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FYI...
JW
-----Original Message-----
From: James Smith [mailto:JSmith@xxxxxxxxxxxxxxxxx]
Sent: Monday, March 27, 2000 5:38 PM
Subject: Watch closely to see what OPEC does next week
If OPEC decides in their meeting next week to
supply sufficient amounts of oil to the markets
oil could continue its plunge toward $20.10,
which is first monthly support on Nymex
Crude (basis the May contract)...setting
in place a Higher Low off which the next leg
of the longerterm bull market in oil will begin
that will lead to $40/bbl or higher.
But nobody will care about the longerterm
view on oil next week if OIL is plunging to
$20. A plunge in oil would certainly give yet
another boost to stocks and could explain
why the S&P will continue to a blowoff rally
into late April.
If the markets perceive that OPEC is not going
to supply enough oil or that it is not going to
arrive soon enough, you could see Crude
move quickly above $30 again. This would
put downard pressure on US bonds, which
incidentally suffered a nice reversal on
Friday. But I doubt that the Treasury is finished
manipulating the yield curve. Obvious
inflation just makes the manipulation more
difficult, but not impossible...at least not
on the short-term basis. It does underline
how important this OPEC meeting is.
I suspect the administration will put very
heavy pressure on OPEC to supply adequate
amounts of oil.
Remeber it was the Clinton adminstration
that coined the election phrase,
"Its the Economy Stupid!"
I have often wondered if this phrase
would come back to haunt the administration.
April may not be the cruelest month, but May
certainly will be.
Stocks are somewhat mixed. The DOW
still needs to see closing New Highs before
we can confirm a strong rally into April.
The Nasdaq 100 (jun) closed today above
4800 which suggests a move higher, but
I would still like to see the Composite close
above 5200 to confirm a blowoff into April
for the Nasdaq. The Nasdaq rallied
strongly Friday morning but gave up a
lot of its early gains. Again, its best to wait
for a close above 5200 on the Composite
to confirm a move higher into April.
Can the S&P move higher into April while the
Nasdaq moves lower? Sure why not?
We've seen this just recently as investors
re-discovered "value". I'm not saying
this will happen, I'm saying it is possible
(if the Composite fails to close above
5200 soon).
The S&P (june) has given the
strongest performance this week of the
three stock markets, by closing above 1500
and racing ahead. As worried as traders
were on Friday of yet another rate hike,
if OPEC comes thru with plenty of oil,
rate hike fears will disapate quickly and
the party will continue.
With regard to BONDS, the month of
APRIL is a "DIRECTIONAL CHANGE"
month. A strong rally into this timeframe
with bonds now yielding less than 6%
leaves them vulnerable to a sudden
correction which will lead to longterm
rates over 7%
Again, market manipulations are very
very dangerous. They always end with
someone getting hurt....usually the taxpayer,
small investors, and people on a fixed income.
It is important to see the Treasury's
actions for what they are. This short-term
political gambit guarantees higher inflation
down the road. Helping Gore get elected
in November may be the Adminstration's
highest priority, but at what cost to the
economy?
It is also important to see the link between
the Bureau of Labor's fiddling the numbers
(PPI & CPI) and the administration's efforts
to keep longterm rates lower.
If they don't fiddle the numbers on CPI and
PPI, investors will demand higher returns on
longerterm notes and bonds. This would
somewhat negate the Treasury's efforts
to manipulate longterm rates lower. We
certainly can't have that!
Why should the adminstration want lower
longterm rates? .....to keep mortgage rates
lower. A lot of the off-the-run bonds that
the Treasury is eagerly buying up are closer
in maturity to the 10 year note. Mortgages
are priced off the 10 year.
If you can keep mortgage rates artificially
lower it will help the housing market which
is a key component to the economy.
If 1% of the people own 40% of the stocks
then a crash in the Nasdaq may not hurt
the economy as much as you might expect.
But given that over 60% of families own
their own home and have the vast amount
of their savings tied up in their house,
what do you suppose would happen to
consumption (which incidentally is 2/3rds
of the economy), if the housing market
suddenly peaked and began a wicked
decline on the back of higher rates?---Oops!
Sublimal message:
"Its the Economy Stupid! And more
specifically, its the Housing Market Stupid!"
Can the adminstration keep this game going
into November? -----No way!
Some have argued that because Central Banks
and govts can maniuplate the gold
market and because they can manipulate the
statistics off which all the financial markets trade,
that there is no reason to believe in cycles.
It is precisely this "arrogance of modern man"
that guarantees greater volatility in the very
cycles he wishes to deny.
You are never going to get government to
acknowledge the validity of cycles because
doing so is tantamount to acknowledging
the limitations of a government and its power.
The prudent investor will not stand in the
way of a market that is being actively
manipulated, but it does present opportunities
at the right moment.....to a student of cycles.
It is my view that current manipulation of the
yield curve will not last thru the month of April.
Again the month of April is a "Directional Change"
month for BONDS.
For those of you on a fixed income or of limited
means, I strongly advise you to get a car that
is fuel efficient. Any further sell-off in oil is going
to be temporary. Pay down your credit cards,
pay down your debts.
Do not buy a Suburban, Expedition or any of
the other urban assault vehicles unless you
can afford to pay $200 or more to fill it up.
Also note that if you paid $40,000--$50,000
for your tank you may not be able to sell it
for $10,000 in just two year's time.
That has to be one of the worst trades going.
Just as the Japanese were ready in the 1970's
with their economy cars, how ironic that they are
just now coming out with hybrids that get 60-70mpg
at precisely the right moment.
Has Detroit learned nothing from their own history?
Those who do not learn from history.....
Economists may argue that oil represents less
than 3% of GDP nowadays, whereas it represented
over 10% of GDP in the 1970's.
That's gotta be one of the dumbest arguments
around. Again they are arguing against cycles
without even realizing it.....because if you go back
a bit further (before the 1950's, 1960's & 1970's) you would
also find that oil was less than 3% of the economy.
Just because oil is of less important to our economy
now doesn't mean it will stay that way. When Oil prices
move to $40/bbl and higher over the next few years, won't
that percentage of GDP relationship also change?
Until Fuel Cell vehicles become the primary means
of transportation, their argument makes no sense whatsoever.
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