Profit Warnings, Layoffs… And A Rising Market

“Profit warnings – and layoffs – are still a regular feature of the landscape…” reports the Daily Reckoning Blue Team, “but you wouldn’t know it if you watched the indexes. A global slowdown is underway… and all eyes are on the US consumer. Can Joe Six-Pack spend his way out of a global deflationary bust?”

The major indexes seem to think so… the Dow closed up 78 on Friday. Just the kind of response we’ve come to expect from a schizophrenic market pumped up on Fed-roids. Indeed, “there’s a lot of money sloshing around out there waiting to get into the market,” one analyst told USAToday.

Still the big blue missed regaining the mythical 11,000 closing the week off at 10,990. The Nasdaq end up Friday 38 to 2149 – but lost 101 – or four and a half percent. The S&P 500 gained nearly 5 to close the week down 17 points at 1260.

Markets Around The Globe: The Nikkei barely moved… the DAX in Germany rose a mite, the London FTSE 100 remained basically the same… and France, well… it dropped, but not by much.

The Russell 2000 finished the day up 5 to close the week at 501.

ADD’L PRICES FOR THE WEEK: Relative Stability… Dollar Still Strong.

Gold: $268

Crude Oil: $27.85

Natural Gas: $3.92

CRB Index: 210

Dollar Index: 118

The Sad, Sad Euro: $.84

British Pound: $1.42

Japanese Yen: $.84

The Blue Team Hotwire: Investment Intelligence Bulletins reported Merrill’s tech strategist, Steve Milunovich as saying that “tech and telecom problems we’re experiencing might be more than a blip.” The problem? An obvious one for readers of the Daily Reckoning: capital spending bust.

“Capital spending and tech stock performance are closely correlated,” says Mulkunovich. “The likelihood is that the tech stock decline is foreshadowing a multiyear downturn in capital spending.”

Further, Mulkunovich also notes what Blue Teamers have known for a long time… that “‘old economy’ return on assets has at around 5 percent, calls into question whether all the spending on tech really has increased productivity.”

For investment advice consistent with the ideas and insights you read in The Daily Reckoning please enroll in the DR Blue Service:


Addison Wiggin
Paris, France
June 02-03, 2001