Fed FOMC: at least one more hike (if not more) likely

The Fed FOMC hiked to 4.50% and said the following:

The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.

The phrase "some further policy firming may be needed" tells us that a hike in March is likely (unless the economy falls apart).

Recent comments from Fed officials have indicated that there is still enough lingering anxiety about inflationary pressures, that the Fed is likely to seek more insurance (hikes) against any resurgence of inflation.

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Please read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky

New Book: Ahead of the Curve by Joseph Ellis

Joseph H. Ellis, who was a partner of Goldman Sachs and was ranked for eighteen consecutive years by Institutional Investor magazine as Wall Street’s #1 retail-industry analyst, has written a new book entitled Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycles:

The book description starts out like this:

How to Read the Signs of Economic Change-Before They Impact Your Business and Investments

Economic and stock-market cycles affect companies in every industry. Unfortunately, a confusing array of anecdotal and conflicting indicators often renders it impossible for managers and investors to see where the economy is heading in time to take corrective action.

Now, a thirty-five-year Wall Street veteran unveils a new forecasting method that will help managers and investors understand and predict the economic cycles that control their businesses and financial fates. In Ahead of the Curve, Joseph H. Ellis argues that the problem with current forecasting models lies not in the data, but rather in the lack of a clear framework for putting the data in context and reading it correctly. The book explains critical economic indicators in nontechnical language, identifies and documents the recurring cause-and-effect relationships that consistently predict turning points in the economy, and provides the tools managers and investors need to position themselves ahead of cyclical upturns and downturns.

Economic events are not as random and unpredictable as they seem. This book will help readers recognize and react to signs of change that their rivals don't see-and win a sizeable competitive advantage.

Click here to read more.

Actually, that description comes from the Barnes & Noble web site; the description on Amazon was messed up for some reason.

I'm not offering a recommendation on his book, yet, but I will leaf through it when it appears in my local book store.

BTW, I do get a tiny commission if you buy the book after clicking on my link to Amazon.

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Please read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky

Problems with Wall Street, Gary Weiss' new book and blog

Gary Weiss, a former writer at BusinessWeek has a new book coming out (Wall Street Versus America : The Rampant Greed and Dishonesty That Imperil Your Investments) and has a blog to promote it. He has a post entitled "BW BLUES", to which I wrote the following comments:

Gary, what on earth does this nostalgic rant about BW have to do with your book or Wall Street?

I mean, if BW didn't do hard-ball investigative stories on Wall Street back when they were fully staffed, why would anybody have any expectation that they would do any better or worse at half-staff or back up to full staff, or with less or more ads running in the book?

P.S., usually I don't make "anonymous" comments, but in your case it fits in with the conspiracy-theory attitude that you're promoting and cultivating (and craving?) with this blog.

P.P.S, I'm opposed to naked shorting, but simply because I'm opposed to so-called "legal" shorting as well. It's about basic fairness (equity, the social kind). Yes, Wall Street is a mess, but why not lobby for cleaning up the mess rather than this "line your own pockets rather than try to get the problems fixed" approach that you seem to *prefer*?

signed, "Anonymous" - another COWARD

He's moderating comments, so we'll see if he accepts and publishes mine.

Here's his book:

The Amazon listing bills the book as "A shocking appraisal that shows how Wall Street is intrinsically corrupt—and what individual investors can do to protect themselves". Their description starts out like this:

For several years high-profile corporate wrongdoers have been vilified by the media. Yet the problem, according to Gary Weiss, is not just a few isolated instances of malfeasance. The problem is in the very fabric of Wall Street and its practices that enable and even encourage corruption—practices that are so pervasive and so difficult to combat that they are in effect perfect crimes, with the small investor left holding the bag.

In this blistering report from the front, Weiss describes how the ethos of Mafia chophouses, boiler rooms, and penny stock peddlers now permeates all of Wall Street. Protected from investor lawsuits by laughably corrupt arbitration systems, Wall Street firms are free to fleece unsuspecting clients with little or no risk. But as this empowering book shows, ordinary investors can fight back and come out on top—if they learn to recognize warning signs, filter media chatter, and spot looming corporate meltdowns in advance.

Prepare to be surprised, get angry, and then get even. Wall Street Versus America is a wild ride you can’t afford to miss.

Click here to read more.

I'm not offering a recommendation on his book, yet, but I will leaf through it when it appears in my local book store.

My concern about the book is simple: What's new? What shocking revelations about Wall Street don't I already know? In my view, Wall Street exists for one purpose: to take as much money as possible from our pockets and put it in their own pockets. The SEC? I believe that the SEC should be renamed the Securities and Exchange Industry Protection Administration, privatized, and then prosecuted for racketeering and protecting Wall Street. So, how much is this book going to help me?

BTW, I do get a tiny commission if you buy the book after clicking on my link to Amazon.

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Please read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky

Memo to Silver Lake Partners: Please take Sun Microsystems private and restructure them

Memo to Silver Lake Partners:

 Guys, please take Sun Microsystems (SUNW) private, restructure them and then sell the "dressed" carcass to IBM (IBM) or HP (HPQ).

Why wait? Yeah, maybe their stock might drift lower, but time is money.

So, just do it.

Thank you.

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Please read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky

How will the Fed FOMC actually tell us that they're "done"?

A major unresolved issue with Fed FOMC communications is whether the Fed FOMC will explicitly state in its announcement that its action at a meeting does in fact end its rate-hike campaign. A related issue is whether the Fed FOMC will explicitly state in its announcement that its action at the next meeting will likely be the pause point (i.e., a warning of the pause a meeting before it happens).

The closest I can come to clarity on this is to note that since the Fed has now consistently said that its future actions will depend heavily on the economic data, the Fed may in fact give no warning in their announcement whether a given action was the end of the campaign or even whether the next meeting is likely to be the end. If that's the case, the only way people will know that the campaign is over is when an FOMC meeting passes without action, or if the Fed official comments between meetings seem to suggest a Fed feeling that "interest rates are about right", "further action isn't likely to be required", or similarly vague sentiments.

Since the Fed has not been clear on these two communications issues, the markets will be quite volatile as market participants jockey for interpretations of the Fed's actual announcement phrasing.

I'd also note that no market commentators have made clear their expectations on these two issues either. So much for transparency.

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Please read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky

Venture capital investment statistics for Q4 2005

The VentureOne/Ernst & Young LLP Quarterly Venture Capital Report for Q4 registered a sharp decline (-9.9% vs. -1.42% last quarter) in the amount of money invested from Q3, but a very sharp rise (+14.0% vs. +16.40% last quarter) from Q4 a year ago in equity investment in U.S.-based companies who have received at least one round of venture funding from a surveyed professional venture capital firm.

This was a mixed report.

Venture investment for 2005 was +2.2% higher than the previous year. The total dollars invested in 2005 amounted to $22.1 billion, the highest amount since 2001 ($36.2 billion), and higher than 1998 ($17.9 billion). Unfortunately, 2005 was only slightly higher than 2002 ($22.0 billion) and it will probably take at least a couple of years to exceed the 2001 level.

Please note that these numbers don't include either "angel" investments or "buyouts". The latter dwarfs venture investment and had its best year ever in 2005.

Information technology (IT) continues to get the lion share of investment (51%) compared to distant second healthcare (36%). There was a very sharp decline (-16.7%) in the amount invested in information technology companies since last quarter, and a sharp decline (-10.9%) compared to a year ago.  Computer software continues to be the largest sub-sector, with 23.1% of the money invested in Q4 and 42.7% of the IT money invested in Q4, and fell -5.6% from Q3 and fell -11.7% from a year ago.

The bottom line is that a healthy amount of money is being invested in new ventures, but it's not what could be called a real "boom".

Later stage deals received 49% of the money and first stage deals received only 22% of the money.

The ten largest deals were:

• Health Dialog ($171 million), provider of care management services, including disease management
• ORBCOMM ($110 million), provider of wireless telecommunications services
• Cornice ($75 million), provider of compact, high-capacity storage for pocket-able consumer electronic devices
• Perlegen Sciences ($50 million), developer of novel potential drug targets and markers which predict drug response using a method for rapidly analyzing and comparing entire genomes
• Raven Biotechnologies ($48.3 million), developer of monoclonal antibodies (MAb) therapeutics for treating cancer
• Portola Pharmaceuticals ($46 million), developer of therapeutics for the prevention and treatment of cardiovascular disease
• Small Bone Innovations ($42.2 million), provider of orthopedic products and technologies to treat trauma and diseases in small bones and joints
• Nanosys ($41.5 million), developer of nanotechnology-enabled systems based on a platform technology incorporating high performance and highly integrated inorganic semiconductor nanostructures
• Barracuda Networks ($40 million), provider of enterprise-class spam and spyware firewall solutions for comprehensive email protection
• SavaJe Technologies ($40 million), developer of Java-based operating system for wireless devices, with an emphasis on mobile phones.

 Note the dearth of software companies on that list, since the actual amount needed to fund a software business (especially in the first round) is frequently relatively small.

The top ten states for amount invested were:

• California at 45.32% of the total amount invested
• Massachusetts at 14.74%
• Texas at 4.05%
• New York at 3.36%
• Virginia at 3.28%
• Maryland at 3.25%
• Washington at 2.79%
• Colorado at 2.63%
• Georgia at 2.24%
• New Jersey at 2.00%.

The survey data was obtained from professional venture capital firms that have invested in U.S.-based early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors.

Please note that there are companies receiving investments who are operating in so-called stealth mode, and don't show up in publicly-available statistics, but it is believed that such investments represent a small fraction of the total investments.

-- Jack Krupansky

Saturday stock market commentary is now available

I was out on Friday afternoon and evening and all day Saturday, but I was able to get Saturday's column finished and posted. It also includes some data that I normally get on Saturday anyway.

You can also read our Stock Market Outlook for 2006.

-- Jack Krupansky

Great day for rumors

It's been quite a while since I've seen so many rumors flooding the market. None of them are worth repeating, and quite a few would be absolutely amusing if I didn't know that so many people take this kind of crap so seriously.

At least it keeps the reporters busy. No sooner do they take down one rumor and verify that it can't be substantiated, when yet another rumor rises up to take its place.

So, what's it all about? Simple: A truly outrageous, bald attempt to manipulate the market. Lacking significant, hard, vertifiable news, the "volatility crowd" resorts to outright rumors.

Sure, you can blame the market decline on high oil prices, but they're not that much higher than a week or a month ago. And since most of the gains are due to outright speculation rather than real, underlying supply and demand by actual users, the "bump" will evaporate soon enough.

The message to true investors remains the same: Chill out. Stay the course.

You can also read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky

Econ-data: AAA Daily Fuel Gauge Report registered a moderately sharp rise of +0.9 cents

The AAA Daily Fuel Gauge Report registered a moderately sharp rise of +0.9 cents since Wednesday (from $2.318 to $2.327) in the retail price of a gallon of unleaded gasoline, a rise after six days without a rise after sixteen consecutive daily rises after nine days without a rise after thirteen consecutive daily rises. This was a negative report. Regular unleaded gasoline is now +11.9 cents above the level of a month ago, +27.4 cents above its May 2004 peak of $2.054, and -73.0 cents below its September 2005 peak of $3.057.

Using the rule of thumb that retail prices will tend to converge about 60 to 65 cents above the front-month NYMEX futures price (the so-called "wholesale price"), we could see $2.42 to $2.47 (using intra-day futures prices as of 11:39 a.m. MST) regular unleaded within a couple of weeks if the wholesale price were to remain steady. Retail prices could rise by +10 to +16 cents in the coming weeks. All of that is subject to dramatic change on a daily basis.

Out here in Boulder, Colorado, prices remain stable in a range of $2.21 to $2.29.

You can also read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky

Econ-data: ECRI Weekly Leading Index registered a moderately sharp rise

The ECRI Weekly Leading Index registered a moderately sharp rise (+0.8 to 137.7 vs. +0.9 last week), and the six-month smoothed growth rate rose moderately sharply (+0.8% vs. +0.4% last week) and remains modestly above neutral (+2.9%). This was a positive report, but continues to suggest that the economy is "fluttering", undecided about whether to weaken or reaccelerate. I would expect the ongoing recovery to continue to limp along in the coming months (and years). The six-month smoothed monthly WLI growth rate actually declined modestly from +1.5% to +1.3%. We are still in a relative "soft patch", at least in the sense that the growth rate of the economy is not accelerating at a significant pace.

Not everybody recognizes it, but we are still in the recovery phase of an extended business cycle, and it will take another couple of years before the economy is back up to to its true cruising speed.

You can also read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky

Econ-data: University of Michigan Consumer Sentiment report registered a moderate rise

The preliminary University of Michigan Consumer Sentiment report for January registered a moderate rise from the final December reading, from 91.5 to 93.4. This was a positive report, but there does tend to be a lot of volatility. Please note that despite the chatter there is no significant correlation between consumer confidence readings and future consumer spending.

You can also read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky

Fed Beige Book

The latest Fed Beige book came out at 2:00 p.m. Eastern Time. It procvides the bulk of the anecdotal information about the U.S. economy down to the regional level that will be used by the FOMC members when they discuss the economy and monetary policy at the end of the month.

The Fed Beige Book reported that "Economic expansion continued across the twelve Federal Reserve Districts through the last several weeks of 2005."

This was a positive report.

Notes include:

• "Most Districts reported moderate increases in employment"
• "on the whole, wage increases were characterized as moderate"
• "input-price pressures have continued for many items ... but they were less intense at year-end than earlier"
• "Retail prices and producers' prices for more finished goods, however, were widely reported as rising only moderately or remaining stable"
• "Retail sales rose in most Districts"
• "Increases in manufacturing activity were widely reported"
• "Most Districts indicated some cooling in residential real estate activity, while many noted that commercial real estate activity generally continued to improve"
• "Consumer borrowing was flat or fell in most Districts, while commercial borrowing was more mixed, with many Districts reporting moderate increases in activity"
• "Several Districts (San Francisco, Kansas City, Chicago, Richmond, Cleveland, Philadelphia, and Boston) reported that increases in energy prices moderated, or actually fell, albeit from high levels. In the San Francisco, Cleveland, and Richmond Districts, these developments were thought to be associated with a wider easing in overall price pressures. However, in the remaining nine Districts, nonlabor-input-cost increases continued to concern companies, particularly those in the manufacturing sector"
• "Producers were reported to have attempted to recoup these costs, although, according to the Atlanta, Boston, San Francisco, and Dallas Districts, intense competition was thought to be holding down price increases in parts of the supply chain further 'downstream.'"
• "Increases in the prices of construction materials were widely reported"
• "Retail prices were generally regarded as stable, though there was some significant discounting reported in the Cleveland and Atlanta Districts during the holiday selling season. More moderate discounting was reported in the Dallas District, levels about the same as last year were reported in the San Francisco District, and no widespread discounting was reported in the Philadelphia District"
• "Price increases are planned in the months ahead by a large share of retailers, according to the Kansas City District"
• "Most Districts reported signs of continued, if generally moderate, increases in employment"
• Some tightness of labor markets was reported.
• "All Districts reported that their retail sales rose during this latest holiday selling season except Cleveland, where sales were generally flat or less than at this time a year ago. Philadelphia, Chicago, St. Louis, Minneapolis, and Kansas City reported modest to moderate increases. Boston, New York, Richmond, Atlanta, Dallas, and San Francisco reported stronger holiday sales than these Districts. The Cleveland, Richmond, Chicago, Minneapolis, and Dallas Districts noted significant increases in gift card sales, which led retailers in Richmond and Dallas to anticipate stronger sales and profits in early 2006"
• "Automobile sales were generally somewhat sluggish across the nation"
• "Philadelphia and Kansas City characterized truck and SUV sales as especially slow"
• "Production of high-technology goods was steady to slightly increasing toward the end of 2005, according to the San Francisco and Dallas Districts"
• "Conditions in the energy sector were characterized as strong or stable at a high level by four of the five Districts reporting on natural resources. As a result, San Francisco, Dallas, and Kansas City all reported shortages of labor, materials, and equipment among energy-related enterprises. Producers of natural gas and oil reportedly operated near 100 percent capacity in the San Francisco District, while the Atlanta and Dallas Districts reported that facilities in the Gulf of Mexico continued to recover from hurricane-related damage. Minneapolis reported that most mining operations in its District were running near capacity."

It sounds to me that the Fed is saying that the economy is doing fine, not headed for a recession or significant slowdown, and that there is enough lingering anxiety about inflationary pressures that the FOMC should not be in any rush to back off on their interest rate hiking campaign.

So, expect a hike this month, probably a hike in March, and then we'll remain in the same boat until we get to a Beige report that basically says that inflationary pressures have backed off significantly.

Regardless of what some misguided commentators have suggested, the Fed is still fighting inflationary pressures. It does not matter what headline inflation is, but what's going on in the economy that might (and likely will) lead to inflation.

You can also read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky

Speech by Fed Governor Susan Bies on Productivity and Economic Outlook

Fed Governor Susan Bies gave a speech on "Productivity and Economic Outlook" on Wednesday. Some of the first words out of her mouth were that "Real economic activity has continued to expand at a solid pace", which strongly suggests that the Fed is not seeing any slowdown that would cause them to back off from rate hikes.

She notes that consumer spending is "well maintained", construction of new homes is "near recent highs", and business investment in new equipment "expand at a good clip", and that "corporate financial conditions are favorable for investment", further suggesting that the Fed is not seeing any reasons to back off.

Although "core inflation has stayed relatively low in recent months", she notes that "tight resource utilization is likely to put pressure on prices." She notes that "resilient productivity growth appears to be helping contain the inflationary pressures that might otherwise be expected to accompany a narrowing margin of resource slack. That said, we at the Federal Reserve will remain vigilant for any sign of a deterioration in the inflation outlook."

She also talked a little about the role of technology and innovation on the conduct of monetary policy and its potential impact on inflation, saying "Because technology feeds into various macroeconomic aggregates--including household and business spending, productivity, and inflation--its implications for the U.S. economy will continue to necessitate careful observation, improved measurement, and study. Members of the Federal Reserve staff, both at the Board and at the Reserve Banks, have contributed significantly along all three of these dimensions by improving measures of high-tech prices and output and by studying the implications of technology on U.S. productivity. A significant slowing in the pace of technological change could have inflationary consequences. Accordingly, monetary policy makers will remain alert, carefully monitoring technological developments that have the potential to mitigate inflationary pressures as well as developments that could raise the risk of overheating."

Overall, this was basically a "we're almost there but there's still a little more work to do" (my words) kind of speech.

In other words, the Fed will hike this month, maybe in March, depending on the data, and who knows after that, again depending on the data.

You can read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky

Energy trading and speculation

An article in the NY Times on Sunday entitled "Energy Trading, Post-Enron" gives you a glimpse of the sheer magnitude and  frenzy associated with energy trading and speculation. Hedge funds are into it. Even big boring banks are into it. Big Wall Street  investment banks are big players as well. Obviously there is lots of money to be made here.

And where does all of that money come from? Does it come out of a bunch of holes in the ground? Does it come out of thin air? Nope. It comes directly out of the pockets of energy consumers, whether they be consumers buying retail gasoline, heating oil, and natural gas, electricity producers and consumers, airlines, transportation companies, chemical companies, and on and on. That's why there is so much money to be made in trading and speculating on energy and related commodities: it's like a zillion giant sunction hoses connected up to every wallet in America (and beyond), corporate and personal.

Will it never end and only get worse (or better if you're an energy trader)?

Well, the saving grace is that with the arrival of hedge funds and a true trader's mentality and prices that have been starting to cause people some pain to the point where they seek to cut their energy usage, the concept of "shorting" energy for short-term trades will grow in appeal. It's a simple fact that traders love trading ranges. No true trader worth his salt is willing to bet on a one-way market forever. Up and down and up and down, that's that true traders like to see. Each change in direction is a new opportunity for a profitable new trade. You're seeing this volatility now with natural gas prices.

A significant amount of the run-up in energy has been due to a combination of the arrival of new players (traders and speculators) and the arrival of a lot of misguided souls who have been led to believe that energy and commodities are a one-way, long-term, buy-and-hold investment. It's beginning to look an awful lot the stock boom in 1999 and early 2000.

It will be interesting to see how it all plays out over the coming months, with "investors" expecting commodities to only go up, and traders and hedge funds seeking to maximize volatility and transaction volume so that they can maximze profits regardless of the ultimate, long-term trend.

You can read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky

Tortured with anxiety about the stock market

Are you tortured with anxiety over where the stock market will head in 2006?

Consider this advice from analysts at JPMorgan:

Equity markets tend to perform best when investor anxiety is high.

You can also read our Stock Market Outlook for 2006.

Here's a Reuters article by Linda Stern entitled "Investing: Watch that space in 2006".

-- Jack Krupansky

Chicago Fed President Moskow on U.S. economic outlook -- keep on hiking

Chicago Federal Reserve Bank President Michael Moskow gave a speech Thursday night entitled "U.S. Economic Outlook". He said that "it will take appropriate monetary policy to keep inflation and inflation expectations contained. For me, this likely entails some further policy action. Whatever actions are taken, however, will depend on economic conditions." As far as where we are relative to a neutral range for the fed funds target interest rate, he said "we're currently in the bottom end of this range."

He also says that "Even if the funds rate were at neutral, further changes in policy might be appropriate. My view is that inflation will likely remain contained. Energy prices have come off their highs, and solid underlying trends in productivity should keep overall production costs in check. But, as I mentioned earlier, there are risks to the inflation outlook—namely, the potential for energy cost pass through, pressures from increases in resource utilization, or rising inflationary expectations. And with inflation near the upper end of my comfort zone, an unexpected increase in inflation would be a serious concern, while a decline in inflation would be beneficial. My views about policy will depend importantly on how various cost factors play out and affect the outlook for inflation. In addition, if inflation or inflation expectations were to rise persistently, then policy clearly would have to be tightened further. Of course, other events could transpire that result in prospects for inflation and growth that would be consistent with a less firm policy stance."

He adds that "given the reduction in the degree of monetary accommodation over the past 18 months, the policy firming that is likely to be appropriate over the near term is less certain now than it was earlier in the interest rate cycle. This increases the importance of economic conditionality in the policy decision."

He also uses the phrasing "As we move through 2006 and consider the appropriate stance for monetary policy", which doesn't seem to suggest that the Fed will do a "one and done" this month and then coast for the rest of the year.

All of this seems to suggest that he doesn't feel that the Fed will be done in a little over two weeks, and he'd like to see inflationary pressures come down a bit further, that it will take a while longer to decide that the Fed is done. For one thing, as far as the economic data he's like to see develop, very little of that will happen over the next two weeks, and possibly not even by the March FOMC meeting.

It simply doesn't sound like this guy is lobbying for January being the final hike.

-- Jack Krupansky

Meltdown in 2006? Or The Great Doom and Gloom Letdown of 2006

MarketWatch columnist Paul Farrell has a post entitled "Meltdown in 2006? Cast your vote!
The 'survivability of mankind' is at stake: are you ready?", which lists a host of possible "triggers" for a "meltdown" in 2006. Here is my response that I emailed to him:

I read your list of "triggers" carefully, and honestly, *none* of them is likely to trigger a full recession in 2006 or 2007 (my condolences to George Soros for his misguided forecast).

 

Although I don't think a recession or meltdown is likely, here's one trigger that *could* cause at least a hiccup: the neocon administration puts enough pressure on Iran over their alleged "nuclear ambitions" that Iran retaliates by instituting a "pause" in their oil exports, say for three months or six months or nine months for the nominal purpose of revamping oil production equipment or pipeline and port facilities, causing significant turmoil in the speculative crude oil futures market (remember the Goldman Sachs $105 "superspike"?) and enough of a disruption in world oil flows, AND the tone-deaf neocons lecture the markets that pursuing freedom and suppressing Iran's efforts to obtain nuclear weapons and their support of terrorists are far more important to "the cause of freedom" than some short-term economic disruption, causing a major economic distraction, that may or may not lead to a market crash or recession.

 

Note: although any military hostilities might initially have a negative impact, as soon as the U.S. is actually "kicking butt" (or actually, as soon as the U.S. *signals* that it will be "kicking butt"), the market will rally strongly.

 

Other than that, there is simply no threat on the horizon (2006, 2007) that would give you your much-desired meltdown. Come 2007, you'll have to apologize to your readers for "The Great Doom and Gloom Letdown of 2006".

 

-- Jack Krupansky

So, that's my forecast for 2006 and 2007: The Doom and Gloom crowd willl not get a Meltdown, but instead get a massive Letdown.

-- Jack Krupansky

Meltdown in 2006? Or The Great Doom and Gloom Letdown of 200

MarketWatch columnist Paul Farrell has a post entitled "Meltdown in 2006? Cast your vote! The 'survivability of mankind' is at stake: are you ready?", which lists a host of possible "triggers" for a "meltdown" in 2006. Here is my response that I emailed to him:

I read your list of "triggers" carefully, and honestly, *none* of them is likely to trigger a full recession in 2006 or 2007 (my condolences to George Soros for his misguided forecast).

Although I don't think a recession or meltdown is likely, here's one trigger that *could* cause at least a hiccup: the neocon administration puts enough pressure on Iran over their alleged "nuclear ambitions" that Iran retaliates by instituting a "pause" in their oil exports, say for three months or six months or nine months for the nominal purpose of revamping oil production equipment or pipeline and port facilities, causing significant turmoil in the speculative crude oil futures market (remember the Goldman Sachs $105 "superspike"?) and enough of a disruption in world oil flows, AND the tone-deaf neocons lecture the markets that pursuing freedom and suppressing Iran's efforts to obtain nuclear weapons and their support of terrorists are far more important to "the cause of freedom" than some
short-term economic disruption, causing a major economic distraction, that may or may not lead to a market crash or recession.

Note: although any military hostilities might initially have a negative impact, as soon as the U.S. is actually "kicking butt" (or actually, as soon as the U.S. *signals* that it will be "kicking butt"), the market will rally strongly.

Other than that, there is simply no threat on the horizon (2006, 2007) that would give you your much-desired meltdown. Come 2007, you'll have to apologize to your readers for "The Great Doom and Gloom Letdown of 2006".

-- Jack Krupansky

So, that's my forecast for 2006 and 2007: The Doom and Gloom crowd willl not get a Meltdown, but instead get a massive Letdown.

-- Jack Krupansky

Atlanta Fed President Jack Guynn speaking on the outlok for 2006

Atlanta Fed President Jack Guynn said on Monday in a speech entitled "Now Is the Time to Strengthen Our Economic Foundation" that

Given the steady diet of “measured” rate hikes the Fed has provided in the past year and a half, many of you may be wondering when enough is enough. Let me first respond by saying, the closer we get, the less explicit we can be on that point. One reason is that we don’t yet know the full economic effect of the policy moves we have already made. So in the months ahead, we’ll have to watch the data very carefully to make sure that growth is still on track and inflation expectations are well anchored.

and

...let me point to a phrase from our December meeting minutes, which were released last week. In those minutes, we said that in looking ahead “the number of additional firming steps required probably would not be large.” While our policy direction has been quite clear over the past 18 months, in the less certain period ahead it’s my personal opinion that as policy makers we should resist the temptation to say more than we know at any given time. And so I think it’s appropriate that our post-meeting statements have come with the caveat that “the Committee will respond to changes in economic prospects as needed.

(My emphasis)

Hmm... "months ahead", would seem to imply that this is not the final month of the rate hike campaign. And "period ahead" sounds like more than this month as well.

The important point is that he didn't suggest that the economy was about to experience a significant slowdown. Specifically, he said that

I think 2006 should bring us another year of solid expansion, with perhaps a slightly different mix of economic factors.

-- Jack Krupansky

Humorous investment outlook for 2006, response to BusinessWeek defense against "scathing critique"

Take a look at this scathing but humorous critique of the BusinessWeek 2006 Investment Outlook by Mark R. Mitchell of CRJDaily (Columbia Journalism Review). It's a great combination of journalism and investment "insight". No great stock tips, but that's okay and for the good of most readers. Just a sample:

... BusinessWeek singles out a few stocks and advises readers to invest in them because one analyst or another believes it's a good idea. Reporter Timothy Mullaney, for example, writes that Google might be a safe bet because Mark Mahaney says so. What we know about Mark Mahaney is that he works at Citigroup Smith Barney. He is also "influential."

Mullaney doesn't provide further information about this analyst, and why should he? The truth is, Mullaney is being modest, cloaking his own reporter-wisdom behind the quoted words of some faceless investment banker. There are surely other suits who told Mullaney that Google's stock will lose value, but he probably didn't even have to consult a balance sheet to know that those who presume to disparage the almighty Google deserve no hearing on the pages of BusinessWeek.

And also read Blogspotting's post by Stephen Baker's entitled "Scathing critique of investment coverage" as he opines that Mitchell isn't being quite fair. He says:

Maybe I'm a tad defensive, but I think the misdeeds we're being charged with are common to most journalism that dares to predict market behavior.

Aha! He's hit the nail on the head, albeit in an indirect manner. THE PROBLEM is that journalists are constantly trying to do something that they shouldn't be doing: predict market behavior. Stop doing the bad thing and CJR wouldn't have to complain about your doing it. Any questions?

Mr. Baker closes by asking:

... should journalists make calls, or simply provide the facts on both sides and leave it at that? 

Once again, he's hit the nail on the head, albeit a little indirectly. Who is the somebody who is misguidedly pressuring weak-willed journalists to "make calls" when common sense should be screaming at them to don't do it!? Is it their boss? Their peers? Who? Who is causing these weak-willed journalists to exercise bad judgement? Certainly not me. My clarion call to all journalists is to simply "Give me the facts, all of the facts!" By all means give me all sides of the issues or fence or table. They should even interview analysts and report all sides of the analysis of the facts. That's what I want and that's what I need. Readers can then decide for themselves which facts and which non-journalist analysis fits their own needs and then consult with non-journalist professionals for specific, professional advice, whether the topic is investment, technology, health, management, entertainment, or whatever.

Just to state that a little more simply, journalists can help readers best when they uncover facts or opinions that non-journalists simply don't have the time or access to ferret out. I applaud those efforts. Journalists can also do a tiny amount of editorializing, but only on the side. I'de love to read some editorials from Mr. Baker and his cohorts, but separately from their normal reporting of facts. Otherwise, journalists should endeavor to keep their opinions to themselves and do their best to not let their personal, subjective selves show through in their normal writing. Sure, a little color and personality is fine, provided it's not intended to masquerade as non-personal fact. Yes, journalists should do the occasional op-ed, give personal speeches now and then, and express your opinion when asked, or at least clearly marked as "Opinion", but keep the core, bread-and-butter "stories" as objective and informative (with collected facts) as possible. That's all I really wanted for Christmas (and didn't get).

-- Jack Krupansky

Update on PIMCO's January 2006 Investment Outlook -- and my comments

Okay, I glanced at it... Here's my initial reaction...

PIMCO's "Bond King" Bill Gross has just posted his latest January 2006 Investment Outlook (IO), entitled "A Gift That Should Keep on Giving." I need to read it again to try to pick up any nuances, but his basis message is that "yields have peaked in the bond market and will soon peak in Fed Funds producing an economic slowdown in 2006. If the Fed goes beyond 4½% and inverts the yield curve, the possibility of recession will increase."

My comments...

Mr. Gross makes some esoteric arguments, but it's not clear if they are all really necessarily the key factors driving finance, the economy, and the Fed at this time. He's not actually telling us where he thinks the Fed will stop. That sounds like he concedes that he doesn't have a clue.

After reviewing all available information, my forecast remains that the Fed will hike the fed funds target interest rate to 5.00% in May. No recession will follow.

I suspect that the Treasury yield curve will drift upwards in the coming months, but these days it's driven by short-term supply and demand and not hard-core fundamentals about short/long yield spreads. So, we could see some significant inversion for pieces of the yield curve, but not the full yield curve, as Treasury supply and demand ebb and flow, but any inversion won't be persistent enough to be the kind of reliable recession or slow-down indicator that Mr. Gross seems to be depending on.

And for icing on this cake, the issuance of new 30-year Treasury "long" bonds in February will totally mess up any short-term notion of meaningful significance of the Treasury yield curve. The 10-year T-note yield is going to be flopping around like a flag in a moderate breeze.

You do enjoy volatility, don't you?

-- Jack Krupansky

FLASH: PIMCO's January 2006 Investment Outlook is now available

This news just in... PIMCO's January 2006 Investment Outlook, "A Gift That Should Keep on Giving" by Bill Gross is now available on their web site.

I haven't even glanced at it myself, yet.

-- Jack Krupansky

Mark Cuban's investment advice for 2006

Take a look at Mark Cuban's "My Investment advice for 2006". The guy is rather wealthy and clearly knows how to make money. It's interesting that a couple of things he said at the end tracked some of my recent ramblings, such as cost-cutting and investing the savings  and investment in my own skills as likely having a bigger financial return for me in the near future than picking the next hot stock. His closing points:

So here is my investment advice for anyone who doesn’t have enough saved to walk away from their job and retire…

1. If interest rates stay where they are or go higher, look at 5 year or shorter maturity vehicles. It doesnt matter if its a bank CD, a money market fund, a tax free fund, treasuries or combinations there of. Bottom line is this, 4plus percent taxed, or up to 6 plus percent tax free equivalent (depending on your tax bracket), is not a bad way to go. If rates go down, do the same thing, evenif you earn a lower rate. At the end of the year, you are guaranteed to have more than you started with.

2. Evaluate your lifestyle. People forget that sometimes the best investment they can make is in wisely buying things they know they will use. If you track what you use and consume, whether its gas vs bus fare, buying bulk quantities or other discretionary spending, you can save more and earn a far greater return than you could in the stock market. If you can save 10pct per month on a hundred dollar per month budget, thats 120 bucks you can put in the bank. Thats the equivalent of earning 12 pct on a 1k dollar investment. If you can cut 100 bucks per month off 1k dollar monthly budget, thats like earning 12 pct on 10k dollars. Thats pretty darn good.  Spend smart, put your savings in risk averse, interest earning offerings.

3. Invest in yourself. Do the things that can get you closer to your goals and dreams. It wont come from a brokerage commercial. It will come from preparing yourself ,  working hard and standing apart from your competition. You Inc is the best stock you can ever buy…if you are willing to do the work.

Incidentally, here's our own Stock Market Outlook for 2006.

Oh, and my sincere apologies for Mr. Cuban's incorrigible refusal to use apostrophes. Sign. I wish I had a $Billion so I could get away with it too.

-- Jack Krupansky