Posted on 11/06/2002 4:24:28 PM PST by rohry
Market WrapUp for the Week Week in Graphs Storm Watch Geopolitical News Energy Precious Metals Raw Materials Wednesday, November 6, 2002 Time to Take Out an Insurance Policy Yet in most financial reporting that covers the financial markets, very little attention is given to this imbalance. Annual debt growth in the US at $2 trillion is now 20% of GDP with no signs of letting up. In yesterdays election, voters across the land approved a record $46 billion in new municipal debt. This occurred at a time when most state budgets are in deficit. In my home state of California, the deficit of $24 billion is larger than most other states' entire budgets. California voters approved $10 billion in bond sales by local school districts. Bond Market Showing Signs of Topping Out
Fed Surprise 1/2 Point Action Sets Off Bells Why monetary policy isnt working this time is that this is no ordinary recession or bear market. Unlike past recessions, which were caused by inventory accumulations and tight monetary policy, we are dealing with a bubble. There is a big difference. Inventory accumulations can be worked off and monetary policy can go from being tight to reversing itself bringing about a recovery in the economy and the markets. However, this time there have been no major inventories to liquidate outside of technology. Inventory levels, thanks to justn time inventory management have been kept lean. Most inventory levels have been worked off and most companies are seeing their revenues decline. They have gone to cost cutting to survive, which is why unemployment is rising. The real problem in the American economy is record debt, lack of savings, exploding trade deficit and an implosion in profits. These problems cant be fixed with monetary policy. No Sir - e - Bob, this isnt your ordinary recession or bear market. It is a bursting bubble that is in the process of deflating, and there is nothing the Fed can do but make matters worse by creating another bubble to replace the ones that are deflating. The Feds aggressive rate cuts have created bubbles in mortgages, housing, and consumption. What happens when these bubbles deflate? The consumer looks like he is tired and ready to call it quits. Unless long-term interest rates can be brought down to even lower levels and generate another round of refis for consumers, John Q looks tapped out. In fact, more alarming for the Fed than a plunging stock market is a plunging bond market. Rates have backed up on both the 10-year note and the 30-year bond. If the bond market plunges as a result of a falling dollar, rising gold and commodity prices, the Fed and US government will have a bigger problem on their hands. It's Time To Take Our Medicine Given the Feds penchant for greater inflation by expanding the money supply and credit in the financial system, a bit of insurance to protect against the seismic earthquakes should be taken to protect investors net worth. The fact that gold shares and bullion have been rallying throughout this recent bear market rally should be a telling sign of things to come. The more that stock prices continue to rally against a backdrop of a falling dollar, rising gold and commodity prices and rising interest rates, the greater the chance that the US stock market is headed for another crash. Forget this nonsense that the stock market has bottomed out. Bear market bottoms are accompanied by mass selling of stocks by the investment public, which has yet to occur. Dividend yields and P/E ratios are usually between 6-7. To repeat the words of Warren Buffett, weve only made a down payment in this bear market. Today's Markets
The Fed is now caught in a catch 22 situation of its own making. The more they lower rates, the worse things are going to get. If lower rates dont resurrect the economy or the markets they will have nothing else to work with then to start monetizing assets, which may indeed come next. The markets eventually responded after plunging on the news of the rate cuts after large buying in the futures markets. The markets rose for the fourth consecutive day. Wall Street was giddy with the news believing as they do that another rate cut will resurrect the markets. The biggest winners today were gold shares, defense stocks, drug companies, energy, and tobacco. The banking sector actually finished on a negative note which may be why the Fed decided to surprise the markets by a half a point rate cut. Adding to the surprise rate cut was the Fed shifting to a neutral stance on rates. Cisco also helped to drive a rally in stocks after reporting profits that beat estimates. That was the good news. The bad news was that the company said the book-to-bill ratio, which compares new orders coming in to shipments out the door, remained below 1 during the companys first fiscal quarter. The company also stated that next quarters sales would be slightly lower or unchanged. The company reported earnings of $618 million which were an increase from a loss of $268 million the year before. The company had a pro forma profit of $1.04 billion before accounting for investment losses, acquisition related expenses, stock-option expense, and other miscellaneous expenses. Deferred revenue, which measures whether orders are coming in faster than shipments, dropped from $3.89 billion the previous quarter to $3.75 billion in the current quarter just ending. Allowance for doubtful accounts rose to $346 million. The good news is that Cisco beat lower revolving estimates by a penny. The stock trades at 27 times trailing earnings versus its bubble PE multiple of 192, average PE multiple of 77.5, which in Wall Streets view makes the stock a strong buy. Of the 44 major analysts that follow the stock, 29 rate it a strong buy, 13 a hold, and only 2 a sell. These analysts are obviously, shall we say, not value investors. Gold, along with defense and oil shares, had a good day. It now appears that the US could be at war within the next 30-90 days. Drug stocks did well along with tobacco stocks, as it is believed a Republican victory could curtail frivolous lawsuits and put a crimp with run-away lawsuits by the appointment of more conservative judges. The biggest winner overall today were the shares of defense stocks as it now looks like war has become almost a certainty. Volume was heavier than usual with 1.63 billion shares trading on the NYSE and 2.16 billion on the Nasdaq. Breadth looked better with advancing issues besting declining issues by a 22-11 margin on the NYSE and by 21-12 on the Nasdaq. The VIX rose .20 to 34.48 and the VXN fell 1.14 to 50.06. Overseas Markets Taiwanese stocks rose, driving the TWSE Index to a two-month high, on optimism lower U.S. interest rates will bolster demand for the island's exports. Taiwan Semiconductor Manufacturing Co. led the gain. Japan's Nikkei 225 Stock Average rose 0.2%, with drugmakers such as Takeda Chemical Industries Ltd. and Yamanouchi Pharmaceutical Co. leading the gain after they said increased overseas demand boosted profits. Bond Market Copyright © Jim Puplava |
Maybe the fed looked here for rate cutting advice:
http://www.news.uiuc.edu/news/02/1104flash.html
This would also help explain why Illinois republicans got their rear end kicked in state wide office elections.
Did anyone watch the dollar devalue against the Euro ?
If you had billions, where would you put it ?
Japanese treasuries 0%
US treasuries 1.25%
EU treasuries 3.25%
Don't forget the balance of payments needing foreign dollars to come into treasuries and equities in the US.
Odd Farm-Sector Surge Distorts Jobs Data
Richard W.
Manufacturers are a forbidden race in America. The NAFTA agreement says so.
Want to have fun? Get your Congressman or Senator into a NAFTA conversation. They will literally run for the hills when you mention unemployment. Unfortunately it is illegal to shoot them in the back.
Declining credit quality.
Good luck to everybody!
Stonewalls
This was supposed to be the cure-all, just as all of the previous rate-hikes were supposed to be.
It really inflicts a lot of pain on retirees depending on interest from their savings to supplement their incomes. I'm wondering what happens to fixed income folks when inflation hits (it is in the cycle of economic things that occur).
Richard W.
The dictionary defines insurance as an insuring or being insured against loss; a system of protection against loss . I would suggest to most investors that now is the time to think about owning insurance against financial loss. The insurance Im referring to is gold and silverAre there Gold stocks with P/E ratios below 7?. . . .
Bear market bottoms are accompanied by mass selling of stocks by the investment public, which has yet to occur. Dividend yields and P/E ratios are usually between 6-7. To repeat the words of Warren Buffett, weve only made a down payment in this bear market.
patent +AMDG
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