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The market continued to recover on Thursday from the recent sell-off, but you shouldn't place too much confidence in volatile moves on light trading volume when people are heading off for holidays. NASDAQ rose a moderate +14.83 points.
The economic data was quite decent.
Unfortunately, there were modest net outflows from domestic stock mutual funds over the past week, again. That's a negative sign.
NASDAQ trading volume was very light (1.53 billion shares), and breadth was moderately positive, with 1.64 gainers for each loser.
The Personal Income and Outlays report for November registered a modest rise (+0.3% vs. +0.5% last month) in personal income, a modest rise (+0.3% vs. +0.2% last month) in personal consumption expenditures, a modest rise (+0.3% vs. +0.4% last month ) in disposable income, a moderate rise (+0.7% vs. +0.3% last month) in real disposable income, and a moderate rise (+0.7% vs. no change last month) in real personal consumption expenditures. This was a positive report. The PCE implicit price deflator reflected a price decline of 0.4% due to falling energy prices. Personal saving as a percentage of disposable personal income was a negative 0.2% in both November and October, compared with negative -0.5%, -3.4%, -1.4%, and -0.6% in the preceding months. It's disappointing that savings is negative, but the trend for the past three months has been for a shrinking of the savings deficit. Actually, the savings deficit was $800 million worse in November, but that's probably little more than statistical noise. We have to wait until January to get a clean, post-storm, month-to-month measure of the overall economy.
The Conference Board Leading Index registered a moderate rise in November (+0.5% vs. +0.9% last month). This was a positive report. Seven of the ten indicators that comprise the index increased in November (same number as last month): average weekly initial claims for unemployment insurance (inverted), real money supply, index of consumer expectations, stock prices, building permits, interest rate spread, and manufacturers’ new orders for consumer goods and materials. The three negative indicators were: vendor performance, average weekly manufacturing hours, and manufacturers’ new orders for nondefense capital goods. Unfortunately, the so-called leading indicators haven't been doing such a great job of forecasting future economic activity, primarily due to the extreme volatility of the component indicators, including stock prices. For example, the leading indicators were weak in January through May, but then Q3 GDP was quite strong.
The weekly Unemployment Claims report registered a moderately sharp decline in initial claims, a modest rise in continuing claims, a moderate decline in the 4-week moving average of initial claims, and a modest decline in the 4-week moving average of continuing claims. This was a mixed but reasonably positive report. Initial claims reversed and are once again moderately lower than a year ago. Continuing claims remain moderately lower than a year ago. Please note that despite traditional rules of thumb, there is no safe extrapolation from jobless claims to payroll employment growth. The data will continue to be skewed or misleading for another month or so as the economic impact of the storms plays out. What we're looking for now is a stretch of weeks where continuing claims actually decline.
The AAA Daily Fuel Gauge Report registered no change since Tuesday (at $2.208) in the retail price of a gallon of unleaded gasoline, after three declines after thirteen consecutive daily rises. This was a neutral report. Regular unleaded gasoline is now +0.6 cents above the level of a month ago, +15.4 cents above its May 2004 peak of $2.054, and -84.9 cents below its September peak of $3.057. Using the rule of thumb that retail prices will tend to converge about 60 to 65 cents above the front-month NYMEX futures price (the so-called "wholesale price"), we could see $2.13 to $2.18 regular unleaded within a couple of weeks if the wholesale price were to remain steady. All of that is subject to dramatic change on a daily basis. Out here in Boulder, Colorado, prices remain stable in the $2.11 to $2.19 range, with none of the recent national price hikes seen in local prices, yet. Wholesale prices suggest we could see some modest decline in retail prices in the 3 to 8 cent range.
After the close: The AMG Data Services Weekly Mutual Fund Flows report for the week ended Wednesday, December 21, registered a net outflow of $5.8 billion from equity mutual funds and ETFs, with net non-ETF inflows of $1.286 billion, net inflows of $1.339 billion to international funds, and net non-ETF outflows of $53 million from domestic equity funds, a third decline after a rise after two declines after a rise after thirteen consecutive weeks of domestic outflows. This was a modestly negative report. There was an outflow of $5 billion from the S&P 500 Index fund and an outflow of $1.6 billion from the iShares Russell 2000 index fund. That suggests some market timing (the legal kind).
After the close: The weekly Fed Money Stock Measures report showed that the money supply (M2, which includes retail money market mutual funds) for the week ended December 12 registered a moderate rise (+$7.9 billion to $6.6712 trillion) and is 3.74% above a year ago. This was a neutral report, showing that there is neither a shortage of money, nor any inflationary excess. The 4-week moving average continues to rise, and the 13-week moving average continues to rise. It's possible that the Fed is finally starting to put a bit of a crimp in the growth of the money supply relative to the growth of total economic activity. Nominal year-over-year M2 is growing significantly slower than nominal GDP, but we know that there is a tremendous amount of cash sloshing around in the economy.
Oracle (ORCL) says that it expects its acquisition of Siebel (SEBL) to close in Q1. Since Siebel is in the S&P 500 index, that will open up another slot and further reduce the number of information technology stocks in the index, but give Google (GOOG) another shot. There had been reports that the sticking point for Google had been that its "float" (percentage of total shares that are tradable) was too low, below S&P's 50% threshold, but at least one stock screen claims that Google's float is now over 64%, so that obstacle no longer exists, in theory.
McAfee (MFE) offered to extend my annual anti-virus subscription for a year at 50% ($20) off if I accepted the offer by the end of the year. That's a great deal, so I accepted it. That's great for me and they get a little money here in 4Q05. Unfortunately for shareholders, that means that McAfee won't get any revenue from me in 2006. Silly me, I thought the whole point of subscription services was to smooth out revenue over extended periods of time. McAfee's effort to "squeeze the pipeline" seems like an act of desperation and is usually a bad sign for shareholders.
It's difficult to have any sympathy for the striking transit workers in New York City. I'm no fan of Mayor Bloomberg and the other well-off residents of NYC, but this quote from a small business owner says it all: "They're complaining about health benefits and pensions; a lot of people don't have health benefits and pensions, including the people who work here in my shop." The transit workers already had a good deal and tried too hard to feather their own nests while refusing to read the writing on the wall. Shame on them. Actually, I do have some sympathy for the striking workers: they deserve leadership that would keep them on the right track and not lead them down a dead-end path as their current leadership has. I wrote that before the workers went back to work on Thursday.
I live in Boulder, Colorado full-time now, but a year ago I would have been in New York City right now (actually, I flew in on Christmas Day last year). I used to walk just about everywhere, from my apartment at the corner of 1st Avenue and 42nd Street, all over mid-town, to Union Square, all the way down to lower Manhattan and the Battery, the Upper East Side, Central Park, the Upper West Side, etc. Only on a rare occasion would I take the subway, and even rarer occasion a taxi, and never a bus (except to the airport or over to "Jersey"). So, the transit strike would not have affected me directly, but would have impacted me indirectly. I ate out every day, so closed or limited stores and restaurants would have affected me that way, but I actually don't have any reliable stories about any of the places I typically patronized.
My "new" Toshiba M55-S325 notebook PC is now just over six months old. It has a few little anomalies, but has been running fine with no problems to speak of. One anomaly: the keys on the far right side of the keyboard rattle a little, something is loose there, but the keys function fine. Another minor anomaly: the little rubber feet that are supposed to keep the screen bezel from chafing against the top surface of the bottom of the computer are too thin and there are chafe marks that result from me carrying the computer in my backpack every day. I still expect that I'll get at least another year of use out of this computer before I feel "forced" to get a new one. In any case, I was reading an article in the NY Times about how the average notebook PC price is now under $1,000. My base price last June was around $1,400. I tend to buy just a bit above the middle of the pack since I do some software development that needs more "juice" than typical users. The comparable model from Toshiba today (M55-S329) is about 7.5% faster and $150 (11%) cheaper at $1,250. Usually people get depressed when they buy a new computer and three months later it is already obsolete. For once, I don't feel that way. If the new model was 25% faster and 25% cheaper, I would be depressed. A comparably configured Dell Inspiron 6000 is priced at $1,356 ($200 off $1,556). Dell's base price is $1,157 ($200 off $1357), but you have to add $100 to get the faster processor and $99 to get the same disk drive that both my current and the new Toshiba have. The Dell does have the larger 15-inch screen, but I like the smaller form-factor since I lug the machine around every day. The main thing I dislike about Dell is that they nickel and dime you on important features and you have a devil of a time figuring out what is or is not included. The base price quoted in the NY Times article is $849 ($200 off $1,049). So, what's not in their configuration that is in the base I quoted? The $75 DVD burner, Microsoft Works and WORD for $69 vs. Corel WordPerfect, 2-year hardware warranty for $160 vs. 1-year, and 15-month McAfee anti-virus for $79. That brings the price to $1,232 ($200 off $1,432). Hmmm... that's still cheaper than the other base price. That's what I mean about Dell. Did I price everything or miss something? Who can tell? Let me know if you can figure it out. Maybe the mid-range base configuration is a rip-off. I've already spent way too much time trying to figure it out. Toshiba is full-featured, simple and works for me and Dell is far too complicated for my peace of mind. Stop the presses... I just got an email from Dell promising me "up to" $300 off "select" systems. I glanced at the offer, but it was... too confusing. I suspect that the prices I was already looking at on their web site had the discounts factored in, namely the $200 off. Incidentally, you might have noticed that I am one of those people who insist on calling them notebook computers, not "laptops". At least Dell and Toshiba and the New York Times agree with me. lastly, can anybody tell me what an Apple 1.33 GHz G4 is comparable to? That will be one advantage of Apple switching to Intel.
[12/10/05] If you ever find yourself struggling with some of the math needed for investment and financial decisions, check out Robert Hershey's All the Math You Need to Get Rich: Thinking with Numbers for Financial Success.
Commodities were mixed again, with some rotation so that metals were stronger, the dollar weaker, and energy (except for gasoline) weaker.
Recovery from the Gulf Coast storms continues to slog along. You can read what the Department of Energy's Energy Information Administration has to say twice a week, as well as the twice a week update (Monday and Thursday) from the Department of Interior's Minerals Management Service (MMS). We have a ways to go, but progress is occurring every day. According to MMS, another 0.12% of oil production came back online, with 27.51% (vs. 27.63%) of Gulf oil production now out of service, and another 0.52% of natural gas production came back online, with 19.62% (vs. 20.14%) of Gulf natural gas production now out of service. I'm not so sure that these numbers will hit zero any time soon since some of the outages were 100% losses and will require new equipment and facilities to be fully replaced. It's rather interesting how well the economy is doing and how moderated energy prices are considering those outages; so much for the persistent argument that energy markets are "tight".
Crude oil futures remain in contango (rising prices) from January 2006 through June 2007 ($61.22 as the peak price in May and June 2007), and then backwardation (declining prices) all the way out to the December 2012 contract at the lowest price ($54.96). All contracts after December 2008 are priced below the February 2006 contract. Only the contracts from July 2006 through March 2008 are above $60. The "backwardation" of longer-term contracts strongly suggests that elevated oil prices are primarily a speculative "bubble" due to deep-pocket investment funds rather than due to actual or prospective supplies or demand. The proposition that elevated oil prices are due to long-term demand growth and long-term supply shortages is simply not born out by futures contracts for outlying years.
Unleaded gasoline futures remain in contango (rising prices) from January 2006 through August 2006 and then backwardation (falling prices) through December 2006, and then a slight rise in January 2007. The January 2007 contract is priced +8.52 cents above the January 2006 contract. The bottom line is that there is no evidence of a market expectation of dramatically rising gasoline prices over the long term.
[12/16/05] Although some of the metals popped up above the thresholds I suggested at the beginning of the month, they've all pulled back significantly and below my thresholds. So, I'll give them another couple of weeks to see if they can achieve some durable gains. I'm not forecasting that all speculation will vanish any time soon, but simply that the massive bull wave they was driving all commodities up may finally be over. I suspect that soon we will revert to the traditional, garden-variety speculation that we've always had, and that can usually be ignored by true investors.
[12/9/05] There are still plenty of people interested in speculating in commodities, but the breadth does seem to be waning. Spurts of activity such as on Thursday do seem bullish, but also seem to smack of a market on its last, anxious legs. Even outright bear markets (which we aren't quite in yet) occasionally have sharp rallies, but they don't indicate the overall, longer-term trend.
[12/1/05] With metals prices being so strong lately, I'm a little reluctant to call a full end of the commodities speculation wave of the last two years. I'd like to give the metals group another couple of weeks to see whether they are able to move up significantly from their recent highs, say another 5%, with gold to $525, platinum to $1,050, silver to $8.87 and copper to $2.18. Commodities may be at a similar stage as stocks back in mid-March of 2000, with the Dow having peaked in January, NASDAQ peaked on March 11, and the S&P 500 peaking on March 24. The euro peaked a long time ago, energy a while ago, and the metals are the remaining leg of the stool still standing.
[11/11/05] It's still too early to call an end to "The Great Oil/Energy/Commodities Speculation of 2004 and 2005", but the commodities markets have clearly been knocked off their feet. The shorts are still rather timid, but it's only a matter of time before the bulls finally capitulate. If gold fails to break out above $500 and crude fails to rally back above $65 by the end of November, I will "officially" call for the end of this incarnation of the commodities bull market.
[11/23/05] Goldman Sachs lowered its estimates for crude oil to $62 from $66 a barrel this year and to $64 from $68 next year. There was no mention of their infamous call for a $105 "superspike". This is backpedaling on their part, and likely to be followed by more backpedaling as the next six months unfold. They're obviously trying to "tout" speculation in commodities futures. They collect transaction fees as well as profiting on in-house trading. These are quite obvious conflicts of interest, but are oddly considered to be legal.
[10/19/05] Since some people are convinced that a recession is coming, the Asset Allocation Clock will tend to start moving those people out of commodities and into cash or other short-term fixed-income assets. The Fed campaign to raise short-term interest rates provides a further incentive for such a shift.
[4/15/05] The commodities markets remain "loopy". That's the most charitable thing I can say. There's simply too much "hot money" chasing a lot of unrealistic, concocted "stories", not unlike the old dot-com boom. Tears to follow for anyone who sincerely buys into any of those cockamamie stories as other than very short-term trading plays.
[10/7/05] Ongoing anxiety: One potentially significant factor to consider for oil prices is the potential for a supply disruption as a result of the ongoing saber-rattling between the U.S. government and Iran, especially now that a new hard-liner has been elected. The administration is talking a harder line with Syria as well. I don't have any information to suggest that a disruption might be likely, but at some point there could be some increased chatter to that effect that may spook traders and speculators.
[8/4/05] Disclosure: I actually have some very small positions in some oil and gas production limited partnerships (Geodyne), less than $1,000 total, dating from the early 1980's. I've hung on to them merely because there isn't a liquid market for trading them, so I'd have to take a bath to sell them. The total return plus residual value since the early 1980's is probably significantly less than if I had invested in rolling T-bills for that period. These positions are small because they were actually quarterly payments (from a larger position that I dumped long ago) that were made in the form of fractional units of whatever their latest limited partnership was.
[11/11/05] Some popular books related to the "Peak Oil" fad: "Beyond Oil : The View from Hubbert's Peak" by Kenneth S. Deffeyes (2005), "Hubbert's Peak : The Impending World Oil Shortage" by Kenneth S. Deffeyes (2003), "The End of Oil : On the Edge of a Perilous New World" by Paul Roberts (2004), "The Coming Oil Crisis" by C. J. Campbell (2004), "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy" by Matthew R. Simmons (2005), and "The Oil Factor: Protect Yourself and Profit from the Coming Energy Crisis" by Stephen and Donna Leeb (2005). And if you're simply gung-ho about commodities in general, take a look at "Hot Commodities : How Anyone Can Invest Profitably in the World's Best Market" by Jim Rogers (2004). I'm not offering a recommendation on any of these books, but simply note that they are popular with the commodities crowd. If you're interest in the counterargument to "Peak Oil", check out "The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy" by Peter W. Huber and Mark P. Mills (2005). If I wasn't so lazy, I'd write my own book on commodities speculation called "Peak Bull".
[12/22/05] The big sport in the fixed-income arena over the coming five weeks will be the shape of the Treasury yield curve. A steep inversion (downwards sloping from left to right) is frequently a prelude to a recession, but the chatter-level goes through the roof whenever there is a flattening or even a slight inversion anywhere in the yield curve. Since a lot of investors need to hold debt as a part of their desired asset allocation and tend to do it in a "laddered" manner (spread over various durations), the yields may simply reflect actually supply and demand. And all of this is subject to change on a weekly and daily basis. There is plenty of time for Treasuries to move dramatically in any direction over the coming weeks, so there is no significance to the spread between the expected fed funds target short interest rate at the end of January and current Treasury yields. Nonetheless, it will be great sport to watch the yield curve chatter play out in the coming weeks. Click here to check Treasury yields on Bloomberg.com.
There is a 1-basis-point inversion from the 2-year to the 3-year and 5-year Treasury note yields and only a 5-basis-point positive spread between the 2-year and 10-year note. There is nothing here to cause even a modest alarm.
Due to the somewhat good news about the negative price deflator reported for the personal income and expenses report for November, there was no change in the odds of Fed funds interest rate hike to 4.50% in January, a moderate decline in the odds of a hike to 4.75% in March, and a moderately sharp decline in the odds of a hike to 4.75% after January (March or May). The market continues to price in a hike to 4.50% in January, most likely a hike to 4.75 in March, and no hike to 5.00% later in the year. The March hike may merely be an insurance hedge rather than an outright bet. The hike to 4.50% in January is fairly certain. There is no serious betting on a hike beyond 4.75% in 2006 or any rate cuts in 2006.
[12/15/05] The important thing at this stage is to wait for at least four or five Fed officials to make speeches and give their own read on the current outlook. Given the imminent holidays, that might take until mid-January.
[12/22/05] Post-FOMC Fed official #1: Richmond Federal Reserve Bank President Jeffrey Lacker said that "The economic outlook is fairly encouraging", "Growth is on a solid footing, despite this year's run-up in energy prices and the disruptions of a devastating hurricane season", "Granted, housing activity seems to be softening, and at least some potential price level pressures remain, so it may be too soon to break out the eggnog", and "But inflation expectations remain contained, and we at the Fed are well-positioned to resist inflation pressures, should they emerge." That doesn't sound like someone trying to signal a pause in the interest rate hike campaign.
[12/14/05] The fed funds futures market suggests a quarter-point hike (to 4.50%) at the January 31, 2006 FOMC meeting, probably a quarter-point hike (to 4.75%) at the March 28, 2006 FOMC meeting, no hike at the May 10, 2006 FOMC meeting, no hike at the June 28/29, 2006 FOMC meeting, no hike at the August 8, 2006 FOMC meeting, no hike at the September 20, 2006 FOMC meeting, no hike at the October, 24 2006 FOMC meeting, and no hike at the December, 24 2006 FOMC meeting. Fed funds futures are at best accurate no more than six weeks out, so those longer-term moves are purely speculative, at best. Futures are normally quite accurate in the short-term, so a hike to 4.50% at the January 31, 2006 FOMC meeting is fairly certain. Bets on hikes beyond January are most likely insurance hedges rather than outright bets.
[12/14/05] My personal forecast is that the Fed will hike the fed funds target interest rate to 5.00% in May, subject of course to the evolution in the economy over the coming months. I won't pull back from that forecast unless I see clear evidence that the overall economy is weakening, and I may push that forecast higher if I see evidence of deeper economic strength. I'm more likely to forecast 5.25% to 5.50% than 4.50% to 4.75%.
[12/3/05] San Francisco Fed Bank President Janet Yellen indicated on Friday that "it seems unlikely that the end of the current tightening phase is yet at hand", but her comments didn't appear to conflict with existing expectations that the Fed was likely to hike in January as well as December. One press report suggested that Yellen had said that the fed funds rate is still at the bottom of the neutral range (3.5% to 5.5%).
[12/1/05] So, what does PIMCO's "Bond King" Bill Gross have to say about all of this in his latest December 2005 Investment Outlook? No real change, suggesting that the Fed may have already hiked too far and that "Short-term interest rates are high, not low, and by this time next year central banks the world around will be initiating easing cycles...", but he doesn't offer a forecast or where the Fed will pause before starting to cut again. He suggests a "battle plan" that would "favor front-ends of yields curves, longer than average duration portfolios and a high quality emphasis within the context of a slowing U.S. and global economy with contained inflation." I suspect that Mr. Gross wrote his outlook before the preliminary Q3 GDP number came out at 4.3%.
File this under the 'What Were They Thinking?' category: The car companies including Ford are in deep trouble, right? So, Ford sells off Hertz to a group of deep-pocket private investors. You would think that wouldn't be a very big deal for the Hertz debt ratings, right? If anything, you would think that getting out from under weak Ford's thumb would be a good sign, right? Guess again. Then I see this item on the Reuters news wire: "Standard & Poor's on Thursday cut its debt ratings on Hertz Corp. to junk status, citing its recent acquisition by a group of private equity investors." With all the $BILLIONS of private equity capital sloshing around, hitting new records and more big funds being raised every day, who would guess that S&P would think that " The acquisition will give Hertz a weakened financial profile and reduced financial flexibility" -- compared to ownership by Ford! Does that make any sense? I wish somebody could tell me what I need to learn to understand the corporate bond rating process. Sigh.
[1/26/05] For the most recent rumors about companies that are laying people off, going out of business, shuffling management, or otherwise restructuring, check out F****dCompany.com.
[11/22/05] The 2005 Year-End Global Venture-Capital Investment Report from Ernst & Young and Dow Jones VentureOne states that "during the course of 2005, fund raising by venture-capital firms increased significantly with venture capitalists stockpiling the most investment capital since 2001. Mergers and acquisitions (M&A) and initial public offerings (IPOs) by venture-backed companies also showed continued strength during this period -- setting the stage for continuing investment in 2006. While investments in venture-backed companies in 2005 remained relatively consistent with 2004 levels, a strong trend toward later-stage financings suggests that investors are confident in the prospects of their portfolio companies and optimistic in regard to exit opportunities. Developments in the emerging venture-capital markets of China and India during this period underscored the increasing globalization of the venture capital industry." They conclude that "Looking forward to 2006, it is likely that the substantial fundraising that occurred in 2005, a strengthening liquidity landscape, and investors’ global interests, will lead to an increased level of venture-capital activity in the next 12 months. Because of the early signs apparent in 2005, the target for some of that investment capital may well be directed toward emerging areas such as alternative energy as well as renewed investing in the next wave of Internet start-ups." My reading on venture capital is that the sector is only slowly limping back to health and it will probably be another two or three years before venture capital investment once again makes a dramatic contribution to the health of the U.S. economy.
[11/3/05] VentureOne (a unit of Dow Jones Newswires and the publisher of VentureSource) reports that there was a 16% rise in the amount of venture capital funds raised in Q3 over the same quarter a year ago, but there was an 18% decline from the amount raised in Q2. 18% more has been raised in the first three quarters of 2005 than during the same period of 2004. These amounts are "commitments" to the venture funds which "closed" during the quarter. Please note that this is about venture funds raising their own money, not the investments that they will make with that money in the coming quarters and years.
[10/25/05] The VentureOne/Ernst & Young LLP Quarterly Venture Capital Report for Q3 registered a moderate decline (-6.4% vs. +14.1% last quarter) in the amount of money invested from last quarter, but a moderately sharp rise (+9.4% vs. -6.4% last quarter) from a year ago in equity investment in companies who have received at least one round of venture funding. This was a mixed, but reasonably positive report. Information technology (IT) continues to get the lion share of investment (57%) compared to distant second healthcare (30%). There was a modest rise (+1.0%) in the amount invested in information technology companies since last quarter, and a moderately sharp rise (+10.6%) compared to a year ago. Computer software continues to be the largest sub-sector, with 22.8% of the money invested in Q3, and rose +1.5% from Q2 and rose +0.2% from a year ago. The bottom line is that a healthy amount of money is being invested in new ventures, but it's not what could be called a real "boom". The top ten states in terms of amounts invested were California (46%), Massachusetts (12%), Florida (4%), Washington (4%), Texas (4%), North Carolina (3%), Virginia (3%), New Jersey (3%), New York (3%), and Colorado (3%). The top ten deals were FiberTower ($150 million), provider of a service that eliminates legacy copper backhaul, Replidyne ($62.5 million), developer of anti-infective biopharmaceuticals, TARGUSinfo ($60 million), provider of on-demand data to optimize customer interactions, Affymax ($60 million), developer of peptide drugs for the treatment of various blood, cancer, and kidney diseases, Amicus Therapeutics ($55 million), developer of small molecule, orally-active pharmacological chaperones for the treatment of human genetic diseases, MetroPCS ($50 milion), provider of wireless local and long distance communications services, Cerexa ($50 million), provider of hospital based anti-infective therapies for the treatment of patients with serious, life threatening infections, Force10 Networks ($46.1 million), provider of gigabit and 10-gigabit Ethernet routers and switches, Alinea Pharmaceuticals ($45 million), developer of treatments for diabetes and metabolic disorders, TherOx ($40.3 million), developer of site-specific systems for the delivery of oxygen-supersaturated solutions to oxygen deprived (ischemic) tissues. Note the dearth of software companies on that list, since the actual amount needed to fund a software business is relatively small.
[10/11/04] For some background information on venture capital, click here.
[12/22/05] The Fidelity FPRXX taxable money market fund is up to 3.40% and the FDRXX money market fund (for non-taxable accounts) is up to 3.92%. I would expect FPRXX to be up to 3.50-3.60% by the end of the year and FDRXX up to 4.00-4.10% at that time as well, with further gains beyond that as interest rates continue to rise. There is a lag between Fed rate hikes and money market yields since the money market funds hold debt that will continue to have its original yield until that short-term debt matures and the proceeds are rolled into newer and higher-yielding debt. Sometimes you see declines in the yield, but they may simply be due to people putting fresh money in or taking money out of the funds, which may result in selling higher-yielding securities in some cases. With rates rising every FOMC meeting, it can make sense to leave fresh funds as cash until after the next FOMC meeting, but that can lower the short-term yield. Click here for the top Prime Retail Money Market Funds from iMoneyNet. iMoneyNet says the average 7-day taxable simple yield is 3.63% (up from 3.56% last week). That's a little less than the average of FPRXX and FDRXX.
[12/20/05] I've been thinking again about starting another small monthly dollar-cost averaging investment program with ShareBuilder. The question is which ETF or stock to use. Some possibilities include the S&P 500 (SPY), Dow Jones Industrials (DIA), S&P 500 Tech Sector (XLK), NASDAQ-100 (QQQQ), Qwest (Q), and Verizon (VZ), among other possibilities. My default first choice would be XLK, and SPY as my second choice. I'm also tempted by the S&P 500 Consumer Discretionary sector spider (XLY) since it includes Amazon (AMZN) and eBay (EBAY). I'm not sure where Google will end up when it gets added to the S&P 500. Yahoo (YHOO) is already in the XLK. I'll stick with one stock in the ShareBuilder account so that I can, if I need to, liquidate the entire account for a single $4 commission.
[10/14/05] I continue to struggle with whether or when to dip my toe back into the investing waters, especially with what sort of asset allocation model I should use and whether to take an index approach to try to do some old-fashioned stock picking. I may simply start using my old Muriel Siebert account since it uses Fidelity for its money funds, which pays a fairly decent interest rate, and then incrementally buy the S&P 500 index tracking stock (SPY) or the S&P 500 Tech Sector Spider (XLK) with a relatively small fraction of the cash (maybe 20%), and then buy and sell on a monthly basis to maintain a fixed percentage asset allocation (i.e., sell if the market is up or I have less than 80% cash, and buy if the market is down or I have more than 80% cash). My fixed asset allocation would become more aggressive once I accumulate enough cash to feel that I have a sufficient rainy day fund. I'll also start doing the same with a Roth IRA once I've got a sufficient short-term financial cushion in place. I'm thinking of eventually running my Roth and taxable accounts in parallel with the same strategy, although the Roth could have a much more aggressive stock allocation (maybe 70-85%). My feeling is that individual stocks won't be worth the hassle until I have a large enough portfolio where a 3% position in a stock (that's 3% of the stock allocation) would be at least $1,000, with a 3% position meaning that I could have 20 stocks comprising 60% of my stock allocation, leaving 40% for index investment. That might take me a couple of years since I also have to pay down a lot of back taxes, but at least I'd have a credible plan that can start small and not get too unwieldy as my savings grow.
[9/24/05] I've started to think about starting up a new small investment plan once my bankruptcy case finally gets discharged in early December. I may just restart my previous small plan. I really haven't given it any intensive thought yet, and won't until I really am free and clear. I also need to give thought to resuming a Roth IRA plan as well. Unfortunately, I won't have a lot of money to work with anyway. My priorities right now are 1) getting back onto a sane, balanced budget, and paying down my back taxes over the next four years, 2) accumulating some money in a classic rainy day fund, part cash and part stock, 3) bulking up my Roth IRA, and 4) accumulating a little money I can speculate with.
[6/23/05] I continue to have a very, very modest portfolio in two rollover IRA accounts, but not enough to be worth speaking about.
Flip a coin whether the bounces on Wednesday and Thursday were "real" or just a pause before a further decline. I suspect the former.
Only five more trading days left in 2005. It's time for any last-minute tax sales of any dogs in your portfolio.
[12/22/05] Coming soon: Market Outlook for 2006. Quick summary: More of the same, with a gradual longer-term market rise and plenty of wild volatility. I hate to sound boring, but that is where the market seems to be. The most boring part of my forecast is that there will be no major crises, recessions, market crashes, pandemics, 9/11-class terrorist attacks, no GM bankruptcy, no Fannie Mae meltdown, no housing bubble meltdown, etc. To state it in even duller terms, 2006 will be a year of "modestly pleasant growth." I don't expect any "cliff dive" like we saw in early 2005, but a modest pullback (no more than 100 points or 5%) is a possibility. In my Market Outlook for 2005 I did forecast NASDAQ to rise 20% in 2005. It turns out that the midpoint of my wider range (1,800 to 2,800 or a midpoint of 2,300) is fairly close to where we are now. Note: I didn't "adjust" my forecast/outlook even once from its original text on January 1, 2005. I'll try to finalize my 2006 outlook for January 1, 2006, but hopefully will have a draft sooner.
[12/21/05] I suspect that the recent sell-off is mostly over and that we could see a modest rally. On the other hand, we could see a rally, but then see people sell into that rally. It may take a while before confidence is restored in the market advance. Memories of the market's "cliff dive" in early 2005 are still quite strong.
[12/20/05] The big question is whether the sell-off on Monday was simply a one-shot technical adjustment or an indicator of a trend. I lean toward the former, although the market could deteriorate a bit further before stabilizing.
[12/15/05] The holidays are coming, so don't pin too much significance to anything the market does between now and the end of the month. And then expect some interesting volatility in the first trading week of January.
[12/14/05] There have only been two closes above the current NASDAQ level recently, so we really are set up for either a breakout to the upside or poised to dive off the cliff, with some possible meandering while the market decides which way to go.
[12/9/05] The good news about the market weakness in recent days is that the market is no longer heavily overbought on a short-term technical basis. We're setting up for either a correction or a new up-leg, but we could see some extended meandering while we wait for the move, whatever it is.
[12/8/05] The big question confronting market participants is the market outlook for early 2006. If we're likely to see a repeat of 2005, people will be itching to exit the market over the next couple of weeks. If not, people should be itching to get into the market over the next couple of weeks.
[12/7/05] NASDAQ is once again looking like it has reached a near-term "top" and may be poised to roll over and decline, or maybe it's simply pausing in advance of another leg of the advance.
[12/3/05] We're back to square one, with people trying to discern whether the market will continue up or is preparing to fall off a cliff like last year. It really does depend on where the economy goes, and some people are predicting weakness in the face of additional Fed interest rate hikes, while other (including me) expect the economy to perk along relatively fine for the foreseeable future.
[11/22/05] Clearly the market is bullish of late, but the big question is how much of that is due to "hot money" and market timing, the kind of money that can (and usually does) race away from the market even faster than it sloshes in, as we saw with the run-up last fall. My view is still that the market will continue to climb gradually over the long run, but that we'll see lots of volatility along the way. So, it's a bull market, but a very volatile bull market. In fact, the road will be incredibly bumpy over the next couple hundred points due to significant technical resistance. It will be quite a dramatic milestone if NASDAQ clears 2,500 and can stay there for the next six months. I'd be a lot more sanguine if we were seeing significant stock mutual fund inflows, but we're not, yet. Stay tuned.
[11/3/05] We could in fact see a seasonal rally over the next few months since traditionally the period from November through February is considered the most bullish part of the year for stocks. Unfortunately, such rallies frequently attract a lot of hot money engaged in market timing that is likely to leave the market at any time as quickly as it arrived.
[11/23/05] Overall market outlook: quite confused and susceptible to volatile swings, but a gradual drift up, over time, although short-term progress may be at risk to the downside until we see some renewed inflows into domestic equity mutual funds. There appears to be too much hot money flowing into the market for the recent gains to be sustainable for more than another month or two.
[12/23/05] The fact that there was a net outflow from domestic equity mutual funds over the past week after two outflows after an inflow after two weeks of outflows after an inflow after thirteen consecutive weeks of outflows and the fact that we've seen inflows for 25 of the past 46 weeks, suggest that the market will continue to be quite volatile, but likely to maintain a gradual drift upwards.
[1/1/05] Click here for Market Outlook for 2005.
[12/23/05] NASDAQ is a flat, trading range over a one-month timeframe and a flat, trading range over a 10-day period.
The major advance of NASDAQ off the October 10, 2002 low of 1,108.49 is 14 days off its closing high of 2,273.37 on Friday, December 2, 2005, and 12 days off its intra-day peak of 2,278.16 on Tuesday, December 6, 2005. Technically, we did set yet another "higher high" (above the peak in early August) on Friday (December 2), which indicates a bullish trend, but I insist on seeing another two highs (both intra-day and closing) separated by at least three days before I'll say that we have established a true breakout from the recent (since August) trading range.
[11/11/05] We're actually provisionally out of the bear market since the current closing level is higher than three months ago, but we need to see that relationship hold for at least a month before we say that we are clearly in a bull market. In particular, there was a rally that peaked two months ago only slightly below the current closing level, so until we get well above that level, we should simply be considered to be in a trading range. By my own standards, I'd measure the market from the low over the past three months, and that was only 21 days ago. I'd prefer to see an advance of at least three months from such a low before calling a durable bull market. Another standard to use is the classic "higher highs and higher lows", meaning we'll be back to a bull market as soon as we clear the old peak from August 2-3. I would prefer to clear that peak as well, but I feel that it is only necessary to have higher highs and lows over a three-month period to indicate that we're in a bull market. So, I'll indicate that we are clearly in a bull market once we get three months past the October intra-day low, and we'll be in a strong bull market once we clear the August peak at least three months past the October low. Of course, being in a bull market doesn't mean we'll stay there.
The sharp gain of 29.16 points on Wednesday, May 4, 2005 confirmed the new up-leg of the October 2002 advance for NASDAQ that began with the intra-day low of 1,889.83 on Friday, April 29, 2005. This up-leg is now 164 days old, 14 days off its closing high of 2,273.37 on Friday, December 2, 2005, and 12 days off its intra-day peak of 2,278.16 on Tuesday, December 6, 2005. The key signal to watch for now is a day on which the market opens sharply higher but closes sharply off the intra-day peak, which could indicate a "market top".
The sharp gain of +35.24 (+1.71%) points on Wednesday, October 20, 2005 confirmed the new up-leg of the October 2002 advance for NASDAQ that began with the intra-day low of 2,025.58 on Thursday, October 13, 2005. This up-leg is now 49 days old, 14 days off its closing high of 2,273.37 on Friday, December 2, 2005, and 12 days off its intra-day peak of 2,278.16 on Tuesday, December 6, 2005. The key signal to watch for now is a day on which the market opens sharply higher but closes sharply off both the open and the intra-day peak, which could indicate a "market top". Presently, this is technically a rally (since October 13, 2005) within a trading range (back to August), within a bull market (back to 2002), within a bear market (back to 2000), within the long-term bullish trend, at least until this leg extends for three months.
Given the mini-sell-off over the past two weeks, it's appropriate to start looking for the start of a new up-leg for the advance. Tentatively the new, but unconfirmed, up-leg starts with the intra-day low of 2,213.52 on Tuesday, December 20, 2005. We now look for confirmation of the new leg, which means seeing a day with at least a 1% rise after at least two days wait and on heavier volume than the day before the big gain. Wednesday was Day 2 of the new leg with a moderate gain, but that's not good enough to confirm the up-leg and we're wary of dead-cat bounces on Days 2 and 3 anyway. Thursday was Day 3 with a moderate gain, but that's not good enough to confirm the up-leg and we're wary of dead-cat bounces on Days 2 and 3 anyway.
[12/2/05] NASDAQ closed at 2,267.17 on Thursday, December 1, 2005 at its highest closing level since it closed at 2,282.02 on May 24, 2001.
[11/24/05] The NASDAQ intra-day peak of 2,269.30 on Wednesday, November 23, 2005 was its highest intra-day peak since the peak of 2,281.18 on May 25, 2001.
NASDAQ is now bullish on all timescales except the 5-year and 6-year charts (and 5 and 10-day and 1-month charts).
[12/22/05] Short-term (1-day): Moderately bullish.
[12/22/05] Short-term (2-day): Moderately bullish.
[12/23/05] Short-term (5-day): Moderately bearish.
[12/23/05] Short-term (10-day): Flat, trading range.
[12/20/05] Short-term (1-month): Flat, trading range.
[12/21/05] Short-term (2-months): Moderately bullish.
[12/23/05] Medium-term (3-months): Moderately bullish.
[12/22/05] Medium-term (6-months): Moderately bullish.
[11/19/05] Year-to-Date: Modestly bullish. [NASDAQ closed 2004 at 2,175.44]
[11/18/05] Medium-term (9-months): Moderately bullish.
[12/1/05] Longer-term (1-year): Modestly bullish.
[11/5/05] Longer-term (2-years): Moderately bullish.
[10/22/05] Longer-term (3-years): Moderately strongly bullish.
[10/18/05] Longer-term (4-years): Modestly bullish.
[11/15/05] Longer-term (5-years): Moderately bearish. About a 7.2% decline each year.
[4/23/05] Longer-term (6-years): Moderately bearish. This was the big run-up for the "boom" in 1999.
[10/15/04] Longer-term (7-years): Modestly bullish.
[10/15/04] Longer-term (8-years): Modestly bullish.
[10/15/04] Longer-term (9-years): Modestly bullish.
[10/15/04] Longer-term (10-years): Modestly bullish.
[1/1/05] The NASDAQ "bubble" (above the 3,000 level, including intra-day "flirtations") lasted from November 2, 1999 through December 13, 2000, a year and six weeks.
[11/28/05] The post-boom bear market that started in 2000 was signaled by the Dow Industrials closing at a high of 11,722.98 on January 14,2000 after hitting an intra-day peak of 11,908,50, by NASDAQ closing at a high of 5,048.62 on March 10, 2000 after hitting an intra-day peak of 5,132.52, and by the S&P 500 closing at a high of 1,527.46 on March 24, 2000 after hitting an intra-day peak of 1,552.87.
[11/28/05] The end of the post-boom bear market that started in 2000 was signaled by the Dow Industrials closing at a low of 7,286.27 on October 9, 2002, with an intra-day low of 7,181.47 on October 10, 2002, by the NASDAQ Composite closing at a low of 1,114.11 on October 9, 2002, with an intra-day low of 1,108.49 on October 10, 2002, and by the S&P 500 closing at a low of 776.76 on October 9, 2002, with an intra-day low of 768.63 on October 10, 2002. Some people claim that the market bottomed in March of 2003, but that is not the case. The intermediate lows in March 2003 attempted to test the market and instead proved that the bear market was over with the Dow Industrials closing at a low of 7,524.06 on March 11, 2003 and an intra-day low of 7,397.31 on March 12, 2003, with the NASDAQ Composite closing at a low of 1,271.47 on March 11, 2003 and an intra-day low of 1,253.22 on March 12, 2003, and with the S&P 500 closing at a low of 800.73 on March 11, 2003 and an intra-day low of 788.90 on March 12, 2003.
The final Q3 GDP report and the November personal income and expenditures report suggest that there is some real underlying resilience in the economy, despite lofty energy prices, the big hurricanes, and rising short interest rates.
[12/21/05] The latest housing construction report showed the economy humming along nicely, but that's not necessarily a reliable prediction of future economic activity.
[12/16/05] The latest industrial production report showed the economy humming along nicely, but that's not necessarily a reliable prediction of future economic activity.
[12/14/05] The latest monthly retail sales report was mixed and lackluster, but still consistent with a reasonably healthy zigzag economy that continues to plug along on a gradual upwards path.
[12/1/05] Based on the latest economic data and preliminary initial holiday shopping reports, the economy appears to be growing at a moderately strong pace, not truly strong or a real boom, but reasonably decent nonetheless. I expect this pace will continue for the foreseeable future (one to two years), albeit with occasional zigs and zags.
[12/2/05] One of the disturbing readings in the October personal income and expenses report is that savings has been in negative territory for five consecutive months. I'm willing to blame that on elevated oil and gasoline prices, but we need to see savings pop back up into positive territory before we can really say that the economy is truly healthy. The good news is that the savings deficit has shrunk each month since July and shrank from $70.9 billion in September to $61.5 billion in October.
[10/22/05] The recent decline in oil and gasoline prices should help to provide some additional boost to the economy. There is lots of talk about higher heating and electricity bills this winter, but it remains unclear how that drag will really play out.
[10/3/05] Some supposedly competent economists are now actually chattering about the prospects for a recession. Sorry guys, but the odds of a recession over the next year are close enough to zero to suggest that it's not a topic worthy of discussion. These recession-mongers crawl out of the woodwork every time there is even a slight bit of stress on the economy and they are almost always wrong. This time is no different. What these guys do know with certainty is that if they even bring up the "R" word, they get lots of press attention, and that's all they're really after anyway
[9/19/05] The latest economic data continues to support the thesis that the U.S. economy remains in the early stages of a protracted recovery. Some people are talking as if the economy is nearing the end of a business cycle, when we are really only in the early stages of a protracted business cycle. It will be another THREE years before the economy is fully back on track. Unemployment will decline only gradually. Creation of new businesses which will be the titans of tomorrow has yet to even commence, let alone take off. The bankruptcy rate will decline off recent highs (after a temporary blip for the October 17 deadline before the law changes go into effect), but remain at a fairly high level for another two years. There are still quite a number of businesses (and entire sectors) that will need to be restructured over the next two to three years as well. The sad thing is that a number of them don't yet know it or are afraid to admit it. Cost cutting and head count reductions will be ongoing mantras for the next two to three years. That said, there will be plenty of corporations that see increasing profits over the next few years as consolidation boosts their efficiency.
[4/2/05] For the record, we simply are not going to see consistently large payroll employment rises (200K/month or 2.4 million per year) until the vast bulk of "old economy" companies have finally worked their way through the restructuring process, which could be another two or maybe even three years. We still have quite a number of companies "hanging in there", resisting further (and inevitable) restructuring as they wait for the economy to turn up more strongly. This includes the old major airlines, the car companies, retailers, a fair number of technology companies, etc.
[2/18/05] Clearly higher interest rates will have some negative impact on the economy, but the extent of the impact is not so certain. First, the Fed is not trying to constrain demand, but simply getting rid of excessively cheap money that has the potential for causing speculative excesses. In other words, raising interest rates to roughly "neutral" won't cause normal economic demand to decline significantly, but could, for example, help to curb speculation on commodities and foreign exchange. Second, the Fed essentially sets only some short-term interest rates, but the market and the law of supply and demand set longer-term rates. The key factor right now is that there remains a credit glut; corporations remain more interested in trimming their debt load rather than expanding it.
[8/23/04] Clearly the elevated price of crude oil has to have some negative impact on the economy, but the big question is how much impact. Overall, the economy is less sensitive to the price of oil and “oil shocks” than in past decades, but some sectors (such as airlines and chemical companies) are significantly more sensitive, whereas most sectors are only modestly sensitive. The current price escalation in fact has not been caused by any supply shortage or any excess demand by end users, but is merely due to a dramatic level of speculation in crude futures. The bad news is that we don’t know how much longer that speculative ‘bubble’ will continue to grow. The good news is that oil at these prices is not as attractive an ‘investment’, so the speculation will be increasingly susceptible to profit-taking and renewed interest in short-selling. Besides, if oil really were expected to rise dramatically from here, we’d see it in the price of futures in coming years, and we don’t. In fact, futures ‘predict’ that the price of crude will decline in coming years. In any case, elevated oil prices will be a moderate drag on the economy, but not so much as to spur accelerating inflation or to trigger a recession. Maybe it will trim a quarter to half-point off GDP, but that’s about it. Besides, people and businesses will adjust their lives and operations to further reduce their dependence on expensive oil. And finally, high-efficiency hybrid-electric vehicles are beginning to debut and anxiety over the price of gasoline will simply accelerate the development and introduction of such innovative products, which will dramatically moderate the demand for oil a few years from now.
[5/21/05] I heard that Greenspan says oil prices may be taking 0.75% off of GDP, but prices have risen significantly since last August.
[7/6/04] Some people are protesting that company profits could suffer as companies run out of costs that they can cut. That’s complete nonsense. First, companies will never run out of costs to cut. But more importantly, one of the factors that has been holding back growth of business revenues (and profits) over the past three years is the fact that companies have been dramatically cutting costs and the cutting of a cost for one company is the cutting of the revenue of one or more other companies. That cost-cutting binge was exerting a distinct headwind on businesses, but that headwind will in fact fall off as the cost-cutting moderates. And as revenues begin to grow more strongly, companies will begin to reverse the process and both spend more and hire more workers. Continued technological advances will spur further cost-cutting, but on a more moderate basis.
[12/29/03] The two key factors driving the pace of the recovery will continue to be the ongoing process of shutting down or restructuring ‘problem’ businesses and the pace of the formation of new businesses which will create new jobs.
[3/12/05] A continuing big wildcard in 2005 will be the possibility of a new wave of corporate cost-cutting as companies burn through the easy part of revenue growth and are forced to revert to cost-cutting to keep up earnings growth. The problem is that one company’s cost is another company’s revenue or an employee’s income, so more cost-cutting can boost earnings in the near-term but risk putting intense downwards pressure on business spending and employment. This cost-cutting process will moderate once companies begin to build up a deep enough backlog of unfilled orders so that they can keep revenue growth at a consistently strong pace to keep earnings growth up. The economy will survive this process, but the zigging and zagging of the pace of the recovery will continue.
[9/1/03] Our Tech Stock ‘Safe’ Signal is still stuck at 0.00 (no safety) since none of the big tech companies are even hinting that they are seeing any significant improvement in demand. There does seem to be some sense of stabilization and a modest hint of improvement, but no clear and decisive indication of a dependable ramp up in revenues and earnings.
[5/25/02] DISCLAIMER: I cannot and do not offer any recommendations of stocks to buy or sell. I may on occasion discuss companies that I am considering or myself have bought or sold, but the reader must do their own research before making their own purchase or sale decision. It is never a good idea to buy a stock just because someone else tells you to or even merely mentions a company in a favorable light.
Jack Krupansky -- The Unrepentant Optimist (Click here for Jack's Bio)
Updated: December 22, 2005 06:45:22 PM -0500
Copyright © 2005 John W. Krupansky d/b/a Base Technology