Posted on 07/19/2002 4:53:22 PM PDT by rohry
Market WrapUp for the Week 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 Overseas Markets 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. Treasury Markets © Copyright Jim Puplava, July 19, |
PS:I found the prices in California rather steep there. :^)
NASD - 1,175
S&P - 780
Gold - $330
Silver - $5.15
Which market?
I say DOW 6000-7000.
NASDAQ: 1,050
I say NASDAQ three digits.
S&P: 750
I like your S&P.
Gold: $330
I say Gold $335.
DOW - 7500
NASDAQ - 1220
S&P - 780
Gold - $350
Silver - $5.40
Capitulation is not yet here. There's still some hope left in these bear market rallies so the breakdown will just continue to decline the markets until they are 1/2 of what they are today.
The big question is silver and gold. These markets are highly subject to manipulation. However, their sharp spikes today retraced some but then showed strength, so I think the precious metal markets are due for a breakout. The usual control was not solid on a day when the options expired. If they hit these above forecast levels, they may well go much higher, especially if the breakdown of the equities continues apace.
It's the perfect sales pitch for these uncertain times: How about a chance to make money in the market, but be guaranteed you won't lose a dime?
Mutual-fund companies are racing to offer funds that promise just that. "Have you ever heard of a mutual fund that offers you the unique opportunity to participate in the market's upside potential while enjoying the added benefit of a guarantee of principal -- for five years?" reads the marketing material for ING Principal Protection Funds.
A handful of investments like the ING funds, widely known as guaranteed funds, have been around for years without garnering much attention. But the stock market's collapse is focusing attention on these offerings and bringing new versions of them out of the woodwork.
From a performance standpoint, the funds come out somewhere between stock and bond funds. Since it was launched in October 1999, the ING Classic Principal Protection Fund, for example, is down 0.2%. Meanwhile, the Standard & Poor's 500 index is down 28.8%, the average domestic diversified stock fund is down 14.2%, and the average bond fund is up 16% during the same period, according to Lipper Inc.
Now that's an interesting promise. I wonder who's underwriting this? Who can afford to, realistically? And finally, I wonder what the load on such a fund would be.
Dang. That's the part of the Journal I rarely read. I guess I'll have to do better. :^)
I was really hoping that there was a web site that one could dig this stuff up on (and perhaps there is, but I haven't found it with a quick 'google' search).
S&P 500 720
Nasdaq 999
Gold 400
Silver 7
Oil 35
(I laughed when I heard Dan Rather on the SeeBS evening news tonight make a quip about today's market action: "The closing bell didn't ring today, it tolled...")
anyone have any idea what power producers or oil companies he might be referring to?
or, better still, where one can go to easily research such claims?
Then there's the expense hurdle. The "A" class shares of the Smith Barney Fund costs shareholders 1.95% of their assets every year, and the expenses on the other two classes of shares reduce an investor's earnings by 2.7 percentage points. In contrast, the average fund that is a blend of bonds and stocks carries an expense ratio of 1.28%, according to Morningstar. The difference on these guaranteed funds is that in addition to covering the normal costs of running a fund, 0.75% of a shareholder's investment goes to pay for the insurance policy.
I can't answer that, but I can say that a good bet would be a company that has some good, reliable (coal as a staple) power generation capability. The key is owning "hard" assets, not manipulators of contracts and such as Enron had become. Find the smokestacks (preferably, smokestacks built in the 1980's or newer) and you may find value. Don't underestimate Nukes, but only as a moderately small proportion of assets (say, 20% or less). Don't ignore wires, pipelines, wells, and that kind of stuff either.
Think physical, act financial.
From Letterman last night:
"I bumped into my stockbroker today -- well, I didn't actually bump into him . . . I broke his fall."
Anyone else have market humor? It is a good stress reliever.
Richard W.
Letterman: "I just got a call from Martha Stewart today. She wanted me to pass along to all of you that you can now take her stock certificates.... and make adorable little placemats out of them."
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