02/03/01 The Daily Reckoning
Weekend Edition
February 03-04, 2001
Paris, France
By Addison Wiggin
MARKET REVIEW: Mixed News Friday… All Major Indexes Drop
A “mixed” employment report Friday counteracted the Fed’s best intentions when they cut rates earlier in the week; all major indexes dropped. Unemployment rose to 4.2%, reflecting a spate of layoffs by automakers and major manufacturers.
Still many analysts feel the numbers aren’t bad enough to induce another Fed rate cut between now and their regularly scheduled meeting in March. Our question: Will lower… and lower… rates do any good?
Dow bulls, hoping to breach 11,000 again, were saddened Friday. The ‘big board’ closed down 119 at 10,864. Still the ol’ man held on to a 205 pt. gain for the week.
The Nasdaq ended the week at 2660 – down 122 on Friday; down nearly the same for the week. The Nasdaq has given back 8% of its early year gains – achieved mostly following the Fed’s January 3rd surprise. Friday, the S&P 500 closed down 5 points for the week to 1349.
Markets around the globe: All markets down globally, too. The Nikkei shimmied -0.6%; Germany’s DAX lost nearly 1.0%; The ‘footsie’ in London slipped slightly, and the CAC-40 in Paris fell: -1.2%.
The Russell 2000: at 498 was also down … slightly (-7), negative 50 for the week. The Wilshire 5000: 12,446, down 244 on Friday; down 81 for the week…
ADD’L PRICES FOR THE WEEK: Dollar and gas down again…Gold up big…
Gold: $269 up $7 for the week…
Crude Oil: $31.19 up over $1
Natural Gas: $6.74 down nearly $.50 (continues to retreat)
CRB Index: 228 down one
Dollar Index: 110 down one
The Euro: $.93 up $.01
British Pound: $1.46 up $.01
Japanese Yen: $.86 up $.01
HOT PICKS: Market Schmarket – Pick Good Stocks… and Buy Them Cheap!
“All week a nervous market awaited Greenspan’s word. Well, I say: Phoooey! You could go on vacation and forget ‘the market’… who wants to sit glued to your quote machine, with the Maalox in hand trying to take care of your money?
At Fleet Street Letter, we’ve put our money to work in solid companies… Our regular portfolio is doing great, but our super-safe, low-maintenance 10-for-10 portfolio is really special. It will still be around long after Greenspan has retired.
In fact, since we started in April 2000 – yes, at the market peak – the 10-for-10 Portfolio is up an annualized 22.2% – while the S&P 500 is down 11%. That means, we’re 29.5% ahead of the market! With no tricks, no swinging for preposterous returns. It’s pure, common-sense, value.
There’s not a single high P/E, hot-growth, high-risk stock in the bunch, which is more than most fund managers can say–even if they manage “value” funds!
Right now, even after these gains, our average P/E is still just 13.3, compared to 25.2 for the S&P 500. And get this… our worst performer is only down 11% – exactly equal to the S&P. Stack that up to our two best ones… which are already up 50-60% and likely to double before the year is over… and you’ve got yourself some winners.”
Lynn Carpenter,
The Fleet Street Letter
FLOTSAM & JETSAM: Another Kick At The Cat: A Sound Currency Strategy For The Weakening US Dollar
- from John Myers,
Editor, Outstanding Investments
“The currency bear is once again stalking the U.S. dollar. Of course, we expected the dollar to weaken in the wake of the election fiasco last fall… had you played played that trend, you would have pocketed some handsome profits.
After the New Year, the dollar began showing signs of strength again. But over the past few weeks, the greenback has shown the tell-tale signs of weakness. The election has long since been settled, but now, even more powerful fundamentals are lining up against the dollar, most notably the fact that consumer confidence is falling faster than the Kursk submarine!
The economic numbers show that U.S. economy has been torpedoed. Consumer confidence has fallen to a five-year low, as has fourth quarter GDP. Existing home sales have plummeted 7.4% (housing is generally the last to go), and leading indicators are off 0.6%. Announcements of massive layoffs are becoming a staple of the evening news.
In fact, the Bush administration has even said that it believes we are officially in a recession.
These economic numbers explain why American consumers have stopped buying. This could be devastating for the economy when you consider that consumer spending accounts for two- thirds of U.S. GDP.
For the first time in a long time, Europe is in better economic shape than America. The continent didn’t ride the expansion balloon into the stratosphere the way America did. As a result, they are not facing the pit-of-the- stomach descent that America is. I wouldn’t be surprised if European GDP growth outstrips America’s.
Europeans have something else going for them — they have far less wealth tied up in the stock market than their American cousins do. Therefore the rummaging bear doesn’t impact people of Geneva the way it does people in Georgetown.
So serious is the U.S. slowdown that Alan Greenspan just made his second interest rate cut in a month – another one- half percent cut in the Fed funds and the discount rates. Meanwhile, Willem F. Duisenberg, president of the European Central Bank, has kept euro interest rates on a steady keel, as has Switzerland’s central bank.
If the U.S. continues to cut rates (as it appears it must) and Switzerland does not, fixed-rate investors will garner better returns from euro and Swiss bonds than their U.S. counterparts. In short, capital will flee U.S. dollars to nest elsewhere… in Europe perhaps.
When we played this trend following the drawn-out election fiasco readers pocketed anywhere from 60% to 266% – without investing in the euro! Now we’re prepared to do it all over again…”
Enjoy your weekend,
Addison Wiggin,
The Daily Reckoning
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