The Daily Reckoning Weekend Edition

Boy…what a week. Like a huge swell marking the arrival of a storm at sea, the Nasdaq rolled tech investors high above the surf on Friday – climbing over 7.8%. By day’s end the Nasdaq had closed up 242 to 3,316.

Still, Friday’s gains couldn’t cover up earnings troubles that have been plaguing the index for weeks. The Nasdaq was down 45 for the week – and 32% off its March high.

Friday’s rebound of 157 brought the Dow back to close at 10,192. But chez Blue Chip, too, was looking mighty weathered after (or before?) the storm. Thanks largely to Thursday’s 379 point drubbing and six straight losing sessions – the index closed down 404 for the week…

The S&P 500 also caught some of Friday’s bargain-hunting optimism closing up 44 at 1,374. But both the Nasdaq and the S&P 500 saw lows for the year on Thursday. Up and down… up and down… it’s enough to make you queasy.

A quick note on the economy…the BLS released PPI numbers early Friday morning. They signal annualized prices increases of over 10% at the wholesale level. “The rise in the PPI by itself is not a big reason for concern yet,” says the Fleet Street Letter’s Lynn Carpenter. “But the PPI is rising faster than the CPI… what’s that mean? Companies are getting squeezed. Their costs are rising faster than consumers are anteing up. It means lower profit margins. And it means still more earnings shortfalls ahead. I’m afraid Q3 2000 is not going to be the end of that story.”

The Russell 2000 lost 11 points this week sifting down to 480. The Wilshire Smallcap rose slightly, up 5 to 797.

PRICES FOR THE WEEK: Lots of Action in Gold, Oil and Gas…

Gold: $278 up $7

Crude Oil: $34.99 up $4.13

Natural Gas: $5.53 up $.45 (Highest week-end close of the year and the heating season’s still to come…)

Platinum: $576 down $13

Palladium: $741 down $8

CRB Index: 230.85 up 4.85

Dollar Index: 115.86 up 1.86

Yen: $.009 (yawn)

The sad, sad Euro: $.85 down a penny

British Pound: $1.44 same

MARKET COMMENTS: The Inverted Yield Curve… Morgan Stanley’s Junk Bond Fiasco…

“In the global markets a perfect storm has arisen. The Fed inverted the yield curve to slow the economy. A short-term supply crisis sent oil prices skyrocketing. Dozens of blue chip companies announced earnings surprises. The dot.com sector collapsed. And now there’s war in the Middle East.

“It could get worse. Morgan Stanley’s high-yield convertible bond portfolio, stuffed with fiber optic network debt, is suffering under the inverted yield curve. Of the 20 worst performing bonds issued since 1998, Morgan underwrote 11. Concern over Morgan’s bond portfolio, which could be worth as much as $6.8 billion, has caused the company’s stock to fall more than 20% since last week. Other over leveraged players could come out of the woodwork next week, a la Long Term Capital Management. Margin selling could escalate.”

That 70’s Show… And Another Monday In October

“Traders who remembered the Yom Kipper War was the launching pad for the 1973 Arab Oil Embargo pushed oil briefly beyond $37 a barrel…institutions that remembered the Oil Embargo precipitated high inflation, a depreciating dollar, and double-digit interest rates liquidated their positions, and drove the Dow Jones Industrial Average down nearly 400….

“There was plenty of damage left after the week’s trading and there will be a lot of nervous investors sitting around this weekend. Yikes… we’re facing another Monday in October.”

John Myers

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THE DAILY RECKONING FREE INVESTOR’S LIBRARY

The Euro Crisis: Are Your US Investments in Danger?

The combined efforts of the world’s central banks have failed to prop up the euro… a slew of ‘earnings-warnings’ blamed on weak demand in Europe… and an unshakeable belief in the super-dollar. Too few realize how these currencies and markets are intertwined… and why the untouchable American market is in for a nasty surprise.

In this edition of the INVESTOR’S LIBRARY, former central banker and esteemed Austrian economist Dr. Richebacher examines the truth behind the euro crisis. To learn why the dollar’s supremacy is precarious at best… and what you can do to position your portfolio for safety in the months to come read this special report…

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FLOTSAM AND JETSAM: Damned If They Do, Damned If They Don’t… What’s A Central Banker To Do?

“This week’s stumbling indexes are just a sign of the bear cleaning the junk out of the market… junk stocks and junk prices on good companies. But investors will do well to remember “the market” is not “the economy.”

The Fed doesn’t want to ease rates to help the market, not with oil going up. Even if they leave oil out of the core CPI, they know it’s there. High oil prices can do real damage.

And according to First Union analysts Jay Bryson, David Orr and Mark Vitner lowering rates could really, really hurt the corporate bond market… I suspect they’re right.

The spate of corporate ‘earnings warnings’ mean one thing: there’s enough trouble here already. Liquidity is drying up for the less-than-AA to AAA segment of corporate America. Only the squeaky clean are finding money when they need it. Venture capitalists are in retreat. Bank losses on corporate debt are way up.

So, what will the Fed do? Stick its head in the sand for now. Just as well.

By the way… all of this is good news to someone: Robert Half International (RHI:nyse). RHI is up 37% since we put it in Fleet Street’s 10-stocks-for-10-years portfolio in April.

Those soon to be unemployed tech workers are much needed to fill the temp assignments pouring in RHI’s doors. The other big winner in that ten-some is defense contractor Northrop Grumman, up 65% since April, and having an excellent week no matter what the rest of the market did.”

Lynn Carpenter

The Rise and Fall of Big Tech… Plus, 5 Tech Stock Time Bombs You May Own – and Not Even Know It

Unfortunately, “Many investors, and many mutual funds,” says a NYTimes article titled The Rise and Fall of Tech Stocks, “entered this year with their largest investment in some of the stocks that have done the worst.”

For example, “Janus Capital, the mutual fund company, made headlines in January when it bought an entire secondary offering of Healtheon WebMD, since renamed webMD, paying $62 a shares. Yesterday, with the stock under $10 a share, Janus disclosed that it had sold most of the shares.”

For some, this week has been horrifying. Even with yesterday’s big gains, the Nasdaq has lost almost a 1/4 of its value in less than two months… down over 8.5% the week before last, another 3.6% Wednesday alone. As we reported, Oracle’s Larry Ellison lost $1.2 billion in one day…

In a report called “Beyond the Internet” we released in late August we warned readers to immediately sell MSFT, ORCL, CSCO, INTC, and SUNW.

Since Labor day those stocks are down a combined 137%.

MSFT down 20%, SUNW down 18%,

ORCL down 30%, INTC down 47%

and CSCO down 22%.

But that’s just the beginning. Long-time readers of the Daily Reckoning are familiar with our position. Some of these companies are good companies – but not at these prices. They’ve got a long way to go… down.

The problem is, when a mega-fund like the Vanguard Institutional Index is 96% invested in stocks – with more than a third of those holdings in tech stocks – how can you be sure your pension or mutual fund isn’t at risk?

If you missed “Beyond the Internet” when I sent it to you on Wednesday… well, that’s what the Weekend Edition is all about.

Take a moment. Review today’s five most dangerous tech stocks, and if they’re in your portfolio – sell. With yesterday’s Nasdaq rebound you may have time to get out at a good price.

Your report “Beyond the Internet” also reveals some great buying opportunities: 7 select “brick and mortar” companies that we believe will prosper on the far side of the Big Tech bubble – including Robert Half International, which Lynn mentioned above.

These are the companies that operate on time-tested business models. They provide the goods and services needed during both good times and bad. And they go up… even while the Nasdaq burns! So, take a look… enjoy the read…and…

Have a great weekend,

Addison Wiggin October 14-15, 2000