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Interesting article, especially with respect to Europe. I've always
enjoyed PEI commentary and found some value in it however one needs to
use it with care. PEI has been dead wrong on Japan and the Yen for well
over 18 months now missing entirely a major low risk investment
opportunity in Sep98.
Earl
----- Original Message -----
From: "JW" <jw@xxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Wednesday, April 26, 2000 1:39 AM
Subject: [RT] FW: James Smith market projection
> FYI... (btw: I have no affiliation with this service.)
>
> JW
>
> ------------
>
> Our Timing Models show that the month of May
> is indicated for Turning Point for both the S&P
> and the DOW. Within the month of May both the
> S&P and the DOW show a Turning Point Week
> accompanied by Panic the week of May 15th.
> This means that whatever the DOW and S&P
> do going into the week of May 15th, they are likely to
> do the opposite coming out of it. A sharp selloff
> going into mid-May would be preferable, as it would
> suggest a more durable low, and set up a buying
> opportunity. In any event, risk in holding stocks
> is rising faster than the stock market itself.
> Many investors who is not familiar with the concept
> of Risk versus Reward are about to get a quick lesson.
>
> The so called "value stocks" in the DOW and S&P
> are vulnerable to a coming bond market slide. The
> trigger for our bond market slide may come from
> overseas.
>
> If the EURO is getting trashed, its because traders
> know full well that the ECB cannot afford to defend
> the currency and at the same time avoid damaging the
> European stock markets. If the ECB tries to keep
> up with the FED, matching its every rate hike, they
> will only succeed in destroying a nascent recovery
> in the European economy and causing utter havoc
> in the European bourses. Europeans stocks may
> very well come to rival US tech stocks in their ability
> to shed value. Now that European inflation reported
> for the month of March has surpassed the ECB target
> of 2% (March inflation was 2.1% ), the ECB is obliged
> to raise rates, according to their mandate to maintain
> inflation below 2% level. Will they do it?
>
> If the ECB is dumb, they will raise rates on April 27th
> to maintain some vestige of credibility; if they are smart
> they will recognize that raising rates is akin to
>
> "pissing in the wind."
>
> No matter what the ECB does on April 27th, European
> bonds are apt to slide, because traders can smell
> fear just like a dog can smell fear. They know the ECB won't be
> able to contain the inflationary spiral coming to Europe.
> Since European bonds are going to slide, this means a European
> stock market slide is a foregone conclusion.
> The point to take home is that inflation is coming back
> and no action by the ECB short of a sharp series of
> punitive rate hikes is going to stop this trend. And in
> case you hadn't noticed, Paul Volker is not running the
> ECB.
>
> If I suggested in the last email that
> European and Japanese stocks may see more
> damage than US stocks before the correction has
> run its course, its because we are in a rising rate
> environment. In spite of the tech stock bubble,
> US stocks are in better position to deal with a rising
> rate environment than European and Japanese
> stocks. European and especially Japanese
> companies depend greatly on US consumer demand.
> Any slowdown in the US consumer's voracious demand
> for foreign goods is going to impact those companies
> strongly. Sure it will hurt US companies too, but
> perceptions on currency risk should cause capital
> to flow the US, softening the blow to US stocks.
>
> There is also a kind of vicious cycle here
> related to commodities and the currency effect.
> The USD will rally strongly from here on out and
> since commodities are priced in dollars, Europe
> and Japan will outpace the US in inflation and
> their bond & stocks will reflect a loss of confidence in the
> ECB and BOJ to contain inflation. Capital will flow
> to the US.
>
> If the ECB cannot keep up with FED rate hikes,
> Japan cannot afford to keep short rates at zero
> without causing a bond market crash in Japan.
> The BOJ is caught between a rock and a hard place.
> If they keep rates at zero at the same time the FED
> and the ECB continue to raise rates, capital will
> become irresistibly attracted to the higher returns achievable
> overseas. Why take 2% on a 10 year Japanese
> Bond when you can get 6 1/2% going on 7% on a
> US 2year note??? Who needs the risk of owning a
> 10 year JGB with lousy return when you have much
> less risk with a US 2 year? In a rising rate environment
> the risk on the long end is heightened, which underlines
> the risk Japanese investors face in keeping their
> capital in Japanese bonds...in a currency that is headed south.
>
> If the Japanese govt feels that capital is getting ready
> to flee the country like rats abandoning the ship,
> they may very well sink the ship so the rats can't
> leave.....meaning the govt may even make statements
> or take action to cause the JGB market to fall, causing
> yields to rise quickly to the 4% area, so that capital won't flee
> Japan.
>
> But this is also problematic. Higher rates will torpedo
> the Nikkei, causing utter chaos. As mentioned in last
> week's email, New Lows on the Nikkei will cause
> quite a number of Japanese banks to fail and bring
> about a huge crisis in confidence in the financial markets.
>
> SUBLIMINAL MESSAGE:
>
> " Inflation is not going away. It is only just getting started. "
>
>
> US STOCK MARKET SLIDE IS NOT OVER
> Many have made an implicit bet that the FED will rush
> to the rescue if US stocks sell off too drastically. They
> figure that Greenspan will stop raising rates and may
> even lower rates if their stocks get into any real trouble,
> so "buy and hold" has become the preferred strategy
> of many investors. These investors may be in for a
> rude awakening. Greenspan is apt to let stocks sell
> off beyond the breaking point of most investor's pain threshold
> before he will consider easing up on his course of rate
> hikes, much less consider lowering rates. But Greenspan only
> had domestic policy objectives to contend with, there would
> not be so much to worry about.
>
>
> CHAOS IN OVERSEAS MKTS MAY FORCE THE FED'S HAND
>
> If Greenspan is forced into lowering rates because
> the global financial markets have come apart (especially
> risky is Japan as the Nikkei approaches New Lows)
> , it only guarantees that inflation will continue unabated.
> Because Japan is incapable of real reform, Central Banks
> (including the FED) may be forced into a coordinated
> easing of rates to help restore order to the global economy
> and ward off real financial chaos.
>
> In spite of this coordinated easing of rates by the world's
> central bankers, the rate differential plus the perception
> that European & Japanese inflation will outpace the US,
> will cause capital to flow to the US which will soften the blow
> to US stocks, but sharpen the blow to European and
> Japanese stock markets.
>
> Central Bankers are too clever by half.
> What a surprise that the SNB is planning to begin sales
> of that 1300 ton gold overhang in May. Must be a coincidence.....
> .....NOT!
>
> Manipulating the price of gold to paint a picture of low
> inflation is not going to solve the very real problem of
> inflation. In fact it will guarantee that gold will come
> back stronger than ever.
>
>
> Central Bankers may be arrogant enough to believe
> that they are in control of the global economy, but in
> fact they are only reacting to forces much larger than
> themselves. They are not in control. If they knew a
> bit more about the theory of cycles, they would recognize
> that fact. But Modern Man views a belief in cycles as
> nothing more than superstition....crude, primitive.....
> nothing more than casting chicken bones to decide
> your fate.
>
> I wonder though, who is casting chicken bones,
> those who believe in cycles, or the politicians and
> Central Bankers who don't believe in cycles and
> don't recognize the limits of their own power.
>
>
> NASDAQ 100 June Contract
> The current reaction rally in Tech stocks
> notwithstanding, the Nasdaq is also quite vulnerable as
> the bubble has popped. A test of 2281--1846 (June)
> cannot be ruled out. I now believe 1846 is the more
> realistic target. For a more detailed discussion see
> our daily report on the Nasdaq.
>
> For now holding higher amounts in CASH is the
> preferred strategy, but be ready to move funds
> into Energy stocks and other commodity stocks.
> See our daily report on Nymex Crude to know the
> level which will confirm the next leg up in Crude.
>
> Soon the Energy sector may just be one the most attractive
> places to move funds. There is still some risk
> of a test of 20.10--18.93 monthly support on Nymex June contract,
> but once Crude starts the next leg of its longer term uptrend,
> it will be impressive. Moving to Energy is not merely a
> defensive play. (Food & Energy stocks are often viewed
> as "defensive" stocks). The market still hasn't recognized
> that oil is in a longer term bull mkt that will take oil well over
> $40 in the next few years. This also means that alternative
> energy stocks are apt to behave like call options on oil.
>
> http://www.pei-intl.com
>
>
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