Saturday, October 12, 2002

10/12/02 The Cliff

The big story on Friday was not the sharp rally in stocks and the big decline in bonds. The consumer was the main event, and properly so. When you account for two-thirds of the economy, there's no question but that the consumer is all powerful. Unfortunately for the economy, in the latest readings, consumer confidence and expectations fell off a cliff. The drop was a massive plummet. Therefore, it's not surprising that retail sales had their largest drop since November 2001. There are many reasons- the weak job market, Iraq, and growing household debt combined with low savings. Analysts refer to a market being oversold. Well, the consumer is overbought and overspent and overwrought. WalMart listens to the customer better than any other company. WalMart has said for the past three months that its customer, that's you, is slowing down in the buying department. With the holiday season approaching, that's a disaster waiting to happen.

A rally for a few days does not mean the market is oversold. There are always going to be rallies. Analysts simply have a need to provide reasons for happenings after they happen but rarely before they happen. As such, they are mainly worthless despite their large salaries. Listening to analysts is, for the most part, a losing proposition. Do you think Warren Buffett hangs on the words of Wall Street?

This market is highly volatile, and increasingly so. This creates a greater risk, and especially in the derivatives market, which is 10 times the size of our yearly GDP and dwarfs the stock and bond markets. In a perfect world counterparty risk is intended to create zero risk. The world is not perfect, and therefore, not risk free. As such, those creating the custom derivatives, the financial institutions, are increasingly at risk. With heightened geopolitical worries, that aforementioned risk could create massive market dislocations. I don't believe the market adequately accounts for this potential meltdown.


Friday, October 11, 2002

10/11/02 Maintain Trend Focus

Rallies in a bear market provide welcome relief. One might characterize them as a Wall Street Prozac tonic. Unfortunately, the prescription is not necessarily renewable.

Over-all comparable retail sales grew just 1.5% in September. Warnings are being issued about a possible anemic holiday shopping season.

GM is out of stealth mode. They are now offering a new car "purchase" plan- no money down and no payment for 90 days. At least they could include a toaster or possibly the right to return the car after 90 days- a little like an Oreck vacuum.

There is $6 trillion in mortgage debt outstanding. Why would anyone consider the possibility of a bubble in housing?

The other day three men were huddling after returning from a funeral. They were comparing notes on their refinancing experiences. In 1999 these same men probably were discussing day trading and the Nasdaq.

Thursday, October 10, 2002

10/10/02 It Was Almost Like Old Times

Other than the Dow at a 5 year low and the Nasdaq at a 6 year low and the Nikkei at a 19 year low it could have been 1999.
Amidst the carnage Yahoo, Sun, Intel, Amgen, EBay, Veritas, Seibel, Broadcom, Brocade, Verisign, Amazon, Cisco, and Gilead were all higher yesterday. I was psyched but then I read about GE laying off 1000 at the jet engine division and Abbott Labs laying off 2000 and Virginia laying off 1000 and household debt as a % of GDP at record levels.

Then the sun came out with Glenn Hubbard. He enabled me to sleep better. He said deflation appeared unlikely... that home refinancing had not been excessive...that home refinancing hadn't propped up consumption growth. Now I'm ready for another day.

Winnebago reported record sales and profits for their 4th quarter. Retirees must be taking to the roads. Meanwhile jets increasingly adorn the Mojave landscape. Maybe that's a reason the airline industry has lost $15 billion over the past 24 months. Yes, Boeing did layoff more folks yesterday. If the economy is so sound, as Glenn Hubbard declares, then why are Ford bonds trading at junk levels and Boeing creating an unemployment nightmare in the Seattle environs?

Wednesday, October 09, 2002

10/9/02 Port Lockout Ends. Credit President Bush Invoking Taft Hartley

For the first time in 19 years Japan's Nikkei falls below 8500.

Yesterday's Wall Street mini rally had more declines than advances.

Shared National Credit Review reveals loan losses rising by 34% at banks and other institutions.

Fiat to cut 6000 jobs.

SBC warns on profits.

Cisco finds revenue generation a challenge.

Hussein channels money to Palestinian terrorists.

Tuesday, October 08, 2002

10/8/02 Rumors To The Contrary The World Beyond Pluto, Quaoar, Does Not Hold A Bull Market

Since December 1999 U.S. government bonds have outperformed U.S. stocks by 56%. Pimco now the nation's biggest mutual fund.

Sears warns 3rd quarter earnings will fall short of expectations due to more credit card delinquencies.

Credit Suisse First Boston lays off 1700.

Mitsubishi Illinois production plant halted by port lockout.

August saw the slowest rise in consumer debt in 8 months. Christmas might be white but clearly not green.

Monday, October 07, 2002

10/7/02 Nikkei Plunges To 8688 In Biggest 1 Day Drop Since June

War on Iraq seen by Administration as liberating not conquering.

Senior citizens would prefer the government to pay for their prescription drugs rather than spend millions of dollars on increasing Medicare payments to doctors and hospitals. A growing problem is healthcare for retirees prior to medicare eligibility. More U.S.
retirees making their homes in Mexico.

The department of labor says the average household unit made about $40,000 in 2001, spent $7000 on cars, and owes $7000 on credit cards.

The World Economic Forum conference in East Asia began in Kuala Lumpur on Sunday. Kenneth Courtis, vice chairman Asia, Goldman Sachs Japan, said "Asia's growth has probably peaked." China is the wild card, and has invested $60 billion this year into Asia. Malaysia has become China's largest trading partner in SE Asia.

Sunday, October 06, 2002

10/6/02 Wilshire 5000 At 5 Year Low

Over 500 negative earning and or revenue warnings in the past 5 weeks.

On Friday puts ahead of calls by 2 to 1 ratio.

Fourth quarter growth likely to be no more than 1%. Earnings will be lower than the 3rd quarter.

Israel Defense Minister: "Possible that the U.S. will begin attacks on Iraq toward the end of November."