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| Friday Sep 01, 2006
Super Unleaded Iced TeaTaipan Group's Dynamic Market AlertBy J. Christoph Amberger-- Super Unleaded Iced Tea ---------------------------- Polar Bears, Caribou, and a 358% Winner by December 15!
-------------------------- Super Unleaded Iced Teaby J. Christoph Amberger It’s unheard of. Fantastic. Out of this world. Today, I pulled into a gas station selling high-octane gasoline for $2.95 a gallon. I haven’t bought gas this cheap in over a year! U.S. gasoline prices now average $2.80 a gallon, and analysts expect them to drop another 15 to 20 cents throughout September. According to gasoline buyers, average prices of $2.50 to $2.60 are possible by December. Since I’m the son of parents who grew up during the schlechte Zeit -- the “bad times” of World War II and the Soviet occupation -- my genetic predisposition to hoard registered intact as well. Instantly, I was tempted to empty out my iced tea to fill the bottle with cheap gas. Luckily, I couldn’t get myself to pour out perfectly good tea. -- Apart from cheap gas, I wonder what I should marvel about most these days: the low trading volume on the markets or the fact that, despite it all, the Dow is still (or again) in 11,400 territory. As Ernesto’s soggy leftovers are promising to wash out the summer of 2006 in the Baltimore area, I can’t help but wonder what will be happen when traders and investors have to face the music of the normal school year again. Our favorite Elliott Wave oracle, Harry S. Dent Jr., sees another big dip ahead. In his September newsletter (out today), he writes: “There is the potential for substantial downside risk in many sectors, as the Dow is likely to retest 10,650 and could retest 10,000. We should see the strongest buy signal since October 2002 and March 2003 between mid-October and the end of the year -- but until then, our signal in early August to get more defensive still looks like the best strategy (...) “Any minor movements to the upside near term should be used to get more defensive, as the Nasdaq has already hit our first resistance level at 2,190. We will be looking carefully for the best buy opportunities in the months ahead. (...) We expect this correction to be over by late December 2006 or early January 2007 at the latest, and we still expect a 40% to 50% rally in the Dow to targets between 14,000 and 15,000 by late 2007 or early 2008 as the Fed lowers rates by at least 50 basis points.”
Softening Signalsby Steven Lord This morning, those of us who watch such things were treated to a relative rarity in the world of economics: In a rare feat of prescience, economists managed to correctly estimate the number of new jobs created last month. This is significant, not only for what it means to the economy (and by extension, Fed interest rate policy), but also because it is so exceedingly rare that the economists get it right. The most important glimpse into the economy today was the Labor Department’s report on August job creation, which indicated a solid 128,000 increase for the month. An average of economists’ estimates figured the result would be in the 130,000 range, which in the realm of economic predictions is as good as a bull’s-eye. CNBC has blathered on and on today about the labor numbers meeting consensus, but it is honestly hard to tell if they are excited because the numbers were good, or flat-out amazed the economists got so close. I think the old saying should be revised to read “It was as close as hand grenades, horseshoes and economic estimates”... The nation’s unemployment rate dropped as well, reaching 4.7%, while job gains for June and July were revised upwards to 134,000 and 121,000, respectively. And best of all, wages rose by only 0.1% when many economists had feared something on the order of 0.3%. Taken as a whole, these are the same kind of not-too-hot, not-too-cool numbers the economy enjoyed back in 2003. It was the period that spawned the “goldilocks” moniker and significantly boosted Alan Greenspan’s standing. More importantly, it signals that a proverbial soft landing may now be an actual possibility. Granted, the Fed doesn’t have a great track record when it comes to soft landings. In fact, it has never really engineered one, although in more than a few cases we thought it had -- only to see the data revised later on. And with Bernanke at the helm, untested and an admitted inflation dove, concern that the economy would be barreling ahead was never as high as whether it was going to stop. From all of his writings and speeches, it is clear Bernanke would rather tolerate a little inflation if it means avoiding a recession. And at least for now, the low wage growth indicates inflation is still contained, while continued pressure on housing, consumer spending and manufacturing should result in lessening inflation pressures down the road. As usual, the bond markets have been ahead of the game. Ten-year treasuries have been falling in yield, bringing interest rates back below 4.7%, and Fed fund’s futures now estimate less than a 15% chance of the Fed hiking again at their next two meetings. This is really significant, since at the start of the summer those same futures were literally certain the Fed was going to hike again. Note, too, that mortgage rates have actually declined over the past several weeks, following 10-years downwards. We’re now 40 basis points below the mid-summer 6.8% peak for a 30-year fixed loan. The extent this will provide a cushion under the housing market remains to be seen, but at least the financing side is going in the right direction. Now the question has turned to when the Fed will cut -- something we started discussing around here several weeks ago. And I don’t think the Fed will be easing because the sand under the castle is giving way. Instead, I think it will be simply because the return of a “goldilocks” economy will allow Mr. Bernanke to relax a little for the first time since taking the helm. The bottom line: The Fed is done until at least early winter, and depending on how energy develops, consumer spending holds up and how much housing retracts over the next six months, Bernanke’s next move may very well be downward. The equity market has already started discounting this scenario, very quietly moving up during August. I’ll repeat what was written here several weeks ago: I think chances are better than even that this fall will see a good-sized move upward in the stock market, concentrated largely in large-cap, defensive and strategically sound names. -------------------------- Corporation IB MEI SA, D’ieteren, Electrabel, Espanola Del Zinc SA, Metrovacesa SA, Papeles & Cartones Europa SA, Vidrala SA, Vimpel Communications are releasing earnings. Brought to you by your FREE American Capitalist Sign up here.
Keep an eye on Tim Hortons Inc. and Himax Technologies for significant sell-offs. You may want to short shares or buy puts on these two positions. Brought to you by Extreme Volatility Speculator
Quote of the Day “At the extreme ends of the real estate scale, areas with high employment and high median incomes will do better than places with low employment and low median incomes. There’s nothing surprising about it, and it’s pretty much always been like that.” - Business Week, Sept. 11, 2006
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