Oh, The Humanity
On the heels of a bone-chilling forecast last night from the CEO of Nortel
Networks
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PowerRating) and a PPI number this morning that saw the largest jump in nearly 10
years, the U.S. equities markets sold off precipitously. The fabled “second
half recovery” we have been promised from the same good folks who
guaranteed us a “soft landing” last year, may be fading into oblivion.
In fact, a term surfaced today that I haven’t heard in quite some time: “stagflation.” This might be the
most dreaded of all economic conditions to
counteract by our much-heralded Federal Reserve Board. With growth
continuing to slow and inflation suddenly back for the attack, my mind can’t
help but to conjure up memories of the Carter era. Ah, memories….
In addition, the University of Michigan February Consumer Sentiment Index reported the
worst numbers since 1993. Led, for the most part, by an increasingly
pessimistic view of the future. As Greenspan stated earlier this week, an
increasingly pessimistic view of the future by the consumer may be just the
indicator we need to watch, in terms of forecasting an impending recession. The bond market has also been slowly decreasing the probability of a 1/2 point
interest rate cut at the next FOMC meeting.
Has Vegas set the odds on this yet? Because I think I see a great “trade”
shaping up.
The CNBC “panel of experts” who were discussing the PPI bombshell this
morning were trying to play down the significance of the number on the grounds
that “if you take out food and energy it isn’t quite so bad.”Â
Brilliant. Let’s take out the two components that affect every single
American each and every day, because it is obvious that new car prices and
tobacco costs are far more important. What kind of twisted logic is this
and why do these people get airtime? All of us have to eat, heat/cool our
homes, provide electricity to our homes, and fuel our vehicles every single day
of our lives. I think this is more important than if a package of Camels
went up twenty cents last month.
It is interesting to watch the Federal Reserve in action at this stage of the
game. As they continue to pour huge amounts of liquidity into the economy,
you can’t help but to wonder what Greenspan is afraid of that he isn’t letting
on about. My best guess is he is publicly playing down the enormous credit
bubble the U.S. is facing while he is pumping in liquidity like mad. I
think we can all agree that Greenspan would not be doing this unless his Doppler
Radar is picking up a major storm on the horizon.
We must also consider the market’s reaction to a possible fundamental shift in
policy by Treasury Secretary Paul O’Neil. O’Neil was quoted as saying:Â
“We are not pursuing, as often said, a policy of a strong dollar. In
my opinion a strong dollar is the result of a strong economy.” Lee
Ferridge, head of global currency strategy at Rabobank International, stated
that although O’Neil didn’t say it explicitly, “the market will interpret
this as the U.S. wanting a weaker dollar.”
For those who don’t understand the correlation between the relationships that
exist between the US Dollar and foreign currencies and how that affects our bond
and equity markets, I suggest you spend some time this weekend learning it.
On to the chart…..
Let’s look at the Nasdaq Composite daily chart.
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As seen above, today’s gap down may turn out being formidable resistance for the
Nasdaq to overcome in the upcoming months ahead. I am anticipating one to
three
weeks of range-bound trading between 2500 (which is the 50% retracement level
into the gap down this morning) and 2300, before a decision is made which
direction it ultimately wants to go. At this stage, the picture continues
to look bleak for the bulls and more and more likely that we will see Nasdaq sub
2000 before the end of summer.
Do your homework this weekend and identify the sectors and stocks within that
sector that pose the best risk vs. reward scenario. I heard portfolio
managers on television today talk about how much they loved May Department
stores
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they are. What they won’t say is that they are not buying stock at these
levels since they have run 100%-500% in the past six months and whether or not they
are selling their holdings. I am continuing to add to retail and apparel
shorts on each little mini-rally in the groups for the ultimate pay day, which
might be a few weeks away.
Random Musings:
Stuff to think about over the weekend.
There was a report on MSNBC that ex-President Clinton actually phoned in to the
Geraldo Rivera show a few nights ago to defend himself against attacks brought
about by his pardon of billionaire fugitive Marc Rich. What’s next,
Clinton calling in to Madame Cleo of the Psychic’s Hotline?
There were reports of Iraqi television airing films today of soldiers marching
and in training. I think they may have lost their “Elite
National Guard” standing around 10 years ago. What shall we call them now, the
Chicago Bulls with guns?
As I was on hold today with a phone call, I heard a commercials for Cadillac
automobiles. The announcer on the commercial said “You heard Greenspan
tell us that the market has bottomed and that NOW is the time to BUY!! So come
on down and buy your new Eldorado, today!” This is way, way too
frightening for me to discuss.
Have a great weekend,
Goran