End Of The Rally?

The Daily Reckoning

Weekend Edition

May 26-27, 2001

Waterloo, New Hampshire

By Addison Wiggin

MARKET REVIEW: End Of The Rally?

Revised GDP numbers for the first quarter suggest the economy is not making a sexy “V” recovery, but more of a sagging U, without the upside…

On the news Friday, the Dow fell 117 – a weekly loss of 296. The Nasdaq shed 30 to close at 2251. The S&P 500 lost ground Friday – down 15 to 1277, ending the week down an equal amount.

ADD’L PRICES FOR THE WEEK: Gold Retrenches…commodities fall back

Gold: $278

Crude Oil: $28.38

Natural Gas: $3.97

CRB Index: 212

Dollar Index: 118

The Sad, Sad Euro: $.85 – down 2 cents

British Pound: $1.42

Japanese Yen: $.83

BLUE TEAM HOTWIRE – Investor’s Intelligence Bulletins From Around The World

Evidence Of The Sucker’s Rally

What is seen: despite its 296-point loss for the week, the Dow has risen 17% from its March 12 low of 9389. The Nasdaq is up 37% from its 2001 low of 1638 set on April 4. The S&P 500, has added a healthy 15% since its April 4 low of 1103.

What is unseen: Corporate profits have dropped two quarters in a row. First-quarter 2001 after-tax profits fell over 3% in the first quarter. They fell 4.3% in the fourth quarter.

Even worse, business investment is falling too. Business investment fell 2.6% in the first quarter. It fell 3.3% annually in the fourth quarter. Those are the first back- to-back declines since, you guessed it, the recession 1990- 1991. Investment is what creates profits. And without new investment profits will continue to fall.

For investment ideas consistent with those you read in The Daily Reckoning please enroll in…

The DR Blue Service