Skip to comments.Friday, 7/19, Market WrapUp (Capitulation, or precious metals, water, oil & gas, and defense?)
Posted on 07/19/2002 4:53:22 PM PDT by rohry
Friday's Stock Market WrapUp
And When The Dow Breaks...
The fact that the Dow held up well went a long way to reinforcing the equity cult and the belief in owning stocks for the long-term. Talk to anyone on the Street about the market and chances are they can tell you at least something about the Dow. John Q. Public may not know much about the S&P 500, the Nasdaq, or the difference between large cap or small caps, but he is aware of the Dow. Every evening newscast, as well as news reports covered on the radio, and the daily business section of most hometown newspapers, cover the blue chip average. When investors or the public think of the stock market, they are thinking in terms of the Dow Industrials. As long as the Dow is okay, the stock market is okay, and so is the country.
I attended a wedding a year ago in May where I was seated with a wealthy group of individuals. The financial markets came up as the topic du jour of the evening. Most of the wealthy people seated around my table were of the opinion that you couldnt go wrong in owning shares of solid companies. The fact that the markets were going down didnt seem to concern anyone at my table. "It always comes back," was the mantra repeated throughout much of the evening. The scion of a wealthy family and several successful entrepreneurs all echoed this same sentiment. They were sticking with their blue chip stocks. You cant go wrong owning IBM, GE, Intel, Microsoft or ExxonMobil. When it came around to what I did for a living, I was asked to give my opinion. Naturally, being a member of the financial establishment, my new acquaintances expected me to chime in agreement. After all, that is all they heard from the financial cable channels, read in the newspapers, or saw on the cover of most financial magazines.
Being passionate about my beliefs I went into a short version of my "Perfect Storm Scenario." They all looked aghast at my comments. It was as if I was suffering from flatulence or halitosis. One individual was brave enough to ask what I owned if I didnt believe in the markets. I told him precious metals, water, oil & gas, and defense stocks. Of course this was the summer of 2001 before the tragedy of 9/11. There was a long moment of silence before one individual commented, "Oh youre one of them." in reference to the fact that I owned gold.
That was the summer of 2001. I went back this year for another wedding also in May and sat at a table with one of the same individuals from the previous year. He was lamenting over the fact that he should have followed my advice and gotten out of blue chips much earlier. He had hired an advisor and was invested in small cap funds, which were doing nicely at the time. I told him he should talk to his advisor about investing some of his assets in gold. The standard response was that his advisor thought the rise in gold was a fluke and it wouldnt last long. I wonder what he will tell me next year.
I believe the sentiments reflected at the two weddings reflect the attitude of most investors. That may be changing now that the Dow is breaking down along with small and mid-cap indexes. The S&P 400 Midcap Index is down 17.07% YTD and the S&P 600 Smallcap Index has lost 17.07%. The Wilshire 5000 Total Market Index, a much broader measure of the markets, is down 24.51%. It doesnt matter where youve been because you have been hurt this year in the markets. All sectors are starting to break down and this is now creating a real sense of fear with investors.
This Is No Ordinary Market
There is one indicator I have noted that may point to a turning point. It is the Rydex mutual fund flow index developed by Price Headley. This indicator shows how the crowd is thinking. It measures bullishness and bearishness between fund switchers. When everyone is going short, and it becomes common knowledge that you can make money shorting stocks, it is time to think as a contrarian. As hard as that may sound, the possibility of a rally starting at this point seems plausible given the degree of pessimism in the markets. When politicians and the media start making it the evening headlines and it appears on the front cover of weekly news magazines, it can become a major inflexion point for change in the opposite direction.
It's Time To Think About Some Things
S&P estimates a $4 war premium in the price of oil. If war breaks out with Iraq, which is looking more likely, the price of crude could head to $40-50 a barrel. In case anybody hasnt noticed, the price of oil has gone from under $19 a barrel in January to todays closing price of $27.84. If there is going to be surprise earnings in the second half of the year, it is going to come from the energy and precious metals sector and other natural resources if paper company profits are rising.
Meanwhile, while the nation heads towards one crisis after another as a result of the imbalances of the 90s economy, our faithful lawmakers can think of nothing more than playing politics. Politics has turned into a blood sport, much to this nations detriment. Lawmakers continue to demagogue accounting scandals and shift blame -- excluding themselves -- from the debate. They denigrate business; while at the same time they get on corporate jets and fly to fund raisers. They chastise corporate executives for their high pay; while they have voted themselves an automatic pay increase. The average Congressman has received a $20,000 a year pay increase over the last few years, not to mention special pensions and other perks. This political posturing and blame shifting keeps the more serious issues of social security, the national debt, and the trade deficit -- which hit another record deficit in May -- from being discussed. Instead they play politics; while the country heads closer towards depression. The 1990s debt and consumption binge is going to unravel, and when it does, we are going to need more than demagoguery to help the nation get through it.
The Dangers of Debt
The Markets This Week
Asian stocks fell, led by Sony Corp. and Samsung Electronics on concern demand for personal computers wont recover soon after Microsoft Corp. cut its annual sales and profit forecasts. Japans Nikkei 225 stock average had its biggest drop in almost a month, losing 2.8% to 10,202.36. South Koreas Kospi Index slumped 2.5% to more than a two-week low. Taiwan Semiconductor Manufacturing Co. fell to an eight month low while Singapores Chartered Semiconductor Manufacturing Ltd. paced the Straits Times Indexs 1.3% decline.
© Copyright Jim Puplava, July 19,
Here are mine:
I'm still reading my 1,500 page book. Go here:
Here is part of a sample review:
Crashmaker can be read on two levels. First of all, it is a very entertaining novel, with a gripping plot that will keep you in suspense throughout the book. Though entirely a work of fiction, it is humorous to parallel real people with the characters in the book, like the Ranscums, a despicable former president who along with his wife brought disrepute to the White House because of their numerous scandals, lack of morals and disregard for the law. And it is very amusing to read about the exploits of Allen Stillwell, the chairman of the Federal Reserve, who is a central character of this story. But while the book on this level is fun and entertaining, it is the second level that is of importance and the reason I recommend that everyone read this book.
Crashmaker challenges the reader. It asks each American what is required to achieve true freedom, and then thoughtfully and thoroughly explains how American freedoms have been lost by the creation of the Federal Reserve in 1913. Its establishment has created a monetary system that subverts freedom by violating the monetary provisions of the Constitution, thereby making possible
Interesting, but I read the same thing two nights ago in a book that was written in the mid-1990s. It was using individal stocks and industries (like the auto industry) as examples.
Sorry, I'll give you the Reader's Digest version:
Bubbles are everywhere
They are deflating
Don't play in the traffic...
Short enough for you Einstein?
The market is close to being oversold. If you have money to invest, begin dollar-cost averaging. A year from now, you'll be very happy.
Dow: 7,500 bottom, pause, then slow, careful climb. But first, a little bump on Monday and Tuesday, about 300 pts. I think its bottom will be within 2 weeks of your arrival back in the states.
NASDAQ: It'll drop to just below 1000, briefly. Then it will pause at around 1050 and climb slowly.
S&P: 800-850 at the bottom. Same pattern as DOW and NASDAQ.
Gold: $360, holding at that level for a while.
That's it. Do enjoy your trip, business or otherwise. I fully expect to see you back here on 9/9/02.
This is smoke on the water stuff. I'll be happy if my credit union doesn't fold in a years time..
|Town/Zip Code||Jan.-May 2002||Jan.-Dec. 2001||% Change|
|Harvard, Mass. (01451)||$462,063||$477,901||-3.3%|
|Montclair, N.J. (07043)||439,965||364,803||20.6|
|Haverford, Pa. (19041)||468,39||4413,841||13.2|
|McLean, Va. (22101)||516,503||481,031||7.4|
|Bloomfield Hills, Mich. (48302)||307,256||311,358||-1.3|
|Northbrook, Ill. (60062)||418,079||381,297||9.6|
|Santa Monica, Calif. (90402)||848,187||810,508||4.6|
|Belvedere Tiburon, Calif. (94920)||1,316,020||1,295,840||1.6|
|Bellevue, Wash. (98006)||382,167||413,666||-7.6|
This is the average sale price through May in areas, listed east to west, with high concentrations of top-ranked professionals and executives. The figures are based on average sales of homes in ZIP Codes with an annual median income of $100,000 and a median home price in excess of $300,000.
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