first majestic silver

Perpetual Angst

June 28, 2002

Marauding media muckrakers . . set-the-stage for Tuesday's plunge, then more or less 'old' news (did anyone trust WorldCom for several years already?) let some sort of mini-capitulation engulf the market; more so in the overnight S&P Globex purge; a condition that prepared a gap-down opening on Wednesday. That's of course almost exactly how Tuesday's ingerletter.com report and final hotline thought it would go, as the call was ideally little additional follow-through beyond Wed.'s opening downdraft. None of this should be interpreted as irrational bullishness about an overall resolution yet (after all, we've captured almost every move down and up and down and up since the March triple or multiple tops, the deflected May rebound too, while suggesting at the same time that eventual lows well in the 8000's for the Dow Industrials as fairly realistic, but not on previous purges or extremes, when many were expecting them).

We can't help that some new or biased investors want to interpret anything anyone says as making them a macro bull or a bear; that's generally nonsense in bifurcated markets, as has been the case for several years now. The more appropriate stance is to catch moves, as traders, with no particular predilection as to how it shall ultimately resolve, as yet anyway, and candid recognition that in unusual wartime environments such as now, no human knows for sure. We really don't know what we could have done more than warn with respect to recent rallies as likely failing and unsustainable or equally warn Tues. night that the downside was likely to turn around, with bailout swings to the upside Wednesday, then renewed efforts after some Thursday churn.

As suspected, very heavy overnight hits Tuesday tended to have no follow-through the next day (as predicted the S&P did not penetrate the overnight Globex lows, and that also vindicated our belief that people shorting the WorldCom story via overnight markets were going to be disappointed if they waited for the opening; and so it was). Overall it was perfectly set-up for a robust comeback effort series today, whether the market's bailout revival is sustainable, or just another one. Some say too many are looking for a bottom; we're not sure about that; we think they don't believe it possible.

However, for reasons enumerated repeatedly, we suspect the Senior Averages likely continue to play catch-down with where the rest of the market has been for months; a situation that again reflects an overall grasp of reality; part of which includes trying to capture (as we did yet once again) the nuance of bearishness sufficient to result in a rebound, if even of a temporary nature. It also holds a kernel of recognition that what is going on in the real world (the majority of companies and humankind) is not horrid to the extent portrayed by certain last-generation stocks in the market, or even angst.

We have speculated before about accounting practices of certain companies, and we may (probably will) have more of these cases to contend with in the immediate future, as we've also mentioned. But again, this is part of the cleansing of the '90's overhang more so than anything that is 'news' to the market (at least it should be thusly). We're able to understand why so many Banks (BKX), which were hard hit this morning, are involved with a WorldCom, because they have outstanding loans for many years. But what is harder to comprehend is why some of the Nation's largest pension funds, and a few mutual funds, didn't trim their positions over the many months trouble was very visible. Again, as discussed yesterday, much focus is on the 'outrages' of the 1990's more so than the solutions of the 2000's. The President vows to hold people fully or appropriately 'accountable', and he's right. And emphasis on oversight, enforcement, and candor, are well-placed. But we have argued this for almost five years now. The point continues to be not that the vestiges of the '90's continue unfurling, but that the focus has already, if seemingly imperceptibly, shifted to planting the seeds of a newly healthy field for investing for this generation. It will take, as we often say, lots of time.

Concurrently, few noticed that new home sales continued strong; or that the Durable Goods report was quite strong. The underpinnings of the economy are respectable in some areas; though we know enough to realize that markets are primarily perception and emotion; something we've said for decades. The economy in the wake of the '29 Crash was pretty good outside of finance, for awhile, then demoralization spread over the land, and we all know what happened. It didn't need to; but it did. Today there is no reason to necessitate the most bearish case, though many naysayers know (they won't say so publicly) that their constant drone emphasizing only the negative, helps a trend toward disinterest, excess in price movements in other areas, and feeds the downside. It's exactly how you go from 'irrational exuberance' to 'absurd pessimism'.

Force 'Multiplier'

For months we have deferred suggesting the buying of stocks for other than trades; and that was appropriate. Further we love finding bottoms in the May/June timeframe as vintage readers might recall. However this year we dampened our enthusiasm for such a low, because of the backdrop that continues to threaten peace and harmony in the world; as that is the fact that we remain at war, with inestimable consequences that have (in our view) unfortunately not yet had an 'inflection' worthy of comparisons to the 'Battle of Midway' in 1942, that marked America's military trough in that war.

Discussing the terror threats with one distinguished reader (an insurance Chairman), who just happens to be a Special Forces veteran from the Vietnam era, who agreed with virtually all of our postures on the issues, the question came up as to how hard it is to eradicate these barbarians. I'd like to share his thoughts (in my words), because it was enlightening. He made the comparison with the military term 'force multiplier'. It was simplified this way; if you're in your office, and a worker comes in and says he's going to beat you up every week or two; no matter how you react, you're worried. For sure, he may come back and beat you up once every couple weeks, or he might not.

But you don't know if or when it might happen. Essentially, that's the problem fighting terrorists; you get a bunch of 'em, but there's always the risk of one coming back and beating you up again, and you can't be sure you've gotten them all. That's pure terror of course, plain and simple. And it pretty well defines what the problem is. So it's also why you can't negotiate, can't placate, can't mollify, can't humor, can't appease; but must eliminate. Much of this is my conclusion to a conversation that simplified all of it.

Or, you succeed in bringing people together, sufficiently that problems underlying an issue are addressed; but even that doesn't work if the terrorists are just using such issues as pretexts for their persistent barbarism. If you defeat the core, and those of their constituents (or possible recruiting base) start to realize the megalomaniac ways of their supposed leaders or heroes, you have a good start at cutting off the funding a majority of such madmen need. In any event, until you do, threats of single maniacs, or groups of them, embody particularly chilling fears, by virtue of the 'force multiplier'.

As we get closer to the July 4th holiday, it could be deduced that these animals would not risk attacking on a particular occasion when everyone would be on full alert. We have no idea; but do know that our view of investors having no compelling reasons to feel emboldened (besides short-covering and intraday or intraweek rebounds just as suspected likely) in this context remain. It's not because of PE's; not even because of historical corporate events reflecting a profound problem first identified in the 1990's; but because of a combined psychology of the times, that inhibits sustainable rallies.

To us the situation isn't generally more tawdry than we suspected before, but reeks of accounting headaches still overhanging this market, that may be more widespread (or at least the perception) in some well-known names of the prior era. As we've often noted, most of these matters (and they are inexcusable but) typically date to decision makers in companies that frequently are sidelined, well, at least until appearances at Congressional investigations, all of which derails the morale of investors short-run; at the outside helps the longer-term. The inbred cynicism will impact the markets for at least a goodly period of time; and that's why our continued emphasis on trading, not on investing. It doesn't matter 'what' someone wants to do (invest versus trading); it matters what is available to do. People have to listen to the message of the markets; not the other way around. The message continues to be unsustainable rallies within a difficult environment. Whether that changes is hardly debatable yet; whether we get a series of rotational rallies and declines that culminate in a seasonally interesting deep morass as the year unfolds, remains paramount; as the backdrop structure to all this.

At last report, unconfirmed stories we've shared about alerts and tensions continue to tend to be reported in the mainstream news sometimes later. (Section fully reserved.)

Soon, the world will realize that a weakened Dollar's become increasingly attractive, and as threats abroad (to others, not just the U.S. or Israel) increase, there may be a realization that there is no easy hiding place for funds seeking perceived safety. Most typical fearful strategies involve moving to Gold, but as noted recently, that too has a temporary condition that reflects consolidation, after a very nice multi-month move. It may move again, but not instantly, and retains the same characteristic as before; that is the danger that if things go right, it drops. Otherwise, if things remain off-kilter, we might get another leg-up later in the summer, but not likely quite as of yet, because too many after-the-fact buyers have come in (these comments reference U.S. related prices, not those that may apply in local currencies, with varying situations, abroad).

Elsewhere, we've continued to see stabilization in technology (yes, technology) aside from the nonstop drone suggesting otherwise in the media. The Nasdaq 100 (NDX), and the NASDAQ, were up today; and even the DJIA almost made it (the S&P did). If all goes right, this rally will falter, after a couple more attempts, and that by the way is the bullish alternative. The bearish alternative remains a really strong rally up to and over the September S&P (reserved) area, which would set-up next phase of decline.

Daily action . . . notes that as the day began, having forecast and believed that this would not be a disastrous Wednesday session (aside from an expected massive gap-down opening), we entered a long-side effort immediately in the September S&P from the 953 level, for a net possible gain approaching 2600 for today. The hotline (900.933.GENE or direct-dial access) indicated in last night's (Tuesday evening) remarks that the market would likely not implode at all after opening in an expected brief swoon below the September panic lows on Wednesday, and then rise in the very near-term, hopefully with another leg after the FOMC news was later digested, regardless of what that was, or what the future will hold. We were not disappointed.

Anyway, seemingly perpetual angst grips the markets, a series of conditions making everyone extremely gun-shy about pulling a trigger on doing anything aside from the most minimal 'window dressing' activities characterizing parts of the days going into the Quarter's end. How long this daze is going to continue must be a compilation of various factors, though there were divergences seen as worth noting on Tuesday, as we looked for and got Wednesday's turnaround. Unfortunately, we may do little more; or at least it will seem unfortunate; as a bullish case would be (reserved for readers).

Tuesday we talked of probably having interim stock market lows fast; but not much more, and then we'll see. Don't forget that you can get a sequential bottoming even of a short-term nature; as the Dow (for instance) attacks 9200, then maybe backs up a bit, and then comes-on again (barring terror and subject to assessment as it unfolds). All of it might (in a best-case short-term scenario) set-in-motion something grander of a short-term nature, but if so that is more dangerous (interestingly) than the opposite.

In summary . . after yesterday's Transportation breakdown, we correctly called for a turnaround, albeit of temporary duration. We also call attention to tension in Brazil, which has resulted in some semi-military security implementations in Rio de Janeiro. Combine the ongoing mess in Argentina, and that might actually firm the Dollar soon.

As to McClellan Oscillator readings: easing down to -105 for the NYSE; again with a slightly more stable NASDAQ behavior at -20. Interesting to us yesterday; suggesting a turnaround of at least an intervening nature, It occurred, but nothing is cast in stone these days, and the further slide in the NY 'Mc' reflects the overall negative breadth.

Our prayers and thoughts remain with our troops fighting anywhere in the world, and as events of this week explicitly continue to remind us of various new risks the Allied fighting forces face, or may face, we try to keep in mind that the unexpected remains a risk as civilization cheers human progress, but worries about those trying to reverse hundreds of years of modernity. Stay focused to news trends aside from paramount concerns about Mid-East terror, and a renewed focus on domestic risks… for now.

Another rebound was on tap this week, the first failed amidst chaos; then we looked for a nervous one likely developing in morning panic Wednesday, and nailed that in a satisfying way. Futures are up about 350 this evening with about a 400 premium. Tokyo is up a couple hundred in early Thursday trading (Wed. night U.S. time). Also, Russia will become a full member of the 'Group of Eight', it has been announced.


In 1792 the U.S. Congress adopted a bimetallic standard (gold and silver) for the new nation's currency - with gold valued at $19.30 per troy ounce
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