Brigitte
04.01.2001, 12:18
* * * *
1/03/01 Investment House Daily
* * * *
Investment House Daily Subscribers:
We have seen a year for the record books in 2000, and today we saw one for
the record books today as the Fed took the economy's side for the
foreseeable future. As late as Tuesday night we were getting you ready for
the cut, and today it paid off. We are looking forward to giving you the
same unique insight and great plays in your second year as this time we
have the Fed on our side.
TONIGHT:
- The Fed jumps in big.
- Record days on the indexes.
- Where from here?
- Subscriber Questions
- Team Trades
The Fed steps in.
This morning I saw for the first time this season robins on the lawn.
That brought an image to my mind of 1991 when then President Bush's
economic secretary was discussing the economy and the recession. He said
there were robins on the economy's lawn. No one believed him at the time,
but that was in fact the case. I wondered if the robins today were
foretelling something equally promising for the market. . .
Last night we said we had fear and the Fed on our side and that we had to
be ready to take advantage of a major inflection point such as a rate cut.
We named stocks such as JNPR, AMCC, GLW and others as stocks that would
provide us stellar profits in the event of such a cut. Unknown to
investors, the Fed was really concerned by the plunging NAPM numbers and
sharp drop in home mortgage applications. Moreover, and probably more to
the point (though no one on the television mentioned it), the dollar was
starting to weaken, and as noted last night, that can snowball on itself
and spark inflation.
The Fed held a morning conference call to discuss a rate cut. It decided
to surprise the market, something Greenspan has said is good for the
markets. They did it in 1991, and they did it again today. At 12:12 CT
the Fed announced a 50 basis point cut in the Fed Funds rate and a 25
basis point cut in the Discount Rate (more a housekeeping move than
anything) citing continued high energy costs, low consumer confidence and
a litany of other economic concerns. Indeed the Fed concluded in its
release that it remained biased toward further economic slowing even after
the rate cut. The size of the cut says it all: the Fed did not like the
NAPM at all, it felt that it missed the call in December, and it had to
take serious action. At least the Fed is willing to step up and do what
is necessary even if it is a bit late. After a year and one-half of
asking why, the Fed finally stepping in on our side.
We immediately sent out a flash email to all subscribers announcing the
cut, and followed it up ten minutes later with our strategy for playing
the move the rest of the session. We hope this helped you take advantage
of the move as the index and stocks pulled back about an hour after the
announcement, giving us an entry point for the afternoon move back up.
The Fed's next step.
The markets shot higher on the news in huge volume. We will go more into
the details later, but the moves were staggering individually and in the
aggregate. There will be a lot of speculation as to what the Fed will do
next given the timing and size of the move. Some are saying that the Fed
won't do anything else for a time given the size. Don't bet on it.
First, the Fed Funds Futures contract for February shows a 100% certainty
of a 25 basis point cut on January 31, plus a 100% certainty of another 25
basis point cut at the April FOMC meeting. Hard to bet against the
market; it knew things were cooling in the economy. The collective wisdom
of investors is hard to beat.
Second, there is a lot of room between real interest rates and the
artificially high 6% (6.50% before today) Fed Funds rate. The Fed can cut
at least another 100 basis points before even seeing the faint glimmer of
the level of real rates. Indeed, the move today finally put the 2-year
and 5-year bonds in the right relationship to each other. Thus, the Fed
can act to cut rates pretty much at will without inflationary pressures.
Third, this move was a strong attempt to start to counteract that 75 basis
points of rate hikes that is still lurking around ready to hit the
economy. The economy took it hard even before those rate hikes hit. He
does not want them to take their toll also, so he is going to take them
all back by the end of the month.
Fourth, a rate cut is the beginning of the cycle. Just as it takes months
for a rate hike to hit the economy, it takes months for a rate cut to
impact spending. The market looks ahead of the actual economic results,
however, and that is why it moves up ahead of the curve. It will
ultimately have to see growth in the economy and in corporate sales, but
that falls into the second half of the equation. The Fed starts with a
rate cut and then keeps on cutting until the economy looks good. That, as
we said, can take months. So, rate cuts will continue to come, the next
being at the end of the month.
What this means.
As we have said, when the Fed steps in, the bear markets end. That is the
history of the cycle. This does not mean a rocket ship rise higher from
here out, but the trend starts to look up. There has to be performance
from here out. In other words, Congress and the Administration have to
get together and cut taxes. That is the consensus of the Fortune 500
CEO's and most economists who understand how supply and demand interact.
How the government responds will tell us how things ultimately work out.
The administration has the right idea; it needs follow through.
For the short term we look for upside. Tech stocks have been slaughtered.
The rotation we noted last night started in earnest today with healthcare,
food, beverage and utilities seeing a cash drain. Money is flowing to
beaten down stocks that can grow, the idea being that the Fed and the
government are going to set the proper environment for growth, and that
makes these stocks the place to be. Last night we said look for the
leaders who will show good earnings even during this problematic earnings
season. Those will be the stocks that lead the fastest and farthest in a
recovery. Tonight there are several of the big-name leaders in the
reports. And do not forget financial stocks as they always do well with
Fed rate cuts.
As we said, not straight up from here. Indeed, after such a huge run we
expect some profit taking at some point in the morning. Preferably at the
open as we love softer opens that then surge, but we may see a rise before
a pullback to terra firma and another start up from there. How long will
this move last? Hard to say right now. There was tremendous buying
today. There was positive and negative earnings news after the close.
Earnings will drag on stocks, but again, we have to focus on those stocks
that are going to continue to post strong earnings and the best moves,
those stocks who will announce good news (stock splits), those with good
patterns, and those with other reasons to give us good momentum moves
(pre-split plays). When the bias switches, we have to move with it.
Don't get us wrong. By saying that the trend is up, we do not mean that
technically stocks and indexes are suddenly showing uptrends. They are
still in downtrends and those points will still act as resistance points.
With this kind of shift in mood, however, those points will at some point
be broken, thus allowing for much better gains.
THE ECONOMY
Auto sales were down again, and for the second month Chrysler announced it
was closing plants next week and the week after in a rotating fashion
across the country. GM admitted sales were weaker, and Ford said it was
really hurt by car sales. Nothing new, nothing unexpected. The
big-ticket items are the first to go.
Retail sales rose 2.7%, below pre-ho
1/03/01 Investment House Daily
* * * *
Investment House Daily Subscribers:
We have seen a year for the record books in 2000, and today we saw one for
the record books today as the Fed took the economy's side for the
foreseeable future. As late as Tuesday night we were getting you ready for
the cut, and today it paid off. We are looking forward to giving you the
same unique insight and great plays in your second year as this time we
have the Fed on our side.
TONIGHT:
- The Fed jumps in big.
- Record days on the indexes.
- Where from here?
- Subscriber Questions
- Team Trades
The Fed steps in.
This morning I saw for the first time this season robins on the lawn.
That brought an image to my mind of 1991 when then President Bush's
economic secretary was discussing the economy and the recession. He said
there were robins on the economy's lawn. No one believed him at the time,
but that was in fact the case. I wondered if the robins today were
foretelling something equally promising for the market. . .
Last night we said we had fear and the Fed on our side and that we had to
be ready to take advantage of a major inflection point such as a rate cut.
We named stocks such as JNPR, AMCC, GLW and others as stocks that would
provide us stellar profits in the event of such a cut. Unknown to
investors, the Fed was really concerned by the plunging NAPM numbers and
sharp drop in home mortgage applications. Moreover, and probably more to
the point (though no one on the television mentioned it), the dollar was
starting to weaken, and as noted last night, that can snowball on itself
and spark inflation.
The Fed held a morning conference call to discuss a rate cut. It decided
to surprise the market, something Greenspan has said is good for the
markets. They did it in 1991, and they did it again today. At 12:12 CT
the Fed announced a 50 basis point cut in the Fed Funds rate and a 25
basis point cut in the Discount Rate (more a housekeeping move than
anything) citing continued high energy costs, low consumer confidence and
a litany of other economic concerns. Indeed the Fed concluded in its
release that it remained biased toward further economic slowing even after
the rate cut. The size of the cut says it all: the Fed did not like the
NAPM at all, it felt that it missed the call in December, and it had to
take serious action. At least the Fed is willing to step up and do what
is necessary even if it is a bit late. After a year and one-half of
asking why, the Fed finally stepping in on our side.
We immediately sent out a flash email to all subscribers announcing the
cut, and followed it up ten minutes later with our strategy for playing
the move the rest of the session. We hope this helped you take advantage
of the move as the index and stocks pulled back about an hour after the
announcement, giving us an entry point for the afternoon move back up.
The Fed's next step.
The markets shot higher on the news in huge volume. We will go more into
the details later, but the moves were staggering individually and in the
aggregate. There will be a lot of speculation as to what the Fed will do
next given the timing and size of the move. Some are saying that the Fed
won't do anything else for a time given the size. Don't bet on it.
First, the Fed Funds Futures contract for February shows a 100% certainty
of a 25 basis point cut on January 31, plus a 100% certainty of another 25
basis point cut at the April FOMC meeting. Hard to bet against the
market; it knew things were cooling in the economy. The collective wisdom
of investors is hard to beat.
Second, there is a lot of room between real interest rates and the
artificially high 6% (6.50% before today) Fed Funds rate. The Fed can cut
at least another 100 basis points before even seeing the faint glimmer of
the level of real rates. Indeed, the move today finally put the 2-year
and 5-year bonds in the right relationship to each other. Thus, the Fed
can act to cut rates pretty much at will without inflationary pressures.
Third, this move was a strong attempt to start to counteract that 75 basis
points of rate hikes that is still lurking around ready to hit the
economy. The economy took it hard even before those rate hikes hit. He
does not want them to take their toll also, so he is going to take them
all back by the end of the month.
Fourth, a rate cut is the beginning of the cycle. Just as it takes months
for a rate hike to hit the economy, it takes months for a rate cut to
impact spending. The market looks ahead of the actual economic results,
however, and that is why it moves up ahead of the curve. It will
ultimately have to see growth in the economy and in corporate sales, but
that falls into the second half of the equation. The Fed starts with a
rate cut and then keeps on cutting until the economy looks good. That, as
we said, can take months. So, rate cuts will continue to come, the next
being at the end of the month.
What this means.
As we have said, when the Fed steps in, the bear markets end. That is the
history of the cycle. This does not mean a rocket ship rise higher from
here out, but the trend starts to look up. There has to be performance
from here out. In other words, Congress and the Administration have to
get together and cut taxes. That is the consensus of the Fortune 500
CEO's and most economists who understand how supply and demand interact.
How the government responds will tell us how things ultimately work out.
The administration has the right idea; it needs follow through.
For the short term we look for upside. Tech stocks have been slaughtered.
The rotation we noted last night started in earnest today with healthcare,
food, beverage and utilities seeing a cash drain. Money is flowing to
beaten down stocks that can grow, the idea being that the Fed and the
government are going to set the proper environment for growth, and that
makes these stocks the place to be. Last night we said look for the
leaders who will show good earnings even during this problematic earnings
season. Those will be the stocks that lead the fastest and farthest in a
recovery. Tonight there are several of the big-name leaders in the
reports. And do not forget financial stocks as they always do well with
Fed rate cuts.
As we said, not straight up from here. Indeed, after such a huge run we
expect some profit taking at some point in the morning. Preferably at the
open as we love softer opens that then surge, but we may see a rise before
a pullback to terra firma and another start up from there. How long will
this move last? Hard to say right now. There was tremendous buying
today. There was positive and negative earnings news after the close.
Earnings will drag on stocks, but again, we have to focus on those stocks
that are going to continue to post strong earnings and the best moves,
those stocks who will announce good news (stock splits), those with good
patterns, and those with other reasons to give us good momentum moves
(pre-split plays). When the bias switches, we have to move with it.
Don't get us wrong. By saying that the trend is up, we do not mean that
technically stocks and indexes are suddenly showing uptrends. They are
still in downtrends and those points will still act as resistance points.
With this kind of shift in mood, however, those points will at some point
be broken, thus allowing for much better gains.
THE ECONOMY
Auto sales were down again, and for the second month Chrysler announced it
was closing plants next week and the week after in a rotating fashion
across the country. GM admitted sales were weaker, and Ford said it was
really hurt by car sales. Nothing new, nothing unexpected. The
big-ticket items are the first to go.
Retail sales rose 2.7%, below pre-ho