related companies the biggest decliners as a group. NEC Corp. and other computer makers slumped after a report showed weekly personal computer sales at large electronics stores in Japan fell from a year ago, extending a 10-month slide. © Copyright, Jim Puplava, March 25, 2002 Home l Broadcast l Storm Watch l Top 10 l Perspectives l Resource Center l Sitemap l About Us Archived WrapUps: Warning: Earnings l Pro Forma Economics
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Is there any way you can post tomorrow's wrap up tonight?
Well, I need to talk to Cleo. But she charges too much for one-to-one session :).
I've been reading about how our economy will follow Japan's economy into the tank for at least 12 years now. You see, dire alarmist predictions sell more newsletters than the reasonable forecasts made by experienced economists. There are a number of major differences between the American economy and the Japaneese economy. One of the biggest differences is that America has a huge home building industry and a lot of empty land where we can build new homes. This home building industry, along with the auto industry, can be cranked up rapidly by the Fed simply by cutting interest rates. This is how the Fed prevents recessions from turning into depressions. Japan, however, doesn't have any vacant land where they can build new houses. Their real estate is completely developed. There's no place to put any more houses. Therefore Japan has a lack of industries that can be stimulated by lower interest rates. In addition, the Japaneese people have a very high savings rate (around 20%) and so they have less need to borrow to make any kind of purchase. America has a low savings rate, therefore consumer spending is stimulated greatly by lower interest rates. Finally, Japan has a strict population control policy and has essentially no population growth, which greatly reduces their long-term economic growth. China is now the engine of economic growth in Asia and it's economy will be bigger than Japan's in a few years. In a nutshell, Japan's economy is already maxed out because of limits on real estate development and population growth. America has neither of those limits and we will continue to grow steadily in the years ahead. Much of the rise in gold prices is simply a trading rally in the commodities market. This rally will probably lose steam around $300 as long as inflation remains reasonably low. People have been predicting a big jump in gold prices for 15 years and it's not going to happen without a jump in inflation.
Until rohry comes back alive from the snowy north :).
The Dollar Index is just as strong now as it has been in recent times. The price of gold is going up for other reasons. Mainly because of hoarding by the Japanese and declining forward sales by producers.
That'll be $50.
Once people lose confidence in paper, which is what is happening in Japan right now, the confidence isn't gained back easily. Over the weekend, a relative gave me more than 200 German 100-mark notes issued between 1903 and 1910. When issued, they were worth just under $25 -- i.e., more than an ounce of gold. I was recently appraised that they are now worth between $0 and $0.07. They were demonetized following the German inflation of 1923.
You are either with us or you are with the Tarotists.
Here are the minutes of the January FOMC meeting. I can't find any such plan.
American policy makers tend to boost American economy by lowering the saving's rate and making credits cheaper. It works up to a certain point. But the temptation to overdo it is too great. It is like a potent stimulant. One can always come up with some scenario where growing debts and other problems can be taken care of. But its plausibility will go down as time goes and more of these problems continues. We will see how this will turn out. In the end, somebody has to pay up all these. The easiest way is to socialize (or monetize) debts and blame it on small selected group of convenient scapegoats.
U.S. is different from Japan. But that difference is not wide enough to ensure that America escapes with minor damage to its economy and Japan goes down big time. The difference is in my view that America decided to pump in money(credits) before bubble pops like Japan did. So America is forestalling the popping for now. And America may monetize debts rather than going under like Japan.
After WWI, the French forced a debt burden on Germany they couldn't pay that led to their hyper-inflation. The French were also the ones in the early 1970's who pushed the United States to default on its gold debt under the Bretton Woods foreign exchange system. If you think the United States is going to default on its payments again, let's hear your reason, rather than your emotion based dislike of our fiat currency.
If your fee is cheaper, I may join you. If you have fancy star chart, that is even better :). What is your group by the way ? Babylonians ?
As a percentage of GDP, Japan has five times the public debt of the United States and their GDP is shrinking while the debt continues to grow. That's a big difference, not a little one.
I envision large scale bailouts, rising CPI, rising wage demands, and a falling dollar. Kind of like the economy from 1976-1980 under Carter, but on a larger and deeper scale.
Any thoughts?
Miss Cleo is unavailable. Can Mr Arch Crawford help you?
The CEO of CENTEX homes appeared on CNBC this morning. ;)
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