13 Apr 2001
Long ED, that is it. Do not be deceived into believing that the worst is
over. No, it is not over. The market will plunge again. Just be patient.
The economy has not changed much, the fact is that it is getting worse.
Only the sentiment has improved but that is just temporal.
There is no change in my assessment, that is, the trend for ED is still up.
The fundamentals remain weak and it is high chance that US will experience
its first recession in many years. It has to!
Though the market sentiment has changed for the better. Mainly due to
investors' fear of losing out in not owning stocks. But, do you think this
is rational behaviour? Do you think this will change the market for the
better? No, no, the one which changes the market is actually the profit and
loss!. It is the technology and productivity plus one more thing, the LADY
luck that matches them!
Are they there now? I doubt so. If they are there , then the market should
look up. But I think they are still far off....
Still, the same, long ED!!!
Washington, April 16 (Bloomberg) -- One of the most critical uncertainties
about the U.S. economy is how much consumers will pull in their horns.
Until now, they've been keeping the economy afloat. If they suddenly
retrench, a recession may be inevitable.
So far, they've been defying all the odds -- and the forecasts. Stock
prices plunged during the first quarter of this year, and company job-cut
announcements proliferated, yet consumer spending rose, probably at a 3.5
percent annual rate.
``There's a mixed message out there,'' said Edward Sarpolus of EPIC/MRA, a
Michigan polling firm. Even in Rust Belt states, he said, ``the public's
not ready to jump off the 100-story building. They're not ready to say
there's a recession.''
Now, two new factors have entered the mix that economists say could well
test that assessment -- and decide how deep the slump is likely to be.
First, the economy has actually begun losing jobs. Second, household wealth
has fallen dramatically.
The change in the job picture could have the most visible impact. While
so-called layoff announcements have been legion in recent months, they
haven't hit home to consumers. Many jobs are eliminated by attrition. Some
job cuts never actually happen.
This time it's different, because the statistics represent genuine job
losses. The economy lost 86,000 jobs in March. The number of workers filing
new claims for jobless benefits has been rising rapidly each week. It's now
49.6 percent above a year ago.
Consumer Wealth Plunges
That means that the unemployment rate -- now 4.3 percent of the workforce,
up from 4.2 percent a month ago -- is likely to start rising more rapidly,
economists say, heightening anxiety about the economic outlook, and
prompting consumers to hold back.
``This could be deadly, because when you start seeing actual drops in
employment, people get really scared that they could be next,'' said David
Wyss, chief economist for Standard and Poor's in New York. ``This could
turn into a real recession.''
The plunge in net household wealth also is worrisome. For months,
economists have been debating the likely impact of the ``wealth effect.''
If the bull market was such a major factor in fueling the boom, will the
bear market spawn a recession?
Wealth-effect theorists warned that such a ``reverse wealth effect'' would
have a major impact on consumer spending. Plunging stock prices will make
everyone feel poorer, they contend. So many Americans own stock now that
the effect could be enormous.
Until now, however, the evidence has been difficult to find - - in part
because real estate values have continued rising, giving consumers a ready
source of capital by refinancing their home mortgages. Borrowing and
credit-card use also shot up.
Last quarter, however, real net consumer wealth dove to a level some 11
percent below that of a year ago -- the biggest deterioration since the
oil-shock recession of 1973-1975 -- says Ian Morris, chief U.S. economist
for HSBC bank in New York.
Scary Drop
``When household assets decline, consumers cut back on the growth of their
liabilities,'' Morris said. ``Most are mortgages, which is then likely to
hurt housing -- the last pillar of strength'' in the economy. ``It's a
pretty scary drop.''
To be sure, there's still enough uncertainty for the pessimists to end up
mistaken. If the economy picks up soon -- as Federal Reserve officials
currently are predicting -- the mood among consumers could brighten quickly.
Fears about the ``reverse wealth effect'' also may prove overdone, says
James A. Bianco, head of Bianco Research LLP in Barrington, Ill. He has a
different view: The reverse wealth effect is real, but it's run its course.
The danger is over.
No Further Market Slides
As Bianco figures it, while the stock-market slide of the past year has
been horrific, the bulk of it has been in stocks of computer-related and
telecommunications companies. Some 277 of the Standard and Poor's 500
stocks are higher than a year ago.
Bianco concedes that since the computer-related stocks caused the wealth
effect in the first place, the movement of the Nasdaq Composite Index over
the past 13 months should have almost as big an impact on the way down.
He's betting, however, that because Nasdaq stocks already have fallen so
far, the danger has passed. The market slide hasn't prompted consumers to
cut back so far, and isn't apt to from now on because it's unlikely to go
any further.
Stock prices of companies in other, more traditional industries are holding
their own, he says, and Nasdaq investors aren't likely to sell a
once-high-priced stock that currently is worth only $10 because, they
figure, it can only go up.
``The whole (Nasdaq) sector has become a giant lottery ticket,'' he said.
Neither the job picture nor the wealth-effect issue is simple, of course.
If the economy stabilizes, employers may decide to hang on to their workers
a little longer, on grounds that the labor market still is tight and help
is hard to find.
Consumer sentiment fell during February, only to rebound in March without
affecting consumer spending. Last Thursday, the University of Michigan's
index of consumer sentiment showed that Americans are becoming more
pessimistic about the coming months.
``This is where the rubber meets the road'' in determining where the
economy goes from now on, said S&P's Wyss. ``Until now, there have been
signs of a slowdown, not a recession. Now, it's begun really hitting
people.''
Do u think it is over? Do u think it is a bull market now? Can it be so fast? Think not, it is a long recession. They have underestimated the severity of the domino effect. It is not just the US, but Japan, Europe and across Asia. It is a worldwide recession. Cutting jobs will help the coys lose less money but not return to profitability right away, they need strong wealth to return to previous profitability. The next wave will be the property markets worldwide, it will be hit very badly and u know, the banks which lend money based on properties will be shaken too.
For ED,just long on dips, no mistake about it, do it patiently, long at the safe entry point . Wait till the 9650 is broken.
The bad and deteriorating fundamentals are there, they won't disappear overnight, when the investor realize this, they will run, run with ther profits. And the market will be hit with another hard knock. Yes, it is possible Nasdaq go below 1000 in the worst of times. Long ED more!!!!
They said it will pick up in the last quarter, but u must know, who said it, the prophets (analyst)? How accurate are they? They are just one of those analysts. U believe them?
In other words, it is very ok to long more ED, don't worry about it. Lomg more.
Review on 19 Apr 2001
ED has swung either way in a roller coaster manner. I rushed out due to heavy positions at the high side, the lesson learnt is that, don't commit so much particularly when averaging down. The funds can really play a big role in moving the markets despite unconfirmed news like thinking that Feds won't act and transferring monies to chase stocks. Now, Feds has lowered rate by 50 points and ED rose sharply. If history repeats itself, Feds wll definitely lower another 50 point on 15 May.
We should see ED above 9600 soon.
Feds seldom does so between meetings, there is only one explanation, Feds has panicked by the plunge of economy indicators. Despite the rise of Dows, S&P and Nasdaq.
What's next? The next seems to be the plunge of DOWS. I feel that Dows will plunge again. The economy is actually worse than most expect. Many conditions point to that, the consumers and the export market are very bad.
What then should be my strategy? Short Dow or put options? Or both? Or just stay at the sideline and watch.
You are visitor no :