HOW MUCH WILL BE TOO MUCH?
during the latest, longest and most powerful bear market rally, the economic data has been lackluster and news that nothing has changed in how wall street does business has continued. the question i have posed is how much will be too much? how much more bad economic data can the market endure before it realizes that not much has changed with the economy. and how much more distain for investors will wall street need to show before the last individual investor goes on-line for its brokerage needs. the tipping point is unclear.
what will be the straw that breaks the bulls back? i'm not sure. the market has become numb to bad news and so anxious for the bear market to end that it just doesnt care what the reality is. surely a terror attack in the US would wreck havok on the markets but thats an ongoing possibility that has been all but ignored by the equity markets even when the terror alert is raised to orange or high. the dollar has its issues but can and will be manipulated by our federal reserve as well as the BOJ and the european union in coordinated efforts to maintain "stability". employment data is always something that worries economists but any further weakness in the labor market will be dismissed as a lagging indicator and will not make the optimists nervous. capital spending by businesses remains weak and excess capacity is expected to keep a lid on that for sometime to come so that wont be a shocker. consumers are being "reflated" with record low interest rates making their homes cash machines and supporting their spending habits so they shouldn't be a big focus. wall street corruption has been swept under the rug again and further scandal will be good reading but not market moving.
over the last few weeks, scandal at the NY Times, investigation into IBM accounting, the SEC criminal probe into Freddie Mac's CEO, government inquiry into how Boeing won business from competitors, and the list continues to grow. isnt this enough to show that the "new and improved" wall street morality and investor focus is a bunch of bogus nonsense?
so what will correct the latest rally and keep the market in check? maybe it will be the same thing that corrected the bear market in march. that would be a war. not sure who the target will be but the list has grown since our most recent victory. i'm certainly not predicting another military confrontation, but its not out of the realm of possibility. and if the tax package doesnt work like the president wants, he may have to resort to his ability to overthrow regimes to get himself re-elected. not sure that would help the economy but it would be a big distraction and we could have another war rally.
have a grateful day!
larry
Wednesday, June 11, 2003
WHATS ALL THIS TALK ABOUT THE DEFLATION?
the FED has begun discussing deflation on a regular basis. the entire group of FED officials have stated many times that deflation is not an issue for the US, but if it were to be an issue, they can fix it. used to be inflation was the primary concern but now that we are mired in a recessionary enviroment, deflation has become a focal point. the FED has jaw-boned us to death about how deflation wont happen in the US because of all the tools the FED has to defeat it. yet each governor and mr. greenspan himself have said that the onset of deflation can be hard to detect and can get out of control very fast. the most recent FED official to comment on deflation was roger ferguson. "i do not believe that the US is at the brink of significant and sustained deflation. i believe that the probability of such an eventuality is quite low. but as the japanese experience shows, the onset of deflation can be unexpected." ferguson went on to say, "preventing deflation remains preferable to reversing it, however, if an economy slips into deflation, my belief that a sufficiently determined central bank can spur aggregate demand and end the deflation." so we can all rest assured that even though deflation is hard to detect and its onset can be sudden the FED can and will reverse it when and if it shows up. whew. good thing they are on top of this.
deflation, the prolonged decline in prices of most products and services. if dollars are the ultimate store of wealth and financing is the ultimate source of funds, then deflation is upon us. when the FED lowers interest rates, that reduces the "cost" of money and in turn the cost of anything you buy with that money. when the dollar loses value against other currencies, that reduces the "buying power" of that dollar. interest rates have been falling for over 2 years and the dollar has been declining in value for the last year. both of these deflationary forces have created numerous economic results most of which are not good.
since interest rates are low, the cost of owning a home (and many other durable goods) has decreased. that in turn allows home values to hold steady or rise as its cheaper to "carry" or afford the home. good for the short term, but dangerous for the long term, as those rates will ultimately have to go up again. another example is in automobiles. if the car price stays the same but the cost to finance it gets cheaper, the result is a lower cost to own the same priced car. if rates were not low, the cost of that car would need to come down to keep demand stable. same with homes or anything else that can be financed.
as for the dollar losing value, thats a bit more complicated because with the global economy, FX fluctuations have many effects. suffice to say, a lower valued dollar makes imports more expensive in the US (making US goods relatively less expensive) and exported goods less expensive overseas. implications for the dollars valuation are widespread, but for some reason our government says it committed to a "strong" dollar policy. or in other terms, our government wants the benefits of a weak dollar but the prestige of a strong currency.
so even as the FED pledges to watch and act if necessary, they themselves continue to foster an enviroment of lower cost of money and lower valuation of the dollar. both of which do nothing to fight off further deflationary forces.
have a grateful day!
larry
the FED has begun discussing deflation on a regular basis. the entire group of FED officials have stated many times that deflation is not an issue for the US, but if it were to be an issue, they can fix it. used to be inflation was the primary concern but now that we are mired in a recessionary enviroment, deflation has become a focal point. the FED has jaw-boned us to death about how deflation wont happen in the US because of all the tools the FED has to defeat it. yet each governor and mr. greenspan himself have said that the onset of deflation can be hard to detect and can get out of control very fast. the most recent FED official to comment on deflation was roger ferguson. "i do not believe that the US is at the brink of significant and sustained deflation. i believe that the probability of such an eventuality is quite low. but as the japanese experience shows, the onset of deflation can be unexpected." ferguson went on to say, "preventing deflation remains preferable to reversing it, however, if an economy slips into deflation, my belief that a sufficiently determined central bank can spur aggregate demand and end the deflation." so we can all rest assured that even though deflation is hard to detect and its onset can be sudden the FED can and will reverse it when and if it shows up. whew. good thing they are on top of this.
deflation, the prolonged decline in prices of most products and services. if dollars are the ultimate store of wealth and financing is the ultimate source of funds, then deflation is upon us. when the FED lowers interest rates, that reduces the "cost" of money and in turn the cost of anything you buy with that money. when the dollar loses value against other currencies, that reduces the "buying power" of that dollar. interest rates have been falling for over 2 years and the dollar has been declining in value for the last year. both of these deflationary forces have created numerous economic results most of which are not good.
since interest rates are low, the cost of owning a home (and many other durable goods) has decreased. that in turn allows home values to hold steady or rise as its cheaper to "carry" or afford the home. good for the short term, but dangerous for the long term, as those rates will ultimately have to go up again. another example is in automobiles. if the car price stays the same but the cost to finance it gets cheaper, the result is a lower cost to own the same priced car. if rates were not low, the cost of that car would need to come down to keep demand stable. same with homes or anything else that can be financed.
as for the dollar losing value, thats a bit more complicated because with the global economy, FX fluctuations have many effects. suffice to say, a lower valued dollar makes imports more expensive in the US (making US goods relatively less expensive) and exported goods less expensive overseas. implications for the dollars valuation are widespread, but for some reason our government says it committed to a "strong" dollar policy. or in other terms, our government wants the benefits of a weak dollar but the prestige of a strong currency.
so even as the FED pledges to watch and act if necessary, they themselves continue to foster an enviroment of lower cost of money and lower valuation of the dollar. both of which do nothing to fight off further deflationary forces.
have a grateful day!
larry
Thursday, June 05, 2003
DISGRUNTALED BEAR
still grateful, but now disgruntaled as well. like many in my "cave" i have been beaten into submission. despite the fact that some very smart people are questioning whether the economy is righting itself and beginning a new growth cycle the market continues to rise. is this just another in a long series of "fake-outs"? equity prices have surged in anticipation of the outcome, whatever it may be. which leaves many asking "why are stocks acting so great when there continues to be so much uncertainty?"
asking the question and not getting a good answer allows for gains to beget gains, while we await the answer. momentum has turned incredibly bullish. news reports have become markedly more upbeat. fear has vanished! and with the action in the NASDAQ, greed is back in play! each sell-off is being met with renewed buying vigor by portfolio managers and small investors alike. that activity creates its own special dynamic and continues to crush the bears and force their reluctant participation in the buying to cover short positions.
the reasons for the market rally include record low interest rates, unprecedented tax relief, and an enormous amount of hope that all the optimistic forecasts will become a reality. the reasons the market is ahead of the current economic health and outlook are too long to list. not one of my or anybody elses continuing economic concerns have abated (except stock prices but that is self-fulfilling & self-serving). buying has perpetuated itself and the gains make investors question less and hope more.
hope is a good thing, and gains are an even better thing. take them while you can because gains can disappear and hope can turn to dispair.
have a grateful day!
larry
still grateful, but now disgruntaled as well. like many in my "cave" i have been beaten into submission. despite the fact that some very smart people are questioning whether the economy is righting itself and beginning a new growth cycle the market continues to rise. is this just another in a long series of "fake-outs"? equity prices have surged in anticipation of the outcome, whatever it may be. which leaves many asking "why are stocks acting so great when there continues to be so much uncertainty?"
asking the question and not getting a good answer allows for gains to beget gains, while we await the answer. momentum has turned incredibly bullish. news reports have become markedly more upbeat. fear has vanished! and with the action in the NASDAQ, greed is back in play! each sell-off is being met with renewed buying vigor by portfolio managers and small investors alike. that activity creates its own special dynamic and continues to crush the bears and force their reluctant participation in the buying to cover short positions.
the reasons for the market rally include record low interest rates, unprecedented tax relief, and an enormous amount of hope that all the optimistic forecasts will become a reality. the reasons the market is ahead of the current economic health and outlook are too long to list. not one of my or anybody elses continuing economic concerns have abated (except stock prices but that is self-fulfilling & self-serving). buying has perpetuated itself and the gains make investors question less and hope more.
hope is a good thing, and gains are an even better thing. take them while you can because gains can disappear and hope can turn to dispair.
have a grateful day!
larry
Tuesday, June 03, 2003
REDUX on the LANDMARK SETTLEMENT
couple of questions here. what part of the settlement was "landmark"? and what exactly was "settled"? it seems that the further away from Wall Streets self-proclaimed landmark settlement we get, the more new revelations of continuing misdeeds pop up. the latest malfeasence consists basically of more of the same thing that the major Wall Street firms just agreed not to do anymore. Another "star" analyst being on the companies they cover payroll (Merrill Lynch's Phua Young), brokers 'mis'leading clients to certain mutual funds that they get paid better on even if the funds underperform (Morgan Stanleys entire sales force), and 'churning' of annuity contracts on unsuspecting customers including forged documents (Prudentials managers and salesmen). there have been other transgretions since the settlement but i think you have the idea.
So what has changed in how Wall Street conducts business? easy answer. nothing!
the day the settlement was announced by Mr. Spitzer and his able enforcers i watched and listened in absolute shock and awe (that was a great saying those white house guys thought of). the following is what i was thinking but was too numb to publish at the time. now may be a more appropriate time or maybe not, but heres what i was thinking then and still beleive today...
>>>>>>>>LANDMARK WALL STREET SETTLEMENT...even the announcement is tainted!
here are the sound bites and my thoughts on the wall street agreement . (4/28/03)
message wall street firms wont forget...because it didnt close down the business.
new disclosure on research reports...warning:this research report may be hazardous to your wealth.
reforms are more important than fines...for who? i'll take the money thank you.
firms now MUST monitor their own research...how novel. not only do they currently monitor their research they "tout" it, package it, email it all over the world, do interviews on CNBC, and use it to create other in-house investment products.
"reforms" to fundamentally change how wall street does business...HOW? big statement, little explaination.
firms must seperate research and investment banking...yeah right, wanna have a drink at the bull and bear?
analysts to shed job of being cheerleader? ok we'll be the mascots.
better monitor the firms monitors. the monitors will become the most powerful link in the chain.
investor protection hall of fame. spitzer wanted to be an athlete but he was too skinny. so he's creating a hall of fame for himself.
TRIANGULAR relationship b/t IB's, company CEO, and research analysts. sounds like RICO act stuff to me.
one days rise in mkt cap...citi's $400 million fine made up in todays trade.
why does this 'close' this period of fraud in the mkts? their were pretty strict rules before these new stricter rules.
we enter a new era today...grasso. an era of the bald square headed NYSE chief.
no guarantee of profit, just fairness. so if its fair and i lose money thats OK.
structural redefinition...that would be good but i see none of that on the table at the firms in question.
analyst is an analyst, and a banker is a banker. by jove i think youve got it.
restoration of public trust and confidence in a system we all aspire to be a part of?!?!? wow! are we full of ourselves or what?!
public customer comes first...bull! they dont generate enough revenue to come first.
research will be unbiased? customers of intermediaries will be held to the highest standards of ethics and moral reproach...wow.
investors not ib fees will come first in the process...no way!
how are the firms going to be able to comply with the changes if they dont split apart physically as well as financially and operationally? all the wall street firms must seperate their business segments...chinese wall does not satisfy the settlement agreement.
no admission of guilt or wrongdoing, no criminal penalties. whats the payback to the investor who has lost money?
big winner is eliot spitzer and his buddies.
largest fraud in corporate history. litigation wins to follow will rival asbestos and tobacco settlements combined.
how can wall street "afford" to operate under the newly announced system.
wall street is in the process of "touting" the settlement in order to promote itself once again.
the whole thing is a farce. END>>>>>>>>>
The only thing "landmark" about the settlement is the fact that the Wall Street biggies got away with the largest corporate fraud in the history of the modern era without being put out of business. if any small/regional brokerage firm committed the same misdeeds, i can assure you that there would have been no settlement and they would be selling real estate instead of stocks.
have a grateful day!
larry
couple of questions here. what part of the settlement was "landmark"? and what exactly was "settled"? it seems that the further away from Wall Streets self-proclaimed landmark settlement we get, the more new revelations of continuing misdeeds pop up. the latest malfeasence consists basically of more of the same thing that the major Wall Street firms just agreed not to do anymore. Another "star" analyst being on the companies they cover payroll (Merrill Lynch's Phua Young), brokers 'mis'leading clients to certain mutual funds that they get paid better on even if the funds underperform (Morgan Stanleys entire sales force), and 'churning' of annuity contracts on unsuspecting customers including forged documents (Prudentials managers and salesmen). there have been other transgretions since the settlement but i think you have the idea.
So what has changed in how Wall Street conducts business? easy answer. nothing!
the day the settlement was announced by Mr. Spitzer and his able enforcers i watched and listened in absolute shock and awe (that was a great saying those white house guys thought of). the following is what i was thinking but was too numb to publish at the time. now may be a more appropriate time or maybe not, but heres what i was thinking then and still beleive today...
>>>>>>>>LANDMARK WALL STREET SETTLEMENT...even the announcement is tainted!
here are the sound bites and my thoughts on the wall street agreement . (4/28/03)
message wall street firms wont forget...because it didnt close down the business.
new disclosure on research reports...warning:this research report may be hazardous to your wealth.
reforms are more important than fines...for who? i'll take the money thank you.
firms now MUST monitor their own research...how novel. not only do they currently monitor their research they "tout" it, package it, email it all over the world, do interviews on CNBC, and use it to create other in-house investment products.
"reforms" to fundamentally change how wall street does business...HOW? big statement, little explaination.
firms must seperate research and investment banking...yeah right, wanna have a drink at the bull and bear?
analysts to shed job of being cheerleader? ok we'll be the mascots.
better monitor the firms monitors. the monitors will become the most powerful link in the chain.
investor protection hall of fame. spitzer wanted to be an athlete but he was too skinny. so he's creating a hall of fame for himself.
TRIANGULAR relationship b/t IB's, company CEO, and research analysts. sounds like RICO act stuff to me.
one days rise in mkt cap...citi's $400 million fine made up in todays trade.
why does this 'close' this period of fraud in the mkts? their were pretty strict rules before these new stricter rules.
we enter a new era today...grasso. an era of the bald square headed NYSE chief.
no guarantee of profit, just fairness. so if its fair and i lose money thats OK.
structural redefinition...that would be good but i see none of that on the table at the firms in question.
analyst is an analyst, and a banker is a banker. by jove i think youve got it.
restoration of public trust and confidence in a system we all aspire to be a part of?!?!? wow! are we full of ourselves or what?!
public customer comes first...bull! they dont generate enough revenue to come first.
research will be unbiased? customers of intermediaries will be held to the highest standards of ethics and moral reproach...wow.
investors not ib fees will come first in the process...no way!
how are the firms going to be able to comply with the changes if they dont split apart physically as well as financially and operationally? all the wall street firms must seperate their business segments...chinese wall does not satisfy the settlement agreement.
no admission of guilt or wrongdoing, no criminal penalties. whats the payback to the investor who has lost money?
big winner is eliot spitzer and his buddies.
largest fraud in corporate history. litigation wins to follow will rival asbestos and tobacco settlements combined.
how can wall street "afford" to operate under the newly announced system.
wall street is in the process of "touting" the settlement in order to promote itself once again.
the whole thing is a farce. END>>>>>>>>>
The only thing "landmark" about the settlement is the fact that the Wall Street biggies got away with the largest corporate fraud in the history of the modern era without being put out of business. if any small/regional brokerage firm committed the same misdeeds, i can assure you that there would have been no settlement and they would be selling real estate instead of stocks.
have a grateful day!
larry