|
PureBytes Links
Trading Reference Links
|
Interesting excerpt from http://www.thestreet.com daily email letter.
JW
abprosys@xxxxxxx
Editor's Letter: Wall Street Entering the Twilight Zone
By Dave Kansas
Editor-in-Chief
Let's face it. Since the backslapping and cheering that welcomed the big
Oct. 28 rebound in stock prices, things have started to look simply
terrible.
The slow bleed has taken stock prices down about 10% from summertime record
levels and despite a 1 1/2-session rally, few market players feel very
good. Behind those smiling television faces and canned quotes, fund
managers are sweating as great years slowly melt away. The unending good
times look like they disappeared sometime back around Flag Day.
It's bizarre how stealthily this terrible market has encroached. Check out
the numbers. The Dow Jones Industrial Average is at roughly the same level
it reached in mid-June. After months of record after record, the Dow hasn't
clipped off a new high since Aug. 6. Though nobody's really noticed, this
is the longest sustained nothingness since the ugly days of 1994. That year
the market finished flat and money managers were talking about things like
"total return" to anyone who would listen. Turned out the paltry dividend
yields were all that could keep many funds in the black that terrible year.
What's especially distressing is that the argument for recession has
mounted inexorably in the past month. Not many people want to talk about
this, primarily because it seems so ludicrous. Right now the U.S. enjoys
record employment, incredibly robust balance sheets and a wonderful
business environment.
But the financial markets are telling us something altogether different.
Around the world yield curves have flattened remarkably. In the U.K., the
yield curve is inverted. Economists will agree on almost nothing, but they
do mostly believe that flat or inverted yield curves signal slowing growth
or recession ahead. In the U.S., the 30-year bond is sneaking toward 6%. In
June that would've driven the Dow to 9000. Today investors believe that
bond yield is moving that way because the inflation threat -- along with
the economy -- is toast.
Take a look at the stock market. While all the moving parts gyrate and
strategists chatter on about cheap PCs and other inane things, an
impressive divergence has unfolded between the Morgan Stanley Consumer
Index and the Morgan Stanley Cyclical Index. The cyclical measure, which
tends to perform poorly in anticipation of slowing growth or recession, has
not recovered from the Oct. 27 skid and is down about 11% since the middle
of that month. Conversely, the Morgan Stanley Growth Index, which tends to
perform better in anticipation of slowing growth or recession, has
recovered from the Oct. 27 skid and edged up 0.5% since mid-October.
Is all of this true? Could we be steering right for the recessionary cliff
despite all the protestations that the economy is going great guns? What is
striking is that despite these roaring indications of slow growth and dying
inflationary threats, many strategists and economists say the Fed still
needs to raise rates.
Frankly, the recessionary thinking should remain just that. The main thing
the markets reflect right now is fear. Fear about Asia. Fear about Iraq.
Fear about $999 PCs. Fear about preserving another year of strong gains.
The U.S. economy looks pretty good right now (always does at a top, the
wags will say). But here's one contra possibility that should be
considered. Let's presume that the Asian situation is indeed the
deflationary, depression-like nightmare that some think it is. Let's also
presume that Latin America is crushed by Brazilian bungles. Let's presume
still further that Eastern Europe will give Western Europe a nasty
infection -- and that infection worsens due to Western Europe's obsession
with EMU. Let's just say all of those bad dreams come true.
Okay then, what's the only solution? Open the floodgates in the U.S. Only
the U.S. can generate enough economic momentum to cushion the depressionary
and deflationary forces that would be unleashed by the bear's nightmare
scenario. If the only solution is exporting to the U.S., the U.S. better
keep growing or else it will swiftly end up in the soup along with everyone
else.
Therefore, don't be surprised if the Fed eases and sets the U.S. up as the
cushion for crumpling global economies. Perhaps wacky Hugh Whelan of Aeltus
Investment Management had it right when he said in last Monday's TSC the
Fed should/would ease. What a strange world.
*******************
IPO Woe: A managing director on a syndicate desk at a large firm whom I
talked to the other night says the recent relative strength in the initial
public offering calendar is deceptive. Apparently deals that are doing okay
on the first day are steadily getting crushed in ensuing days. "People just
don't want to hold onto anything." What's even stranger is that companies
are almost "desperate" to get deals done despite the terrible
environment...
Gold: Gold under $300? Guess the black helicopter boys aren't buying enough
of the stuff. Bad leading indicator for those anticipating a U.N. takeover.
Market Top? A golf outing with Michael Jordan (the hoopster, not the
Westinghouse guy) went for $135,000 at an auction on Wednesday night. The
winning bidder was a member of the Quick family, recently enriched by the
takeover of Quick & Reilly (BQR:NYSE). Interestingly enough, another
big-ticket item in the auction went to a partner at Montgomery Securities,
also recently enriched by a takeover. The auction and dinner raised a lot
of money for the St. Jude children's hospital in Memphis, Tenn. Organizers
of the event dissed the press from the speaker's podium, but I still think
it was a great event for a great organization. Also, had to love the Marlo
Thomas presentation and the milk chocolate grand pianos.
|