Market Talk

[Spaf]

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The Kingdom of TSP

The closing bell - November 4, 2005

I generally tend to shy away from remarks from the media. However, Mr. Cotton appeared to have a factual account of the current market.

If I recall, TSPTalk made aremark, similarto Mr. Cotton's last sentence.

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By Mark Cotton,MarketWatch


NEW YORK (MarketWatch) -- U.S. stocks ended higher Friday, shrugging off a weaker than expected October jobs report after an otherwise positive week for data, with strength in the technology sector pacing the advance on the market.


The Dow Jones Industrial Average rose 8.17 points to 10,530.76, with the benchmark index posting a weekly gain of 1.2%.


The Nasdaq Composite Index climbed 9.21 points to 2,169.43. The tech-rich index put in its best weekly gain in 14 months, rising 3.8%.


The S&P 500 Index put in a fractional gain, up 0.2 points at 1,220.14. The broad gauge rose 1.8% on the week.


After a number of positive economic reports, the October employment report was something of a disappointment to Wall Street as the number of jobs created in the month fell short of analysts' expectations.


U.S. nonfarm payrolls rose 56,000 in October, below the 102,000 expected by economists surveyed by MarketWatch. The Labor Department said that employment growth appeared to be below trend.


"People wanted this job report to be more conclusive than it was," said Ed Peters, chief investment officer at Pan Agora. "But the market doesn't really know what to make of it, because the numbers are distorted by the hurricanes."


Peters also said that there are plenty of bullish investors looking to push the market higher, but he sees more choppy trading ahead for stocks because of tensions tugging it from opposing ends.


"You have the classic dichotomy where you have a strong economy, but you also have the Fed in a tightening phase, raising interest rates to slow it down."
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Rgds, and be careful! Spaf

 

[Quips]

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What kind of game is Greenspan playing? He shows no sign of relenting about increasing interest rates ... and that is making the equity markets nervous. It is making the bond markets edgy. Returning this year have been sub par.

But what is Greenspan thinking about? The strenght of the dollar? Inflation? Oil?

Perhaps Greenspan is in a showdown; further Fed interest rate increases will only be smoothly done with a lot of help from decreased energy/oil prices. If the Fed does not get that help, it will not only be rougher and slower here, but even more than that elsewhere.

It is really in the rest of the world'sbest intereststhat we do well, since it sort of trickles back down to them. Maybe it is also in the world's best interests that we need a break in the cost of crude if they are to improve a bit little themselves.

What is the ideal cost for oil? $50? What is the real cost? lol

If oil sinks, the Fed can continue to increase rates without problem and the dollar will remain at the current level in comparison to other currencies. Plus if the Japanese economy opens up more, that would be great for the equity markets.

But it may depend less on Greenspan than it does on the oil interests. What is general economic growth to them when they are making their greatest profits in history? Since when has it ever been enough for the oil interests?

There is the showdown: Greenspan and oil interests. What kind of deal has to be made between the two for both to win? Or for just oil to collapse under it's own weight! The would be a nice surprise.

Gasoline prices have made a significant drop lately..

But if the shortage is real then the market and Greenspan and the rest of us will be taking on more risk for much less gain.

It may not be in the interests of the oil industy to bring on a recession,because it will bring in on themselves too, and I think that recession would be more hurtful for them (oil) than it would befor the rest of the general economy.

The exeption to that case is the Chinese economy: it would be hurt far more hut than the oil iindustry if there was a recession.

It is my optomistic (lol) guess that as interest rates increase, the price of oil will decrease; and both will reach a level of mutual compatibility and sustainable growth while at the same time stabilizing the value of the dollar. That would be some dance if it happened that way

 

[vectorman]

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For anyone who is interested the Shark has his comments up for friday, Nov 4th, even though the TSPtalk home page still shows Nov 3rd. Just click on the link and the Nov 4th comments will come up.

 

[Sr]

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Quips wrote:

It may not be in the interests of the oil industy to bring on a recession,because it will bring in on themselves too, and I think that recession would be more hurtful for them (oil) than it would befor the rest of the general economy.

EXXON with revenue of 100 Billion per qtr couldn't give a rat's a*s to a recession here or there this decade. Theyall must be planning for an era when kingdom of Saud is no more, Alaska has another pipeline to construct and when 60MPG autos are parked in joe sixpacks garage in good old US of A. More Oilhas togo to Asia anyway.

 

[Mike]

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Billions of people live in third world countries. All of them have yet to fully industrialize.

Unless there is some sort of breakthrough that leads to cheap / plentiful / easily harnessed energy, all those third world countries will have to slog their way through an industrial revolution just like we did and just like China and India are doing now. That means they'll need lots of oil and/or coal.

Even if you eliminate the whole gasoline issue, oil is used in many different products - meaning it will be useful for a very long time, whether or not we drive gas guzzlers.

 

[Spaf]

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vectorman wrote:

For anyone who is interested the Shark has his comments up for friday, Nov 4th, even though the TSPtalk home page still shows Nov 3rd. Just click on the link and the Nov 4th comments will come up.

RevShark said that the market was consolidating on Friday and he was impressed by the late day move.

Move! We all like moves!

Unresistable! Spaf

 

[robo]

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Spaf wrote:

RevShark said that the market was consolidating on Friday and he was impressed by the late day move.

If we can get thru 1230 next week the 1240'sshould be tested, but I think things will slow down some from here. I thought that we wouldget a pull-back Friday, but buyers came in again to scoop up bargins.... Still not out of the woods, but this could be the start of a pretty good move up!!!! Still lots of Bears not convinced, so we have to Climb the Wall of Worry!!!!!!!! At some point the fund managers still in cash will have to chase..... I never fully trust the Market, there is always a chance of one more pullback, so keep your guard up. But the bulls are clearly in control!!!!!!

Some comments from a Tech:

FridayUpdate 2:55 EST

The consolidation continues as what is probably a wave 4. But we won't know for sure until wave 5 has started.
The problem, is that 3 waves are common and 5 waves much less so. You can't take it for granted that a 3 will evolve into a 5, unless you get confirmation.

The structure from 1168 to-date has been clear as mud to me, and still is. My Elliott analytic skills are limited to the most rudimentary and obvious patterns, and the present pattern is anything but obvious. I still favor a wave 5 to come, but since we have already met some solid projection targets,, something tells me to be alert and look for another possibility.

I'll let you know when I figure it out!

Closing Comment

There is a little buying at the close which has lifted the both prices and A/D from their worse levels of the day. This is encouraging for Monday and the startof wave 5 (?).

Elliott Wave Basics http://stockcharts.com/education/MarketAnalysis/elliotwavetheory.html

 

[Pete1]

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An interesting take from Ben Stein regarding Greenspan and raising interest rates:



How Not to Ruin Your Lifeby Ben Stein
Finance Home > How Not to Ruin Your Life > I Love You Alan Greenspan, But ...



I Love You Alan Greenspan, But ...
by Ben Stein
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Thursday, October 27, 2005

So Ben Bernanke, a distinguished economist and Princeton professor, will soon become Chairman of the Federal Reserve Board. Good for him. Shows where winning the North Carolina spelling bee, as Dr. Bernanke did many years ago, can take you. But for the next few months Alan Greenspan is still in charge.
Now, I am the world's greatest fan of Dr. Greenspan. He is a brilliant man, a kind man, and a thorough patriot. He wants what is best for America and the American family. But I am puzzled by what the Federal Reserve is doing in its relentless march up Interest Rate Hill.

Supposedly, these interest rate increases are an effort to maintain control over inflationary pressures. But there are a variety of reasons why that rationale simply does not make sense.

First, the real pressure on prices has come from increases in the cost of oil and natural gas. These price increases have risen dramatically since the start of the year and are now working their way through the consumer prices we all pay. But oil and natural gas prices are world prices set on a world market. There is little sign that demand in the United States is driving up these prices, at least not by itself.

It's Overseas Demand That'sRising

The real startling growth in the demand for energy commodities has come from China and India. To be sure, their demand is far smaller than that of the U.S. -- far, far smaller. But, with the exception of the last few months, it is Far Eastern demand that is at the margin (as we economists say) pulling up prices. It is Far Eastern demand that is growing at double-digit rates each year and that is forecast to grow by 150 percent in the next 15 years. To be sure, China is still a very small economy compared with the U.S. But it is still the second largest oil consumer, and its use is growing like a monster.

If demand from China and India is what's boosting the world price of oil, how will restraining demand in the U.S. reduce oil prices and thus reduce inflation?

Second, if we assume just for the sake of argument that it is U.S. - and not Far Eastern -- demand that's pushing up prices, this demand would be happening despite an economy that is not growing at inflationary rates. Thus, to push us into a recession or a slowdown to lower oil prices may simply not work.

And why should we do it anyway? The futures prices of oil are already falling rapidly, telling us that future prices at the pump will be falling -- not rising. To put it simply, the engine behind inflation is already slowing down so why put the whole economy into a slowdown to accomplish something that is already being accomplished?

Is Inflation Really to Blame?

The genius economist and Nobel Laureate, Milton Friedman, has often said that, "Inflation is always and everywhere a monetary phenomenon." By this, he meant that inflation is always caused by excessive monetary growth. But -- and this is a huge "but" -- there is not anything like excessive monetary growth. In fact, by most standards, monetary growth has been extremely slender in recent years. It has been worrisomely slow. Then, why clamp down on an economy with a money supply growth rate that is already slow?




Now, all of this is not just academic hot air. Higher rates could slow down an economy which has already slowed down in some of its most sensitive areas, especially autos and trucks. A rapidly rising short-term rate will raise the dollar against the Euro and the Yen, and this will create an even more stunning trade deficit. Mortgage rates are already rising rapidly and could slow down or stop the major good news in the economy: The real estate sector.

So, why is the Fed doing what it's doing? Well, I asked two major powers at the Fed just this week. One said, "There's evidence of rapidly rising wages in some fields."

"What fields?" I asked.

"CPAs who really know Sarbanes-Oxley well and finance MBAs," he said.

"And that's it?"

"Well, it's not a lot compared with energy," the man said and shrugged.

The other man said that the Fed was raising rates to slow down inflationary expectations in energy.

"But energy prices are already falling, and the growth in demand is coming from China," I said. "Are you trying to control Chinese demand?"

He smiled and shrugged.

By the way, I don't think it's in the Fed's charter to try to control Chinese demand.

I don't get it. Dr. Greenspan. I love you, but I just don't get it.





Amen, Ben Stein

 

[Birchtree]

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The financial select sector SPDR has exploded. All weekly indicators on the OEX have turned to Buy signals. Because of higher heating bills this winter, GDP may increase at a more moderate pace in the coming quarters, but longer-term growth is likely to remain solid, aided by strong productivity gains. There are few indications that higher energy prices are working their way into the economy at large; more important, labor costs, which are a crucial long-term factor in inflation trends, remains under pressure. A turn of the year rally will carry only a moderate number of individual stocks to new peaks even as it moves the major averages to bull-market highs. The message is be selective. My choice continues to be the C fund. Hooah!

 

[robo]

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Birchtree wrote:

The message is be selective. My choice continues to be the C fund. Hooah!

I'm with you Birchtree, I'm only playing Big Caps the rest of the Year..... My Vanguard account is in the Total Stock Market on Bob Brinker's Model Portfolio Active / Passive. The restof my accounts S&P 500 type.... Wilshire 4500 could out perform, but That's OK with me!!!!!! I have also had enough of the I Fund and the dollar..... Friday the dollar was up Big again and hurt the I Fund..... With interest rates going up the dollar is attractive to some.... Once the US markets take off watch the Internationl money come home to THE S&P 500!!!!!! Rally Time....Lots of money has went Overseas, because of our problems at home this year... But the rally will bring the Big Bucks Back.Of course this is just my personal opinion.....

I'm still not 100% in stocks, only about 30% and waiting to see if this is the real deal!!!!Sold into the rallies lately, and hoping for pullbacks....The Market is looking pretty darn good, but a few more Technicals still need to get in order.... I'm still Bullish and think we have a 7% to 10% rally coming our way if this is the real deal.

The S Fund has around a 6% head start on the C Fund, I think the C Fund could reduce the gain by 31 Dec 05..... Now thats a race I will enjoy watching no matter which one finshes first, because we all win in the end.... HOOAH!

 

[Spaf]

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Closing Thread

A good week to ya, and a better one next week

Rgds, and be careful! Spaf