Captain's Log: Reflections from the Beach
By James J Puplava CFP, August 7, 2002
This morning's breeze came up early. It is going to be another day of relaxation and good conversation. Instead of my son who races sail boats, I've brought a retired friend. The boat won't have to be sailed on steroids. I'm over 50 and my friend is over 70, so we just decided to take it easy and enjoy the day. As I left the docks, the markets had gone from a 150 point opening gain to a 50-point loss -- a move of 200 points in the first hour and a half of trading. Mid-day I checked prices from my cell phone. The Dow was down over 60 points. I knew it would either be another nail biter or it was going to be one of those familiar miraculous last hour turnarounds.
After a great day on the waters, I wasn't surprised by what I saw when I came back. It turned out to be another miracle turn around -- a pattern that is becoming more familiar to investors. It's as if there is an ambulance that comes to the rescue and brings the markets back from the brink. Bungee jumping is what investors have had to get use to in these markets this last year. The sudden plunges and the miraculous one-day wonders are eating away at investor confidence. The markets are becoming more volatile and unstable, resembling gyrating pinballs. Nothing is long lasting. There aren't any new buyers. In fact it looks like watching mutual fund flows. Investors are starting to use these one-day wonders to sell shares rather then buy as in times past, John Q may be changing his tactics from "buy the dips" to "sell the rallies." The volume on the rally days has been declining, which indicates to me there is no conviction behind these moves.
The media is calling it "a bottom," which is one more reason that it won't be. The financial media were slow to call a recession or the first 65% decline in the Nasdaq as nothing more than a correction. So it is doubtful that we are anywhere near a bottom. There is still too much complacency out there. When they start forswearing ever owning stocks, we'll be getting close.
Financial Survivor Show
Speaking of the media, it must be a sign of the times, but it appears that with markets falling, ratings dropping and viewers fleeing, times are getting desperate for financial shows. Lou Dobbs has taken to airing part of his broadcast from the 63rd floor of the Prescott Securities Tower. The anchor has had to hold on tight in delivering his monologue as winds and the heights keep him focused on the cameras to avoid the streets below. Maria Bartiromo recently did a segment featuring a hangman's noose in the background. What's next? Maybe we'll see financial anchors reporting from a deserted island. Part of CNBC has already been cut off here locally. The show ends its coverage one hour after the market closes. Already I've noticed, in a subtle way, the financial cable shows may be slowly morphing into sports channels. We have segments with Joe Kiernan going through a workout. Bill Griffith is now doing golf tournaments. I wouldn't be surprised if we see segments with Maria going through her aerobic workouts in the not too distant future.
The Markets Had It Right
The standard mantra for the last three years is that there will be a second half recovery. In fact, the financial media and Wall Street seemed irritated that there was this big disconnect between the stock market and the newly emerged booming economy. Anchors and analysts couldn't figure out why the stock market wasn't responding to what was then perceived to be robust economic numbers. It turned out that the markets had it right all along. The economy wasn't strong, nor was it booming. It turned out that the recession, which began during the first quarter of the Bush Presidency, was much deeper than originally reported now that we have more realistic numbers for 1999-2001. Having peaked in Q4 of 1999, it was all downhill from there. So the market, it seems, was much smarter than it was given credit. It knew the truth all along. That is why it fell. There wasn't any disconnect. The disconnect was between Wall Street and the media, who it urns out, were disconnected from reality.
Watch now as the Street and the financial media backtrack from the second half recovery scenario. CIBC has already lowered their year-end targets for the markets. Others will follow along with earnings downgrades. There will be no miracle third and fourth quarter. Now Wall Street is screaming for more money from the FED and lower interest rates. They will probably get both. M-3 has jumped by over $20 billion in the latest week. The money supply is now back to growing at an 10% annual rate. We are slowly morphing from a second half recovery to a second half bailout scenario. What happens when the Fed has nowhere else to go? What's next, interest free loans?
Keep Them Bailouts Coming
IMF just gave Brazil another $30 billion. This brings the total IMF loan package to Brazil up to $63 billion since 1998. Uruguay is getting $1.5 billion from the US. Is Mexico next? More importantly, who is going to bail out the US with total debt now over $32 trillion?
Music just ran out and Mary wants to watch Lord of the Rings. This movie brings me back to my youth. Tolkien was big when I was in high school. Am I giving away my age? Not big into sci fi, but this is an exception. Tomorrow is boat cleaning day and a walk on the beach.
Goodnight for now.
Reporting from the beach,
© 2002 James Puplava