Posted on 11/22/2002 5:27:06 PM PST by rohry
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Market WrapUp for the Week Week in Graphs Storm Watch Geopolitical News Energy Precious Metals Raw Materials Friday, November 22, 2002 Run Your SOX Off Yesterday I wanted to take a closer look at the NASDAQ most active list and specifically PMC-Sierra since it was up an incredible 23% for the day by adding $1.44 to close at $7.73 per share. Even better, on Wednesday PMCS opened at $5.51 per share which means it had a gain of 40% in two days....Wow! From that point I went on to look at a five year chart of PMCS only to find that the 40% increase in two days didnt even show up. It looks like a flat line. In March of 2000 the stock went over $250 per share then fell to $2.70 per share in October of this yeara loss of 99% top to bottom. Putting the two-day gains of 40% into a broader perspective helps to explain the extreme volatility. When I looked closer at the 50 most active NASDAQ stocks it was clear to see that the movement in PMCS was consistent with many of the Hi-Tech High Flyers. With a cursory glance at the page I noticed that most of the stocks were priced under $10 per share. In fact, 36/50 are below $10 per share and 28/50 are below $5 per share. You can get some big percentage moves if you are willing to speculate on the fallen angels of the dot-com mania. The way I read the whole thing is that people want their money back! Investors who lost big in the NASDAQ meltdown seem to be pounding on the glory stocks of old. I still have two big questions. Where is the demand for semiconductor chips going to come from? Where are the earnings? PMC-Sierra has no P/E ratio because over the last year they have negative earnings to the tune of -$3.80 per share. Now back to the broader index of the SOX. Is this for real? Is the bottom really in? Lets take two different looks at the SOX Index. The first chart shows the SOX three-year daily in logarithmic format and clearly defines the bear market trend channel. While the 75% gains of the last six weeks is a big move, the index is still confined to its bear market channel. Can it break out to higher ground? The second chart is the same three-year time period, however please note that it is a weekly chart in linear format. Once again, the recent gains are still contained within the downtrend. In technical analysis, a descending wedge is considered a strong reversal formation, but look what happened in February of this year. The blue line indicates the original downtrend line that was broken back in February, but there wasnt much follow-through. The index popped out briefly, only to find lower-lows once again. Even if the SOX can break out beyond the green resistance line, I would expect to see a similar pattern that followed the breakout earlier this year. Is this the real deal, or just another bear market rally? You judge for yourself. Another thing to note is that both the daily and weekly stochastics (momentum indicator) are at the high end of the range which says that the stocks are short-term overbought and due for a pullback. Also, if you are new to charting, the big difference between linear and logarithmic formats is simply that the log format reflects price changes as a percentage rather than a straight line look. As a general rule, I like to see the charts in both formats to see if they are singing the same song. Its probably a good idea to use linear for one year or less, and use logarithmic for longer time periods, especially five and ten-year charts. One thing that I really enjoy about technical analysis is the fact that it is an art more than a science and there are many different schools of thought. In Search of Returns Taking a quick look at the chart of the 30-year Treasury Bonds, we can see the consolidation pattern that has emerged. This week bond prices have broken through the short term uptrend that began in mid-October, and appear to be headed for lower levels. This is not a good development for the real estate markets. Lower bond prices mean higher mortgage rates. Another reason cited for the falling bond market was a better than expected report on unemployment. Initial jobless claims fell 25,000 to 376,000 for the week ended November 16th and continuing claims fell 61,000 to 3.582 million in the week ending November 9th. With the lower than expected unemployment claims we still got news of further layoffs from companies such as Boeing, United Airlines, UBS, and Morgan Stanley. There are two things that I hold suspect in the employment numbers. First, over the last two years how many people have exhausted their benefits, still do not have a job, and are no longer part of the unemployment statistics since they are no longer receiving benefits? Second, where do we find the statistics for workers that are under-employed? With all the layoffs in Silicone Valley and the 60,000 stock brokers and analysts that have been laid off on Wall Street, have they found jobs making the same or better salaries? I know a good friend that is a CPA by trade that is now driving a taxi cab just to make enough money to pay his mortgage now that is serious under-employment and will definitely slow down the Holiday Shopping Season. In many of the past WrapUps, you have read Jim Puplavas commentaries on the Plunge Protection Team, otherwise known of as "The Working Group on Financial Markets." This group definitely exists and most definitely intervenes in the markets. Most recently it has been suspected that they have been propping up the stock market via the use of derivatives. I dont doubt for a minute that its true, but to what extent? Then you can do extensive research on the purported suppression of the gold price. Take a look at the Kitco gold chart for the last three days. Very nice spike to close the week above the $320 level, but also notice the repetition in trading pattern prior to the late spike. Tuesday the graph looked exactly the same with the dome controlling the price lower for the close in New York. Does this look like a chart where the commodity is trading freely? The Great Experiment I was most disturbed this week when I read an article on www.gold-eagle.com by Hans Schicht titled, The Long Bond Mystery. You see, it has always been my understanding that the Fed sets short term interest rates while the market itself determines long term interest rates. Im not convinced that is true any more. The following is an excerpt from Hans Schichts article. The volume of US long bonds outstanding is mind-boggling and its liquidation will be a major undertaking. I wondered how it was all planned, as the FED and the Treasury have not been too forthcoming in informing the public. I also wondered about the amounts of liquidity appearing lately from nowhere and being injected into the markets and the economy as a whole. I have a deep rooted suspicion, that in the mid nineties, a mechanism was established, probably on advice of Rubin, with the aim to underpin the value of the US government bonds by interfering directly in the bond market and which action would simultaneously create unlimited liquidity. At the same time as there must have been a secret mechanism put into place by the ESF, the Treasury and the FED to depress the gold price in the mid nineties, a special off-balance sheet fund looks likely to have been created by the FED, with the purpose to stabilize and to control fluctuations of the treasury bonds, through a gradual monetization of the long bond, on the home market. It should be remembered that bond trading on the home market does not have direct influence on the exchange rate. Whereas bond trading outside the US borders, yes, will affect the rate. Regarding foreign exchange, all dollars circulating outside the borders of the United States and all the dollar bonds held by foreigners should be seen as one and the same package of claims outstanding against the United States. And as the bonds in the package represent the bulk of the package, they do carry a greater weight by far in the valuation of the dollar rate of exchange, than the total amount of current accounts in dollars and cash held by foreigners. Under normal, free market, conditions, the fluctuations in the dollar interest rates are the ones, which determine the market value of the US bonds. However, if my suspicions turn out to be justified, then the FED, in addition to its published official bond dealings inclusive the repos, has turned the market upside down by having begun buying back the long bond directly through such secret off-balance sheet fund. Upside down, because not any longer would the interest rates be setting the bond prices, but the bonds would now set the interest rates! Federal Reserve Governors on Speaking Tour Finally, on Thursday Fed Governor Ben Bernanke gave a speech before the National Economists Club in Washington, D.C. where he said, If faced with deflation, the Fed intends to simply print money, or in other words, monetize US government debt, private mortgage debt, corporate debt, and foreign government debt, until the problem goes away, up to and including a severe devaluation of the dollar that would effectively transfer the assets of foreign dollar holders back to the US, and result in the central bank owning a significant portion of the private assets (homes) of the US. There are other interpretations of this, but think about the Fed simply printing money to buy debt, like mortgages, corporate bonds, etc. Interest rates of the longer bonds would not rise, because the Fed would simply print dollars to keep buying them at a pegged interest rate. What does this do to the dollar? Who exactly ends up owning a significant portion of US private assets? I see all of these developments as critical to know if we are heading towards inflation or deflation. By all counts it appears that the Fed would rather err on the side of inflation. Its inflate or die! Put another way, our system cannot function in an atmosphere of deflation. Since we live in a debt based system where money is borrowed into existence, the monetary base must continue to expand or there wont be enough money to pay back the debts plus interest. Since we have seen a number of debt defaults plus the eight trillion dollars that has evaporated in the stock market, the Fed must create as much new money as the money that is being destroyed. Now that we have lower interest rates (cheaper money) the next thing for the Fed to do is pump liquidity into the system. When I read the article on the Long Bond, it all started to make a lot more sense to me. While I was disturbed that the markets werent trading freely, I was also put at ease because it helped to explain some things. For quite some time I have noticed the S shaped yield curve. It was more pronounced before the last rate cut, but you can see where the curve is inverted at both ends and normalized in the middle. If the Fed is in fact controlling the price of the Long Bond, it means that they are controlling both ends of the curve. This is clearly a development that I will be watching closely. Closing Numbers for the Week Overseas Markets Asian stocks rose, led by Sony Corp. and Taiwan Semiconductor Manufacturing Co., after economic reports in Taiwan, South Korea and the U.S. indicated a recovery in demand for the region's exports. The Nikkei 225 Stock Average advanced 1.2% to 8772.56., while the Topix index added 1.3% to 859.05. An Attitude of Gratitude Copyright © Michael Hartman |
I agree entirely!
...................Which begs the question: So where do we get the consumers from to keep our economy inflated when, because of feminism, worries about overpopulation, etc., most people in the US are not having as many children?
Can you say MEXICO?
I wonder who does and who of those are putting their money on the line.
First step is to let the consumers we do have spend their own money. Reduce taxes
The intellectual dumbasses have damn near destroyed the American economy. It is time to replace those Ivey League, rubber stamp eCONomists with a few "country boy" Rednecks. They will fix it quick. By the weekend we all will be drinking beer, watching drag races, fixing mobile homes, enjoying life's simple pleasures and kicking terrorist ass.
It's hard for me to imagine what these freaky policies he mentions would accomplish besides delay any economic recovery by propping up bad investments.
It sure feels like an alien nightime probe expermiment, so I wouldn't call it grand.
The Dow has now been up seven weeks in a row. Is that lucky or unlucky? Answer: It's irrelevant. The outlook for the market remains bullish, subject to down days and down weeks. And there is what some are calling event risk. But there has never been a time when the market wasn't subject to event risk.
That is exactly what this is all about. Japan did it one way -- they just pretended the banks were solvent. We are doing it another way -- we manufacture mountains of paper to hide the problems. Our whole economy is now based on nothing more than false belief, illusion and faith in the "system".
Richard W.
Here, here.
Maybe also..............if Americans felt they could afford children, they'd be having them. Confiscatory taxation is destroying this country.
I'm in. Where do we sign up?
I think you have hit on something here.
Not only are the Mexicans consumers, but they export a lot of dollars out of the country, sopping up more printed cash. Then, their cheap labor holds down costs - keeping products cheaper than they would be if you had to pay somebody to say, pick fruit, at $13/hr instead of $6, plus there are no overhead benefits like unempolyment insurance, workmen's comp, IRAs, Social Security, or pesky labor laws.
So, not only do illegals keep the population and consumer base growing, they greatly help in driving first costs downward, thereby breaking inflationary pressures. Of course, this drives down ALL wages, but that mostly affects the lower rungs of society, so for the Big Boyz, it's a win.
But, these teeming millions drive up costs in some sectors, such as medical, insurance and welfare. However, most consumers aren't really paying attention to the 'why' and thereby don't see that in the same light they see items costed on store shelves. The blame can cleverly be transferred by demogogue politicians to greedy doctors and corrupt money-bag companies. Another 'plus' factor is these skyrocketing costs is the exponential increase in demand for government services and regulation.
So, it's a four-bagger for the Liberals! Unfortunately, it's also eventually three-strikes-and-you're-out for America as we become part of the Third World with exploding corruption, worthless money, no civil rights, and a huge and restless underclass being milked by the very wealthy who live behind their gates and shard-topped walls and control everything!
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