The Daily Reckoning Weekend Edition
September 16-17, 2000
By Addison Wiggin
MARKET REVIEW: Major indexes slip…Dow Ends Week Below 11,000… Chase boosts JP Morgan into the ‘Bulge Bracket’…
The Bureau of much Labored Statistics reported Friday that consumer prices fell in August for the first time in 14 years. Thursday, the PPI was down, too. “As we expected,” reported Bill King. “The PPI was negative because clothing, gasoline, computer, food, and car prices fell.” Of course, energy and food aren’t necessarily important factors in determining the direction of a nation’s economy…
In turn, the market handed Dow Jones his shirt. He closed down 160 to end the week below 11k at 10,927. The broader indexes settled in lower, too…the Nasdaq sank 78 to 3835, and the S&P 500 slipped 15 to 1465.
What’s going on? Well, “the economy is seemingly slowing pretty decisively,” an analyst seemed to have announced with conviction to Reuters. “[Now] there’s a lot of concern about whether the earnings are going to be there.”
Maytag, for example, lost $2 to end the week at $33. The company whose repairman used to be the head honcho at WKRP in Cincinnati, announced third and fourth-quarter earnings will be “below Wall Street estimates.” On the Nasdaq, Big Techs Oracle and Anadigics were down $6 to $78, and $4+ change to $25, respectively.
Chase Manhattan’s much ballyhooed buyout bid for JP Morgan threatens to “propel Chase into the ‘bulge bracket’ elite.” reports the Economist. “The merged bank, J.P. Morgan Chase, will lead the market in many areas of investment banking. But “the best days of big banks are clearly behind them,” says David Tice. More below.
Oil prices, which soared to a 10-year high this week, have driven Halliburton; Schlumberger and Baker Hughes up a couple of bucks a piece. And our own John Myers, contributing editor to Real Asset Investor, has his eye on a much cheaper company pumping out profits in the Canadian Provinces (see: Flotsam and Jetsam)
America’s current-account deficit set a new record for the second quarter, rising over 4% to $106 billion. “Imports have surged,” again according to the Economist, “as the country’s economy has boomed, but markets for America’s exports have not picked up.”
In other news, a proposed merger between the London Stock Exchange and Germany’s Deutsche Borse collapsed. And there was a ‘boom’ on the Jakarta exchange… rather, under it, as a bomb exploded in the parking garage – killing 15 people.
Russell 2000 index shrank back 8 to 530. The Wilshire index rounded off a rather dismal week for the major indexes, down 18… to close at 873.
PRICE/CHANGE (for the week): Gas on the rise…Palladium falls back… the sad, sad euro holds on… for dear life.
Gold: $2.76, down $.50
Crude Oil: $35.92 up $2.32
Natural Gas: $5.20 up $.32 (keep your eyes peeled!)
Platinum: $586, down $20.50
Palladium: $720, down $43
CRB Index: 228.34, down 1.46
Yen: $.009 holding
The sad, sad Euro: $.86 (slid to an all-time low below $.85 this week, then the ECB stepped in… more below)
British Pound: $1.39, down $.03
MARKET COMMENTS: Big Bull in Oil…
“…an increase oil production by 800,000 barrels per day would generally be seen as bearish for oil prices. Less supply means a higher price, other things being equal. But the oil market responded by sending crude oil to a new post-Gulf War high of $35.14 a barrel.
This is a pristine definition for ‘bull market.’ Good news or bad, the price of crude is flying upstairs like a bat out of hell.
At this point, I’m thinking oil could go over $40 a lot easier than it will fall back into the $20s. So if you’re long oil, stay there. If you’re short oil, better cover before the pain gets any worse.”
Real Asset Investor.
…and The European Central Bank Steps in to Save the Euro
“…if the European Central Bank has a mandate to keep inflation below 2%,” Kevin Klombies asked on Tuesday “…and inflation is closing in on 3% AND the euro is acting like the Thai baht AND crude oil prices continue to rise… how long do you think it will be until the ECB either intervenes through direct purchase of euros, raises interest rates dramatically, or both? Our guess is – within the next 5 trading sessions.”
He was right. The ECB stepped in on Thursday to purchase $2.2 billion of the erstwhile Esperanto currency. Although “the 2.2 billion ‘drop in the bucket’,” says Kevin “is certainly not an intervention …it draws the line in the sand for the market.” (For more “inter-market analysis” and how you can use it to anticipate broad movements in the markets…see the ad below.)
But first, let’s take a look at…
THE HOT PICK OF THE WEEK: Speculative Drama…Pier One Pulls Through – up 33%!
“We’ve had a good week at Contrarian Speculator,” says Lynn Carpenter. It was tooth and nails early in the week, as her call option on Pier One was set to expire Friday – useless. But late Thursday, the Pier One price inched into the money she took +33% (in seven weeks). “Apart from the Pier One play, we’ve closed or taken profits on two other positions: El Paso Energy calls +42% in two days, Dynergy calls +51.5 in one week.” Both cashing in on the electricity crisis in the Northwest…
The Contrarian Speculator
P.S. If you’re interested in a longer-term strategy. Lynn offers this note: “We don’t move that fast at Fleet Street… our goal is long-term appreciation on very well selected stocks. I’m looking for stocks that have an excellent chance to return 15-20% a year, faithfully… not 100% fitfully. But sometimes we’re pleasantly rewarded with fast double-digit returns anyway.
After all, good companies are always great places to put your money. In our High-Yield portfolio, we’ve made 24% in five months on Alliance Capital… a company that pays a whopping 5.7% dividend. It’s almost T-bill interest rates, but you don’t get capital appreciation on T-bills. The whole hi-yield portfolio of five stocks is up 11.4% since April with an average dividend of 12.7%.” Worth looking into – see: The Fleet Street Letter .
FLOTSAM AND JETSAM: Oil at $16.26 a Barrel?
“Forget all the whining about how expensive oil is… Even at $34 a barrel, in today’s money, oil is selling for $16.26 in 1980 terms. (To determine the “true cost” of goods this year vs. any other year there’s a decent calculator at: True Cost Calculator )
But don’t expect these prices to hold. In the absence of any new oil elephants – one billion barrels or more – we are entering a time when surging demand can only be met by smaller pools.
An alternative and exciting play on this oil ‘crisis’ is a company drilling in the Western Canadian Oil Basin. According to Harold Pedersen, the president of KeyWest Energy Corporation (TSE: KWE C$1.16), Canada’s oil basin is 20 to 30 years behind in development than similar oil fields in Oklahoma and Texas.
While prices for most of the majors have moved higher during the upswing in crude prices, investors have yet to buy into Canada’s oil and gas industry. This makes this an ideal time to catch a wave that is already rolling in.
You can read my exclusive report on KeyWest including my interview with the company’s president in the upcoming issue of Real Asset Investor.”
Real Asset Investor
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“To complain of lack of leadership is, in the field of political affairs, the characteristic attitude of all harbingers of dictatorship.”
– Ludwig von Mises