Thursday, 6/20, Market WrapUp

Financial Sense Online ^ | 6/20/2002 | Scott Middleton

[rohry]

 
Weekday Commentary from Scott Middleton
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Jobless Claims Dip

Source: CNN/Money

 

 ^{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

Thursday's Market Scoreboard  June 20, 2002
Dow Industrials		129.8	9431.77
Dow Utilities		4.51	277.08
Dow Transports		7.74	2747.36
S & P 500		13.7	1006.29
Nasdaq		32.08	1464.75
US Dollar to Yen			123.5
US Dollar to Euro			.9650
Gold		3.4	323.7
Silver		0.03	4.87
Oil		0.37	25.95
CRB Index		2.11	204.21
Natural Gas		0.1	3.216
All market indexes Storm Watch Geopolitical News in Focus Energy Resource Page Precious Metals
	06/20	06/19	Change
HUI (Amex Gold Bugs Index)
Close YTD	135.52	128.63	6.89 107.85%
52week High	147.82	06/03/02
52week Low	59.86	11/26/01
XAU (Philadelphia Gold & Silver)
Close YTD	78.89	75.42	3.47 44.94%
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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^{Thursday's Stock Market WrapUp}

Economic Reports Out Today
Today a slew of economic numbers were released, and by all accounts they were made to show that things are not as bad as they seem. Yet the markets this time continued fall. Is this a sign that investors have begun to throw in the towel? Have they finally realized that the analysts and economists have cried "wolf" one too many times? I doubt it, but I am certain the confidence in the markets has waned.

Here’s what the numbers told today: The index of leading economic indicators issued by the Conference Board showed a 0.4% rise in May, more of an improvement from the 0.3% decline in April than economists expected. The Labor Department said the number of initial unemployment claims declined to 393,000 last week from a revised 395,000 in the preceding week. While the number was higher than the 385,000 consensus of economists surveyed by Briefing.com, it did remain below the 400,000 benchmark, which signals economic weakness. And, in a Commerce Department report, the April trade deficit widened to a record $35.9 billion from a revised $32.5 billion in March. This is surely not an announcement you would expect the markets to react on. However, if you think back six months ago, an announcement of this nature surely would have sparked a rally in the markets. Expectations of an economic recovery ruled the day, and back then, no one wanted to be on the sidelines once the recovery was in high gear. Either people’s views have changed, or simply investors are running out of money to bet with after listening to all the rhetoric.

Today’s Market
The Dow slid 129.80, or 1.4% to 9431.77, the lowest since November 2. The Standard & Poor's 500 Index fell 13.70, or 1.3%. That's the lowest since September 24. The Nasdaq Composite Index lost 32.08, or 2.1% to 1464.75 as biotechnology shares such as Genzyme Corp. tumbled. The S&P 500 has dropped 12.4% in 2002. That would be its steepest first-half slide since 1973. The Dow has shed 5.9% and the Nasdaq 25%. All three are retreating for the third straight year.

The dollar lost ground against the yen and fell close to a two-year low against the euro. Light crude oil future rose $0.37 to $25.95 a barrel in New York, and gold rose $3.40 to $323.70 an ounce. Market breadth turned negative late in the day. On the New York Stock Exchange, losers beat winners nearly 9 to 7 as 1.36 billion shares changed hands. On the Nasdaq, decliners beat gainers nearly 10 to 7 on volume of 1.69 billion shares.

Overseas Markets
European stocks fell, led by financial services companies, whose profits are being eroded as share markets slump. The Dow Jones Stoxx 50 Index slid 65.26 points, or 2.1% to 2983.83, bringing its loss this year to 20%. All eight major European markets were down during today’s trading.

Japanese stocks rose, led by companies that depend on domestic sales such as Takeda Chemical Industries Ltd., after trade surplus figures boosted optimism the world's second largest economy is recovering. The Nikkei 225 stock average added 1.3% to 10,612.98 while the Topix index gained 1.1% to 1022.97.

Bonds Today
Treasury prices took a tumble after recording gains on Wednesday, with losses widening in afternoon action. News the trade deficit hit a record in April and the dollar's subsequent slide ruffled the feathers of fixed-income investors. The 10-year Treasury note slid 13/32 to yield 4.785% while the 30-year government bond erased 18/32 to yield 5.43%. No economic news is on Friday's agenda.

© Copyright Scott Middleton, June 20, 2002

[rohry]

IBM is down to 72. My prediction in February 2002 and March 2001 was 60. Another 15% drop and I pat myself on the back (It was at 120 in January)...

[rohry]

Market WrapUp is delivered...

[Lazamataz]

NASDAQ 500 is your prediction. I think you might make it. I'm not as keen on gold as you though.

[Lazamataz]

Put me on your wrapup ping list, please.

[Lazamataz]

I also like www.thestreet.com....

[arete]

IBM is down to 72. My prediction in February 2002 and March 2001 was 60. Another 15% drop and I pat myself on the back (It was at 120 in January)...

I've been keeping an eye on it. It may bounce up a little, but the trend is clearly down. Tomorrow should be an interesting day.

Richard W.

[rohry]

"Put me on your wrapup ping list, please."

Tis done...

[steve50]

The gold futures for Febuary jumped to $328 today, was $316 a week or so ago. Somebody doesn't like next year.

[rohry]

"The gold futures for Febuary jumped to $328 today..."

In the interest of disclosure I have to state that gold closed at $322.70 in the spot market. The $328 number is for February 2003.

[steve50]

Sorry if I misphrased it . I meant the Feb. 03 futures

[Gritty]

No economic news is on Friday's agenda...

Given the state of the equities markets, this may be a great blessing.

[DeaconBenjamin]

From today's Straits Times, http://straitstimes.asia1.com. sg/money/story/0,1870,127422,0 0.html?

DILEMMA OF COMPLIANCE DEPTS
It may not pay to spot Wall St
crime

NEW YORK - Mr Owen Cheevers, 51, was head of high-yield bond
research at the Bank of Montreal in New York when he wrote a
cautionary report on firms in the radio industry.

An experienced analyst, Mr Cheevers was asked by investment bankers
at his firm to make his report more glowing.

He refused and pleaded with the bank's compliance department to
intervene. He got no help. Two months later he was fired.

Mr Joseph Mulder, 59, was a brokerage firm auditor with decades of
experience, including identifying two money-launderers who later went to
prison.

But soon after he alerted his superiors to what he said were serious
violations by a Donaldson Lufkin & Jenrette (DLJ) broker, Mr Mulder
was fired.

More than a decade later, the broker, Mr Christopher Hanna, was
accused by regulators of stealing US$3.2 million (S$5.73 million) from
clients.

It has become a well-worn refrain after scandals at Enron and other firms
that if people want to deceive accountants, employees or shareholders, it
is hard to stop them.

But even though both the institutions involved deny wrongdoing in the
terminations, the stories of these two men raise an even more troubling
proposition: What if the people who want to do the right thing can get no
support, especially from executives hired to make sure regulations are
followed? What if people like these are in fact punished for speaking out?

Federal regulators are asking such questions as they undertake a series of
examinations of brokerage firms' compliance departments.

After several prominent cases in which illegal activities of brokers slid past
compliance departments, the Securities and Exchange Commission (SEC)
is scrutinising compliance at firms from the top down, not the bottom up,
as has been its custom.

The new focus comes not a moment too soon. Investors' faith in the
financial markets has been shaken by failures in safeguards intended to
protect the public.

As a self-regulated industry, the brokerage business employs cops inside
its walls as a first line of defence for investors.

But regulators and investors are wondering if those cops are encouraged
to identify wrongdoing by an individual or group that produces significant
revenues.

Compliance professionals on Wall Street number about 150,000,
according to the National Association of Securities Dealers (NASD).
These people are charged with scrutinising the activities of 650,000
securities representatives in 90,000 branch offices at 5,500 firms.

Industry guidelines say brokerage firms must have a system of supervision
'reasonably designed to prevent and detect violations by their employees'.
If they do not, executives can face action from the New York Stock
Exchange, the NASD or the SEC for 'failure to supervise'.

Now that revenue and profits are down, regulators worry that compliance
departments will come under even more pressure to look the other way
when big producers stray.

DLJ's Mr Mulder took his report to his supervisors, but nothing was done.
Six months later, he was fired. He had worked for DLJ since 1978. The
broker, Mr Hanna, remained at the firm.

The reason DLJ gave for the firing was that the firm was downsizing. But
Mr Mulder sued the firm and won US$114,000. -- New York Times

[razorback-bert]

Here is an important article By Mario Ricchio
A long Rant from a Major stock bear...

Is somebody playing a game with the stock bulls?

In my opinion, smart money is smacking gold stocks on low volume and propping US stocks on low volume to get out of US stocks and begin to accumulate more gold stocks.

In volume terms, a sell-off on low volume is bullish, shakes out the weak hands and bring smart money back into the market. In contrast, if a market rallies on low volume, big players are jamming stocks to convince weak hands back into the market so they can distribute their shares to them.

This brings me to my next point: If your Goldman Sachs or Morgan Stanley and trading volume diminishes so do commissions and profits. What these investment bankers see is vulnerable corporate America balance sheets in need of cleaning. Is Goldman there to help the company? Of course but they also want to profit from it. Goldman (and all investment bankers) is going around and pushing companies with poor credit ratings to issue stock in an effort to pay down debt. Deleveraging makes the company more viable in a slowdown and makes Goldman richer as they get the deal done. What I'm trying to say is that a lot of stock supply is hitting the market in the form of secondary offerings, IPOs, spinoffs etc. Tyco's CIT group is a perfect example. Tyco can't borrow without paying up and they need to clean the balance sheet, so they are looking to spin the unit off and raise cash. Who do you think wants the deal to get done, you got it the underwriters. There is a lot of supply hitting the market and more is coming before July 4 holiday. So I would expect the investment banks to prop the stock market or better yet just prevent huge downside action. They will try and stabilize markets so this STUFF gets priced.

[Matchett-PI]

I happend to see the president of SSB Kessler Companies (Bond Investments) on CNBC this afternoon. He said that he sees value at the short end -- the two year part of the yield curve. Two year treasuries.

Apparently he has a good track record over the years for his clients. They mentioned 11.38%.

He was asked what he thought the "small investor" should be investing in right now if they want to buy bonds and he said they should be investing in zero coupon bonds with a 10-30 year maturity. He said their money would double every 6 to 12 years.

I know nothing about bonds --- I'm just reporting what he said.

I remember a couple of years ago someone on CNBC was saying that Alan Greenspan has his money in Treasuries. They said that they heard that his new wife, Andrea Mitchell (TV anchor) has (had?) her money in stocks.

[arete]

Two year treasuries.

Well you know everyone seems to have an opinion today. I heard TIPS and foreign bond funds recommended also. The problem is that you are still buying paper when you probably should be looking at tangible assets such as gold and silver. Debt is going to be a problem for both lenders and borrowers. Then there is this little thing called inflation which I believe is going to eat paper assets alive in a year or two. Be careful and don't believe much of what you hear on CNBC. Not all, but most of it is BS.

Richard W.

[LocDoc]

I will pat you on the back too. Thanks for the Pings!!!

[Tauzero]

Anyone know whether a use has been found for complex-valued internal rates of return?

[Dukie]

These long days of late spring and summer keep me busy into the evenings.

Did you happen to see "Frontline" on PBS on Thursday evening. A good video review of the Enron / Arthur Andersen debacle and the wider issues of corporate accounting and business ethics.

That the collapse of the WTC coincided with the first indications of financial chicannery and manipulations leading to the rash of corporate failures and the subsequent pallor hanging over corporate America is a grotesquely appropriate metaphor for our times.

[rohry]

"Anyone know whether a use has been found for complex-valued internal rates of return?"

OK, I'll be the one to ask...
What are they? Or, maybe it's a joke that I don't get?

[Wyatt's Torch]

Missed it. This Andersen debacle could become enormous.

BTW, I may have been to optimistic on my call of the markets declining another 10-15% from their levels 2 weeks ago. Either way, I still think this is the final weeding out. It may be a year-long process but I still think the macro fundamentals are in place for a recovery.