Brigitte
07.01.2001, 13:57
* * * *
1/06/01 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- Markets sell on domestic and global financial worries, CSCO fears,
earnings warnings.
- Volumes lighter on the selling while defensive issues rise on low
volume.
- Fed: Futures contract shows another rate cut by January 17.
- Economic numbers continue to be a mess.
- Subscriber Questions
- Team Trades
The markets were under fire before the open from a number of fronts, but
the one that had everyone spooked was the Bank of America story. It was
rumored that BAC was in trouble from holding a wad of PG&E paper when PG&E
might go under from the abysmal attempt at 'deregulation' (a clear
misnomer) of California's power market as well as derivative positions BAC
had taken. Then there was a story about Russia not meeting payments on
external debt. This had shades of the 1998 credit crisis on top of the
lack of liquidity that currently exists in the stock market: a double
threat to the market.
The markets responded as would be expected: they were diving as the fear
was whipped up by the likes of CNBC. While CNBC discussed the issue, the
Dow selling accelerated with the Dow falling from about 70 down to 200
points down in 20 minutes. Then BAC came out and debunked the story and
there was some recovery. But for the Fed cut on Wednesday, the indexes
were close to meltdown and the Nasdaq would have been at 2000 or less
Friday morning.
There was some recovery, but then a rumor came out that CSCO was in
trouble because, get this, it had talked to analysts it did not normally
talk to. The perception was that something must be wrong as CSCO was
'reaching out' to different analysts to prepare for the coming quarter.
Did it occur to anyone that CSCO was doing this because of the new SEC
regulation about disclosure and that it was just making sure it was
showing no favoritism? Of course not. The mood in the market was sour so
a non-event was suddenly a sign of a major warning upcoming. Utter
nonsense. After hours CSCO came out and said the rumors of a special
board meeting and other rumors were completely inaccurate.
On top of that the employment numbers had the skittish spooked even more.
As discussed below, they were not good, but as we have often discussed,
these figures lag the economy and the most disturbing one (the higher
hourly wages) is probably already heading lower. Still, that added fuel
to the fire for the day.
The fear and selling that seemed to mark the day were not that great.
Things looked bleak in the morning and the market sold down again in the
afternoon after a brief rally attempt over lunch. As always, we were
looking at the hard numbers, looking at the actual stories and how stocks
were performing as the day progressed. What the television portrayed as a
really bad day looked more like slowing selling to us. The vast majority
of the key tech stocks sold down on lighter volume and the telecoms we are
tracking, the ones that have seen huge institutional interest last week,
pulled back to support on lower volume just as we wanted. Overall index
volumes were lower as well. Meanwhile, the defensive stocks tried to
rally, but they did so on weaker volume across the board.
This was important to us. First, selling on lower volume is always what
we want to see in the big picture. Moreover, it was corresponding to what
we thought was going to happen: some selling after the huge move on
Wednesday on lower volumes with the defensive sectors moving up on lower
volume. That shows us that there was no rush back into defensive issues
by the key players, i.e., the institutions, just as there was no rush out
of the beaten up sectors that are showing signs of life after a Fed cut
(e.g., telecoms). Even with all of the negative news, the institutions
were not bailing out of what are the potential leaders of the market in
the coming months, nor were they piling back into the defensive sectors.
It was a day that could have been really ugly with the bad news out there,
but it was not used to dump shares. That was a positive in our books, and
it had us taking positions at the end of the day as we often like to see
how stocks finish the day as an indication of the future. Again, no heavy
bets, but just averaging into positions in anticipation of better things
to come.
Fed Futures Contract foretelling another rate cut soon.
There is one 'good' thing the poor economic news is telling everyone:
another rate cut is coming, and it is coming pretty fast. Most say it
will happen January 31 at the next FOMC meeting; that is the safe bet.
After all, would the Fed move inter-meeting twice in the same month? Odds
seem against it based on everyone's view of the Fed, but as of Friday the
Fed Funds Futures contract for February was pricing in at least a 25 basis
point move by January 17, and possibly a 50 basis point cut by that date.
That is usually a very accurate measure of what the Fed is going to do,
and it is pricing it in for that time.
That belies those on the television who were worried about Friday's
employment data that showed the unemployment rate holding at 4% and
average hourly wages rising 0.1% greater than expected being impediments
to the Fed cutting rates again anytime soon. That is good news for more
reasons than the immediately obvious ones. In almost all cases, the first
Fed rate cut has marked the turn in the markets. In a few historical
cases (4 out of 21 rate cutting cycles), however, it has taken a second
rate cut to actually turn the markets back up. In those four times the
economy was early in a recession, much as the U.S. might now be starting.
The second cut turned the markets, the one exception being in 1929 where
the second cut sent the markets up before they ultimately crashed in the
Great Depression. The world economy does not look great right now with
the one leader now suffering a dramatic drop, but we are not ready to say
we are going into world recession. Thus, a second rate cut will be more
of the surefire fix that the markets need, along with a continued push
toward a meaningful tax cut.
THE ECONOMY
Credit crisis proves illusory for now, but the conditions could appear.
Japan is showing renewed weakness and Russia has missed a payment on third
party debt, at least for the moment. Domestically there is real concern
over California utilities going bankrupt and the ripple effect that has on
those banks holding their paper given an already pensive economy.
Further, even in a time of prosperity we have recently seen the filing of
bankruptcy by major corporations. Were they just laggards with bad
management and business plans? Also at home we see continued layoffs as
AT&T and ADCT are both cutting jobs after Wednesday there was a reported
tripling of layoffs in the private sector.
Lagging employment report shows things still okay.
The current administration was angry Friday about talk of a weak economy,
citing the jobs report as proof positive that things are just fine here.
If you live your life reflecting on the past and not planning for the
future we suppose you could draw that conclusion. However, even the
current labor secretary voiced concern over what the numbers showed.
Action is needed.
Yes the unemployment rate held at 4%. The weekly jobless claims, however,
the realtime ticker on the job market, are spiraling higher, hitting
levels not seen since the Asian crisis was unfolding in 1998. The private
sector only created 49,000 jobs in November. The monthly job growth the
last three months has been just 77,000. A pathetic performance as
demonstrated by the 187,000 jobs per month created January through
September 2000. Total hours worked were down as companies work employees
less rather than lay them off, and that
1/06/01 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- Markets sell on domestic and global financial worries, CSCO fears,
earnings warnings.
- Volumes lighter on the selling while defensive issues rise on low
volume.
- Fed: Futures contract shows another rate cut by January 17.
- Economic numbers continue to be a mess.
- Subscriber Questions
- Team Trades
The markets were under fire before the open from a number of fronts, but
the one that had everyone spooked was the Bank of America story. It was
rumored that BAC was in trouble from holding a wad of PG&E paper when PG&E
might go under from the abysmal attempt at 'deregulation' (a clear
misnomer) of California's power market as well as derivative positions BAC
had taken. Then there was a story about Russia not meeting payments on
external debt. This had shades of the 1998 credit crisis on top of the
lack of liquidity that currently exists in the stock market: a double
threat to the market.
The markets responded as would be expected: they were diving as the fear
was whipped up by the likes of CNBC. While CNBC discussed the issue, the
Dow selling accelerated with the Dow falling from about 70 down to 200
points down in 20 minutes. Then BAC came out and debunked the story and
there was some recovery. But for the Fed cut on Wednesday, the indexes
were close to meltdown and the Nasdaq would have been at 2000 or less
Friday morning.
There was some recovery, but then a rumor came out that CSCO was in
trouble because, get this, it had talked to analysts it did not normally
talk to. The perception was that something must be wrong as CSCO was
'reaching out' to different analysts to prepare for the coming quarter.
Did it occur to anyone that CSCO was doing this because of the new SEC
regulation about disclosure and that it was just making sure it was
showing no favoritism? Of course not. The mood in the market was sour so
a non-event was suddenly a sign of a major warning upcoming. Utter
nonsense. After hours CSCO came out and said the rumors of a special
board meeting and other rumors were completely inaccurate.
On top of that the employment numbers had the skittish spooked even more.
As discussed below, they were not good, but as we have often discussed,
these figures lag the economy and the most disturbing one (the higher
hourly wages) is probably already heading lower. Still, that added fuel
to the fire for the day.
The fear and selling that seemed to mark the day were not that great.
Things looked bleak in the morning and the market sold down again in the
afternoon after a brief rally attempt over lunch. As always, we were
looking at the hard numbers, looking at the actual stories and how stocks
were performing as the day progressed. What the television portrayed as a
really bad day looked more like slowing selling to us. The vast majority
of the key tech stocks sold down on lighter volume and the telecoms we are
tracking, the ones that have seen huge institutional interest last week,
pulled back to support on lower volume just as we wanted. Overall index
volumes were lower as well. Meanwhile, the defensive stocks tried to
rally, but they did so on weaker volume across the board.
This was important to us. First, selling on lower volume is always what
we want to see in the big picture. Moreover, it was corresponding to what
we thought was going to happen: some selling after the huge move on
Wednesday on lower volumes with the defensive sectors moving up on lower
volume. That shows us that there was no rush back into defensive issues
by the key players, i.e., the institutions, just as there was no rush out
of the beaten up sectors that are showing signs of life after a Fed cut
(e.g., telecoms). Even with all of the negative news, the institutions
were not bailing out of what are the potential leaders of the market in
the coming months, nor were they piling back into the defensive sectors.
It was a day that could have been really ugly with the bad news out there,
but it was not used to dump shares. That was a positive in our books, and
it had us taking positions at the end of the day as we often like to see
how stocks finish the day as an indication of the future. Again, no heavy
bets, but just averaging into positions in anticipation of better things
to come.
Fed Futures Contract foretelling another rate cut soon.
There is one 'good' thing the poor economic news is telling everyone:
another rate cut is coming, and it is coming pretty fast. Most say it
will happen January 31 at the next FOMC meeting; that is the safe bet.
After all, would the Fed move inter-meeting twice in the same month? Odds
seem against it based on everyone's view of the Fed, but as of Friday the
Fed Funds Futures contract for February was pricing in at least a 25 basis
point move by January 17, and possibly a 50 basis point cut by that date.
That is usually a very accurate measure of what the Fed is going to do,
and it is pricing it in for that time.
That belies those on the television who were worried about Friday's
employment data that showed the unemployment rate holding at 4% and
average hourly wages rising 0.1% greater than expected being impediments
to the Fed cutting rates again anytime soon. That is good news for more
reasons than the immediately obvious ones. In almost all cases, the first
Fed rate cut has marked the turn in the markets. In a few historical
cases (4 out of 21 rate cutting cycles), however, it has taken a second
rate cut to actually turn the markets back up. In those four times the
economy was early in a recession, much as the U.S. might now be starting.
The second cut turned the markets, the one exception being in 1929 where
the second cut sent the markets up before they ultimately crashed in the
Great Depression. The world economy does not look great right now with
the one leader now suffering a dramatic drop, but we are not ready to say
we are going into world recession. Thus, a second rate cut will be more
of the surefire fix that the markets need, along with a continued push
toward a meaningful tax cut.
THE ECONOMY
Credit crisis proves illusory for now, but the conditions could appear.
Japan is showing renewed weakness and Russia has missed a payment on third
party debt, at least for the moment. Domestically there is real concern
over California utilities going bankrupt and the ripple effect that has on
those banks holding their paper given an already pensive economy.
Further, even in a time of prosperity we have recently seen the filing of
bankruptcy by major corporations. Were they just laggards with bad
management and business plans? Also at home we see continued layoffs as
AT&T and ADCT are both cutting jobs after Wednesday there was a reported
tripling of layoffs in the private sector.
Lagging employment report shows things still okay.
The current administration was angry Friday about talk of a weak economy,
citing the jobs report as proof positive that things are just fine here.
If you live your life reflecting on the past and not planning for the
future we suppose you could draw that conclusion. However, even the
current labor secretary voiced concern over what the numbers showed.
Action is needed.
Yes the unemployment rate held at 4%. The weekly jobless claims, however,
the realtime ticker on the job market, are spiraling higher, hitting
levels not seen since the Asian crisis was unfolding in 1998. The private
sector only created 49,000 jobs in November. The monthly job growth the
last three months has been just 77,000. A pathetic performance as
demonstrated by the 187,000 jobs per month created January through
September 2000. Total hours worked were down as companies work employees
less rather than lay them off, and that