Posted on 09/30/2002 4:47:16 PM PDT by rohry
Market WrapUp for the Week The Week in Graphs Storm Watch Geopolitical News Energy Resource Page Precious Metals Raw Materials Monday, September 30, 2002 Market WrapUp The Third Quarter End This recession and bear market has been unusual compared to times past. Instead of leading the economy into decline, housing has remained strong throughout the business downturn. This recession has been mainly a business-led recession and the consumer has acted remarkably different. Instead of cutting back on spending, building up savings and paring down debt, the consumer has done just the opposite by reacting to lower interest rates by raiding the equity of their homes to go on a borrowing and spending spree. Savings have been depleted and debt has expanded to record levels. It is not just the spending habits that have changed in this recession and bear market, but it is also the investment habits that are also different. Instead of bailing out of stocks after two negative years, investors have held on. I cant remember anything like this in my 23 years in the business. I met with a couple today that had a million dollar investment portfolio over four years ago. They are now down to around $250,000 if the equity of their rental is included. They went from tech and Internet stocks to junk bonds. They are now ready to say uncle. It is sad to see is how complacency has destroyed so many portfolios and retirement dreams. Even sadder is to think the worst is not over. This bear market will unfold in stages until stocks once again return to bargain values. It is going to take more downward bouts of selling before this bear market ends. When it does, stocks will be at bargain levels again, but nobody will want to own them. They will be chasing gold, silver, and other commodities as the bull market in raw materials will be entering its final phase as the stock market enters its final phase of a bear market. That has been the way things have worked out throughout much of history. When things become cheap, and I mean dirt-cheap, nobody wants to buy them. When assets become extremely expensive, everyone wants to own them. This next leg of the bear market should produce a few good bargains. We could end up getting another relief rally that will have legs as central banks and governments pull out all stops in an effort to avoid asset deflation. It will be a real opportunity to ride the wave of a temporary pause in a developing series of storms. When this rally arrives it will come at a time when stock prices have gone through several gut wrenching, puke-filled, nausea trying weeks of heavy selling. Your neighbor will be forsaking stocks, vowing never to own them again. That will be the time to buy, but very few people will want to. Only after a sustained rally will a few intrepid investors venture back into the markets. This rally may last 3 to 9 months, depending on what fiscal and monetary stimulus is applied. Yet in the end, the rally will be short-lived, and Government efforts will be overwhelmed by the markets. Markets will have their way and in the end, they always win despite efforts by governments to thwart them. After the next relief rallies, the final phase of the bear market will begin. Thats when stocks will sell at real bargain prices because nobody will want to own them. Most investors will be off chasing the bull market in real assets. But first we need to get through this next phase of the bear market. This next phase will need a catalyst to move investors out of their lethargy. I suspect as I always have that this catalyst will come from either the financial sector or some geo-political event. Weve already experienced a record $140 billion in corporate bond defaults as of last week. Things are getting desperate in Japan and in Latin America, and financial conditions are worsening for our money center banks, especially J.P. Morgan Chase. Todays graph of the Philadelphia Banking Index shows that financial stress is growing. And there is always the geo-political side. The Washington Post ran a story this weekend about two men in Turkey that were bound for Iraq with 34 pounds of uranium. Buried in the report was the fact that the uranium may have come from Russia. One can only assume the uranium wasnt for chemistry labs at Iraqi schools. As Jeff Nyquist and I have written, Saddam is a man hankering to do big things. The Bush Administration is attempting to stop him from realizing that goal. The Great Game in the Middle East is entering a new chapter as Russian troops invade the Pankisi Gorge in Georgia. There may be a quid pro quo between the US and Russia trading Iraq for Georgia. We will certainly know shortly. US troops are already in position to cross the Euphrates River as a prelude to invasion. American and British warplanes are stepping up their sorties over the no-fly zone in Iraq taking out radar and missile sites. Pre invasion plans are already in place waiting to be executed once the signal is given. Today in the Markets Signs of renewed economic weakness helped spur todays decline with the Chicago Purchasing Management Index falling back into recession. Companies are alerting Wall Street that the sales and profits arent going to be as expected. Wal-Mart warned the Street that its sales for September would be less than anticipated. Profit forecasts have been slashed again this week. Analysts now expect pro forma profits to rise only 7.3% this quarter, down from 17% in July and over 30% in January. Third-Quarter Declines
Funds: The 25 largest mutual funds This month is the end of the fiscal year for most mutual funds so you are going to see a lot of volatility as mutual funds take their losses and dress up their portfolios. Volume came in at 1.73 billion shares on the NYSE and by 1.64 billion on the Nasdaq. Volume has been a key indicator of this bear market. It was noticeably absent in all of the rallies this year, which gave the rallies no staying power. It has picked up during periods of decline giving them more strength. The advance/decline ratio continues to fall with more stocks reaching new record lows than those that are hitting new highs. Today was no different. Declining issues outdid advancing issues by 18 to 15 margin on the NYSE and by 19 to 15 on the Nasdaq. Overseas Markets Asian stocks fell as reports in Japan, South Korea and Taiwan indicated a slump in U.S. demand is slowing regional economies and reducing sales at Sony Corp., Samsung Electronics Co. and other exporters. Japan's Nikkei 225 Stock Average fell 1.5%, extending its decline in the past three months to 12%, the worst quarterly drop in a year. Treasury Markets © Copyright Jim Puplava, September 30, 2002 |
What are they going to do with their 250K when they say uncle? That's the problem...
The bulk of my portfolio went from $71-ish/shr three years ago to $61 and change today... that's when they went public though; my cost basis is around $9-ish... It's decreased but not a disaster, and I can't think of a thing to invest in that I'm not already in...
This month is the end of the fiscal year for most mutual funds so you are going to see a lot of volatility as mutual funds take their losses and dress up their portfolios.I assume that by "this month," Jim means September. Over what period of time can we expect the mutual funds to be volatile -- the month of October?
We could end up getting another relief rally that will have legs as central banks and governments pull out all stops in an effort to avoid asset deflation. It will be a real opportunity to ride the wave of a temporary pause in a developing series of storms.
Over the weekend, I was looking at the last rally opportunity. It seems to have taken place for one month, from the last week of July through the first three weeks of August. It seems to me that this coincides with the end of the reporting period (June), and before warnings came for the next reporting period (September). If so, and barring geopolitical turbulence, I'm guessing that the next rally opportunity will probably be the the month beginning the third week of October through the first three weeks of November. Any thoughts?
Wouldn't it make a lot more sense to wait for the bear to be over before investing for your retirement?
Richard W.
European stocks tumbled as the Dow Jones Stoxx 50 Index ended its worst quarter since 1987 with the biggest one-day percentage slide in 2 1/2 months. Axa and ING Groep tumbled after Scor, a French reinsurer, became the latest insurer to ask shareholders for cash. Ericsson, the world's largest maker of cellular networks, slumped after cutting its third-quarter sales forecast. The Stoxx 50 Index sank 5.2% to 2314.96. The index has fallen 24% this quarter. All eight major European markets were down during todays trading.
Asian stocks fell as reports in Japan, South Korea and Taiwan indicated a slump in U.S. demand is slowing regional economies and reducing sales at Sony Corp., Samsung Electronics Co. and other exporters. Japan's Nikkei 225 Stock Average fell 1.5%, extending its decline in the past three months to 12%, the worst quarterly drop in a year.
Hey, I have been on a Buy American diet since 9/11. Every Eurowhimper and Asianwhine about American Hegemony and Cowboy Unilaterlism just reinforces my determination. I like to think it's working!
I don't know whether that will be a lasting rally, but it will definitely occur.
I think we may be closer to the bottom than a lot of people realize. Within 1000 points or so.
Sorry...
I don't think that's too likely in the long term, and I'm rather suprised you do.
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