-- Posted Monday, 26 July 2004 | Digg This Article
Stocks continued to skid lower again last week as the Dow and S&P 500 posted new 2-month lows while the Nasdaq Composite plunged to a 9-month low. The dollar rebounded smartly while gold slipped well under the psychologically-important $400 level. And crude oil futures finished the week out at their highest close in forever.
But hey, don’t worry! Those high oil prices are just “transitory” in the words of our fearless Fed chief. All those Arab states who are simply giddy about our setting up shop in the middle of their territory are looking forward to increasing output and lowering prices as a gift to their favorite folks, the American government. Who wants all those fat oil profits anyway?
In other news, the long-heralded recovery has arrived. That is, the short-sellers’ profit recovery. While the public is urged to continue believing in the fantasy of an economic recovery, the stock market isn’t quite so sure. Prices were trading last week at the same levels as last December, well before the data got “bullish”.
That was around the time that I warned of a pesky divergence between the Nasdaq and the other major indices, suggesting that it may signal an end to the mini-bull market. Nay sayers scoffed. Bulls snorted. Small children hurled stones at me. But last week we saw some real confirmation as the Nasdaq broke down to a 9-month high while the Dow and S&P teetered precariously just above major support. A bit more downside and we’ll have a confirmed top.
“Look out below!”, I say. Should the S&P 500 decisively penetrate 1076, expect some fireworks. Of course, the so-called Plunge Protection Team is likely to step in as they traditionally have, attempting to prevent the market from following its natural bear market course. Falling stocks are bad, bad, bad. It makes the Fed’s irrationally exuberant financial forecasts look rather silly and we can’t have that!
Will the PPT save the day once again? Only time will tell, but here’s the important factor to bear in mind. I believe the market has grown fairly accustomed to stocks not being “allowed” to fall. Arguably, to some extent the bulls have been emboldened by the seeming “protection” below the market while short sellers have grown a bit weary of getting burned. If the market does manage to move sharply under 1076, expect the downside to get quite a bit sharper as folks realize that the powers that be have lost their grip. It’ll take a lot of selling to overcome the buying of a team of manipulators with virtually unlimited resources. If it happens, you’ll know the downmove is the real deal.
(As a related aside, I received some enquiries regarding how this official market “manipulation” is carried out. We don’t know for sure, but we do know that Executive Order 12631 created the President’s Working Group on Financial Markets in order to prevent future debacles like the crash of ’87. As with all great government schemes, these folks seem to have run amuck and taken it upon themselves to interfere with the markets at key potential turning points. We don’t know for sure how and when they operate, but the signs are there: dramatic reversals at key technical levels in the markets.
How do they do it? Doesn’t it require oodles of money? Not really. At key levels, the market tends to hit “dead air.” Traders are watching and waiting. “Will she or won’t she?” No one wants to step in front of a speeding locomotive. Send a few big orders into the S&P futures pit in Chicago, move the market higher and thereby trigger program trades in the cash market. Voila! Programs start buying, futures traders cover shorts, a feeding frenzy begins. Mission accomplished.)
We’ll see what happens but on a much lighter note, let’s turn our attention to the goings on of this past week. It was, after all, that time of year once again: Uncle Al’s Semi-Annual Congressional Comedy Show. And what a hoot it was!
Listen: I’ll be the first to admit that I’m no Hollywood entertainment mogul nor a particularly good judge of talent. Heck I’m not even funny. But I know comedy when I see it and if you ask me, Uncle Al is more than ready to put that small-time congressional gig aside and step up to the big leagues with his own HBO comedy special.
He had us all in stitches last week, here at TSS “Nobody For President ‘04” headquarters. That Al absolutely slayed us with that monologue delivered in the classic dry, dull, watching-paint-dry style he’s famous for, and the whole thing delivered WITH A STRAIGHT FACE! Consider lines like these:
“Hence, at least from an accounting perspective, between the first quarter of 2003 and the first quarter of 2004, all of the 1.1 percent increase in the prices of final goods and services produced in the nonfinancial corporate sector can be attributed to a rise in profit margins rather than rising cost pressures.”
I laughed so hard I almost busted a gut! The sarcastic wit of that comedic genius, suggesting that dramatic upsurges in copper, zinc, aluminum, steel, dairy products, meat, crude oil, gasoline had nothing to do with the increase in prices! I’ll bet the folks over at Kraft, the ones who attributed poor earnings to the huge rise in dairy prices were rolling in the aisles over that one!
Uncle Al’s buffoon-like wit can be rather subtle, so let me lay it out for the more serious folks in the crowd. According to our fine feathered Fed chief, huge increases in the cost of raw materials were disregarded by corporate America and had no impact on rising prices of final goods. Prices are up just because those comical corporate clownies were just looking to make some bigger profits!
That’s right folks: commodities have been in a bull market for years, soybeans hit levels not witnessed since the early ‘70s, raw metals are in the stratosphere, but none of that has any impact! Inflation isn’t happening! Get it?
I love that line: ”at least from an accounting perspective.” The man is a master of comedic irony, playing on the fact that most of us strive to live from the REALITY PERSPECTIVE wherein prattle like that makes no sense whatsoever. But l do respect Al’s paying homage to the comedic masters of yesteryear, the corporate accountants of the 90s who made quite a joke of that profession!
If you really want a laugh, take a look at the Fed’s economic forecast for this year. Growth of a whopping 4.5-4.75% AND low inflation. You know it’s downright laughable when even the mainstream economists take issue. According to a recent Reuter’s poll of 30 economists (you know, those guys who are ALWAYS far too optimistic), the consensus estimate is for 4% growth.
Back in the stock market, Amazon, Coke, Microsoft: all closely-watched market darlings, all reporting disappointing earnings. Stock of tech bellwether Intel has been skidding lower for months. Funny, isn’t it? Here we are supposedly in recovery, supposedly poised for spectacular growth, but some of the biggest, most popular companies can’t seem to turn a satisfactory profit.
Meanwhile, the Nasdaq has topped out and the broader market is a few points away from doing so. Here we are in the Fed’s “Goldilocks” economy of strong growth and “low inflation” and the stock market is in negative territory for the year.
Listen folks: if you want a few laughs, tune in to the Fed. If you want to know where things really are, check out the market. From where I’m sitting, it doesn’t look to be forecasting much of anything particular swell. Look out below. The Great Bear is stirring out of hibernation...
-- Posted Monday, 26 July 2004 | Digg This Article
