Wednesday, 6/19, Market WrapUp

Financial Sense Online ^ | 6/19/2002 | James J. Puplava

[rohry]

 
Weekday Commentary from Jim Puplava
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Gold's Bull Market
Confirmed and Holding

 ^{The Week in Graphs}

Guest Editorial
James E. Sinclair
CEO & Chairman, Tan Range Exploration

6/19/02  A Top in Gold at $330
or simply a Chapter in Gold's "Long Term Bull Market?"

Changing Preferences
The Velocity of Money &
The Short Seller's Nightmare

GLOBAL ANALYSIS with J. R. Nyquist
The Error

Wednesday's Market Scoreboard  June 19, 2002
Dow Industrials		144.97	9561.15
Dow Utilities		1.77	281.56
Dow Transports		21.42	2755.1
S & P 500		17.15	1019.99
Nasdaq		46.12	1496.84
US Dollar to Yen			123.815
US Dollar to Euro			.9574
Gold		0.60	320.3
Silver		--	4.842
Oil		0.12	25.31
CRB Index		0.05	202.09
Natural Gas		--	3.314
All market indexes Storm Watch Geopolitical News in Focus Energy Resource Page Precious Metals
	06/19	06/18	Change
HUI (Amex Gold Bugs Index)
Close YTD	128.63	126.87	1.76 97.29%
52week High	147.82	06/03/02
52week Low	59.86	11/26/01
XAU (Philadelphia Gold & Silver)
Close YTD	75.42	76.39	0.97 38.56%
52week High	88.65	05/28/02
52week Low	49.23	11/19/01

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 Market WrapUp for the Week 
Monday  l  Tuesday  l  Wednesday  l  Thursday  l  Friday

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^{Wednesday's Stock Market WrapUp}

NEW SCANDALS DAILY
I’ve often thought of putting Market Wrap on automatic pilot. The news is always the same. On a daily basis we have a plethora of new scandals. Today it was Micron Technology and Samsung Electronics that are now the subject of a new Justice Department probe. Martha Stewart is trying to convince the public she had no inside information on ImClone, and a Merrill Lynch ImClone analyst is the subject of an SEC probe. Rambus is now accused by the FTC of anticompetitive behavior, and Dynegy’s CFO, Rob Doty, resigns. On the earnings front more companies disappoint, and the companies that do beat estimates do so only on a pro forma basis. In the Middle East there is another suicide bombing, Israeli gun ships respond by attacking Gaza, and the FBI warns of possible terrorist attacks against Americans this July 4^th.

The news is hardly market inspiring even though it is more of the same. The items listed above have become so much of a part of our daily landscape that I can almost call it a slow news day. Nothing stands out, and nothing is extraordinary. This is the present state of our environment. It should give many investors pause if they think a new bull market is about to begin in stocks. All that is needed to convince you otherwise is to look at your monthly mutual fund balances over the last three years. Most investors will see losses. Those who got in early during the 90’s mania have now given back most of their gains.

You would never know the markets had been in an extended bull market if you watch financial news shows or read the financial press. The bull market is still in the background. Anchors and analysts still think it is coming back. Words such as bear market are seldom used. Even on days like today, when the Dow lost 144 points and the Nasdaq got clobbered with a 46 point loss, you hear positive comments such as the markets closed off their lows for the day, or one stock is singled out that goes up. If viewers get lucky, the media may even report the price of gold. Other topics will include companies that beat estimates, such as Oracle. Oracle beat estimates, but their profits fell 23% and their sales were down by 16%. The story becomes one of a company doing much better by beating estimates, so a bad story is made to look good.

Left out of these newscasts, however, is the stock market is over valued. On any kind of valuation basis, whether it be dividends, earnings, cash flow, or book value, the markets are selling at extreme levels. The fact that a company was selling at 200 times earnings and is now selling at 97 times earnings, such as Cisco, does not make it a bargain. Now that stocks aren’t going up like they use to, dividends are going to become more important. Historically, dividends have accounted for the majority of returns investing in equities over this last century. They are still important but are at levels far below historical averages. It may come as a surprise to most analysts that disparage them, but dividend yields averaged between 5-7% during the 1950’s and early 80’s. Dividend yields were much higher then because stocks were considered much riskier than bonds, so dividend yields were an important part of an investor’s return. Dividends went by the wayside in the stock market mania of the 90’s because companies were buying back their stock. Another reason I believe dividend yields remained low was the earnings numbers reported to investors were made up of bogus numbers. This is what all of the accounting scandals are all about.

When it comes to dividends it takes real cash, which comes from earnings and the cash flow of the business. You can’t pay a dividend with pro forma earnings. The fact that the media continues to report pro forma numbers instead of real earnings according to GAAP is doing a real disservice to investors. Today the media still reports the CRAP (cloudy reporting accounting principles) earnings, which are deceiving. The reason this is done is to keep investors fully invested in the market. I believe everyone is worried of what might happen when 50% of the Americans who still have money invested in stocks start to pull their money out of mutual funds. When that happens the second phase of the bear market will come into play, and things will get really ugly. Stocks start to crater as investors throw in the towel. When you hear that your neighbor has gotten out of stocks, and the word ‘stocks’ or ‘the Dow’ are used as swear words, you will know that the bear market has completed its second phase. The third and final phase of the bear market will be when those who have held on to their gains (because of a reluctance to pay taxes during the run up in their stocks in the bull market) start to have losses and sell. But this is still a long way off.

Meanwhile, the bull market in gold and silver is just in its beginning stages. The media reluctantly reports the price of gold. Yet, for the moment it is still looked upon as an anomaly. Wall Street is constantly encouraging investors to sell out of their gold stocks as the smart money quietly accumulates gold and silver bullion, and gold and silver equities. I have watched each day the money flows of particular gold and silver stocks. You can see the dumb money flow out of equities after one firm or another downgrades the sector. On days of heavy selling, money flow turns positive at the end of the day as smart investors pick up lower priced shares. In one way this is just another example of Wall Street picking investors’ wallets. They convince them to sell off their gold stocks that are rising and buy tech, biotech or some other group of stocks that are falling. What is taking place is a wealth transfer of money from weak hands into stronger hands. Strong hands hold the mining shares we own. The float available to the general public is very small. On days we see day traders or fund managers dump their shares, we use it as an opportunity to buy. We aren’t alone judging by the money flow changes we see take place during the day.

TRADING PLACES
As today’s graph shows, gold has kept above its 100 and 200 day moving average. Contrast today’s graph of gold with the moving averages of the S&P 500 or the Nasdaq, which long ago have both fallen below their short-term and long-term moving averages. The stock market may rally periodically. That is normal during a bear market phase just as it is normal during a bull market for stock prices to pull back. What you will find in an examination of gold and silver is higher lows and higher highs, a reflection of a new bull market. In contrast, when looking at stocks in general, such as the S&P 500 or the Nasdaq, you find lower highs and lower lows, just the opposite. Both categories of asset classes have simply traded places. One asset class, gold and silver, are in a new bull market that is just beginning. The other asset class, stocks or paper, are now in a bear market that has just about completed its first phase. This is the message of the charts still being ignored.

If you’re an equity investor, it is time to cut your losses. If you are in metals, it is time to let your profits ride, for the new bull market of the century is just in its beginning phase. If you’re a day trader, it is time to start thinking long-term. The real money is going to be made in this new and emerging bull market in "things." If you trade out of metals now, you will be buying back later at much higher prices. Gold and silver are being held in strong hands. These metals are much different than tech or other types of stocks. To gold and silver investors, it represents freedom. Gold and silver is nobody else’s liability. Gold and silver have to be produced and can’t be printed like paper assets. The other aspect about metals is that they represent religion. Those who own precious metals are aware of its 5,000-year track record. They own it because of strong convictions held through a very long and protracted bear market. Gold and silver investors represent a different class of investors. They think long-term like the durability of the metals. Those shares of precious metals stocks or the bullion will not be relinquished. Any pullback will only be used to buy from those who are foolish enough to sell at today’s multi-decade lows, something to ponder if you are short, thinking of selling, or just now thinking of buying.

At the close of today’s trading the markets sold off sharply as a result of earnings warnings and growing violence in the Middle East. The second half recovery scenarios for technology stocks or any other group is looking less likely. Investors have become so demoralized that we can’t be far from the short and brief summer rally that I believe will shortly transpire. The stock market has had virtually no follow through rallies, even though the money supply is going through the roof and the spin cycle is going into overdrive. International tensions are still high. One trouble spot subsides while another rises. It keeps investors’ attention on uncertainty and fills them with anxiety. An anxious investor is not a buyer of stocks. All we seem to get are these one-day wonders in the stock market. They are nothing more than trading rallies for day traders and nothing more. In today’s anxiety-filled market, long term can mean one day, one hour, or one minute. As result of yesterday’s tech warnings, chip and hardware stocks got slammed.

In the broader market most stocks went down. The only sectors rising were gold, silver, and defense stocks. Volume came in at 1.27 billion on the NYSE and 1.70 billion on the Nasdaq. Market breadth was decidedly negative by 20 to 12 on the big board and by 24 to 11 on the Nasdaq.

Overseas Markets
European stocks fell, led by Credit Suisse Group and Nokia Oyj, after two U.S. companies said profits will miss their own forecasts, increasing concern about corporate earnings and the strength of an economic recovery. The Dow Jones Stoxx 50 Index shed 57.45 points, or 1.9% to 3049.09, for an 18% decline this year. All eight major European markets were down during today’s trading.

Asian stocks fell, led by Samsung Electronics Co. and other semiconductor-related shares, after the U.S. started investigating Micron Technology Inc. as part of an antitrust probe into memory-chip makers. In Japan, the Nikkei shed 363.75 to 10,476.18, its biggest drop since February 26.

Bonds Today
Treasuries rose as major stock indexes plunged on renewed violence in the Middle East. The yield on a 10-year note continued to hover at a 6-month low. The 10-year Treasury note rallied 26/32 to yield 4.73% while the 30-year government bond swelled 1 3/32 to yield 5.39%. Tomorrow will be full of new economic reports. On the docket for Thursday are weekly initial claims, May leading economic indicators and the April trade numbers.

© Copyright Jim Puplava, June 19, 2002

[rohry]

Here's an interesting chart comparing the NASDAQ crash with the Dow of 1929-1933:

[rohry]

Market WrapUp is delivered...

[Lazamataz]

According to your chart, in about 6 to 9 months, NASDAQ will begin to recover.

[headsonpikes]

There must be a pony here somewhere! lol

[Tauzero]

Yep, bottoming territory. When the NASDAQ has dropped 90% from its peak.

If it follows that course, when would the bottom be, roughly? How close to the '04 election?

Things are getting very interesting. It's breathtaking. Like a tornado or hurricane.

[Tauzero]

EWI today went from bullish to neutral on the dollar.

Only one lonely support level left... if it breaks impulsively, the wave pattern will comfirm an extremely serious multi-year bear market.

[rohry]

"According to your chart, in about 6 to 9 months, NASDAQ will begin to recover."

Yep, after it hits 500, just like I said when it was at 4,000 (on the way down).

BTW, since your wife makes the financial decisions, you are not allowed to post here anymore. Only the decision-makers are allowed here :)...

[rohry]

"EWI today went from bullish to neutral on the dollar."

EWI?

The dollar dropped some more after the stock market closed.
The Pound is pushing $1.50, the euro is pushing $.96, and 123 Yen now equals a dollar.

[GalvestonGal.com]

Here's an interesting chart comparing the NASDAQ crash with the Dow of 1929-1933:

This interesting chart looks like my sales since 9/11. I sell spa vacations to Mexican spas. Anyone for getting on an airplane to a foreign country?? /sarcasm

[Lazamataz]

BTW, since your wife makes the financial decisions, you are not allowed to post here anymore. Only the decision-makers are allowed here :)...

I have her ear. :^D

[rohry]

"If it follows that course, when would the bottom be, roughly?"

I am no analyst, but I predicted a couple of months ago that the market will continue to "flop around" (upside of 5%, downside 20%) until mid to late August. At that point it time it becomes apparent to the dummies still in the market that there will be no second-half recovery for the 3RD YEAR IN A ROW!

I see "down-hill skiing" after that sinks in...

Unfortunately, I think this happens before the elections...

[headsonpikes]

There will be some serious bargoons in stocks at some point.

It's going to take guts to buy them, however, especially if one has to raise the cash by selling PM shares, which Wall Street will be touting by then.

[technochick99]

I have her ear. :^D

I look terribly silly with only one ear on my head, so I will need it back please.

[Lazamataz]

"I got your nose....."

Hmm. Maybe we won't talk about that.

For the right price, that is. ;^)

[rohry]

"I look terribly silly with only one ear on my head, so I will need it back please."

Oh-oh, Lazamataz gets sent to the garage to throw out his comic book collection. Please, let him come back and play sometimes, he's kinda funny...

[DarkWaters]

There will be some serious bargoons in stocks at some point.

Only after the weak ones go under which may be quite a few.

[DuncanWaring]

I look terribly silly with only one ear on my head,...

I was rather charmed by the "Van Gogh" look, myself.

[razorback-bert]

The only thing I have is my 401k plan's money market is down .04% for the month and yield YTD is .88%.


US Savings Bonds are a better deal than most of my my 401K choices.

[Ken H]

Good points.

Pretty damn hard to sell when you're winning and hard to buy a market which has been hammered down.

The ones who do so, however, will likely be successful in their investing.

[RightWhale]

This might not be the time to jump back in. Maybe September when things are looking really bad. Or next March when things might look even worse.