first majestic silver

Valid New Axieties; or Paranoia?

September 28, 2001

Anxiety returns to a fever-pitch . . . despite some fairly evident warnings about not chasing the upside (over the last couple days), after we got the dramatic turnaround from last Friday, which in the absence of weekend action or surprises, continued very much as noted and suspected, and despite warning (before it commenced) that a first rally out-of-the-hole would be of limited duration, regardless of technical indicators for the most part in harmony with behavior seen at important market low points. Certainly this remains a delicate news-sensitive environment, so we suspect the formulation of a low is going to be a series of complex patterns evolving, rather than a simple 'V' or 'W' bottom, though the latter is not out of the question, depending on how things go.

A number of developments (including Jewish holiday observances) have occurred to contribute to a sort of stagnant short-term environment, which harkens back to an old saw of 'selling on Rosh Hashanah, and buying on Yom Kippur'; oversimplification for sure, but to a modest degree dovetails-in with the short-term behavior so far. This will not automatically mean the latter part of the month will be on the upswing (an original pre-war idea), though what we're confident of (besides freedom prevailing) is that no over-the-edge permanent bearish condition has been created, such as some analyst conclusions infer, though there is no doubt it will take longer to emerge from all this. If anything, the strength of the Dollar and stability of Treasuries supports this idea, that the U.S. is not about to lose its Reserve Currency status, nor preeminent world role.

It may even be (almost must be) that those fearing a return to inflation down-the-road (in some cases the same crowd fearful of deflation so recently) is missing the nuance that such is inconceivable unless or until growth returns, which will mean profits too. With many companies cutting back to the bone, post-war environment revenue will accrue to bottom-lines…fast. It's not just that we're talking about an indefinite period between now and then (which can't be known, aside from suspicion of a large rally if the U.S. prevails in early efforts), but it is clear that ongoing and projected stimulus, and projected Oil price collapse, recently achieved, are going to help all this, a lot.

Since it was our view a month ago that the equity markets would be declining during this timeframe, we were not overly optimistic about the post Labor Day environment anyway (technically and seasonally); so of course that allowed our positioning to be prepared for some sort of decline well-ahead of all this. The impact on the economy by the subsequent events is so horrific on the surface, that few are considering what it means beyond the political and military curve; though certainty can't yet be known. As the market abhors uncertainly (as currently seen), imagine what it will do when it gets the modern-day equivalent of England's survival of the Blitz or the U.S. victory at the Battle of Midway, which roughly coincided with the market's World War II bottom.

Though certainly not expecting this particular decline to be assisted by these worst monsters perpetrating horrific inhumane developments by enemies not only of all legitimate religions, but of all kinds of governments and regimes worldwide (that is actually the extremist's cause to an extent); which is to gain power then exterminate opposition, so everyone must do things their way or basically go away or be killed, it is not a subject totally unknown to readers here, having warned before the Millennium what might happen then, or later-on, as our guard was relaxed. It's incredibly tragic; it has touched-us closely (due to acquaintances), and we're sure all Americans find it a totally incredulous insult for enemies and their lackeys to try blaming the victims, as is the position of only a couple countries, but of several diverse sub-human groups that are totally insensitive to what has occurred, which could disrupt their lives as well.

Throughout this, and increasingly in the last day or so, there are several new matters that have again (or risk) increased angst of investors, accounting for the absence of buyers, despite a near-exhaustion on the sell-side lately. This may not be total, as is seen from the behavior of T-Bonds, which aside from some structural factors that firmed the bonds, may also reflect the secondary-defensive moves from around the world (including money flowing into the U.S., not out-of-it as many feared, ahead of a probable commencement of 'hotter' climates in some areas not far from contemplated action). If domestic, this may reflect some safety-flight ahead of the proverbial fear of another 'shoe' dropping; though keep-in-mind that the deeper the economic slide we get now, the greater the recovery thereafter, as the stimulus to ignite that is mostly in place already. Therefore, we do not agree with those who believe an irrecoverable hit has occurred to the United States, though this certainly is the early phase of the war.

Strategically . . . there are plenty of quandaries that may affect the way retaliation is mounted, ranging from weather (which gets just horrible in Afghanistan within weeks, to becoming bearable in areas a little further west, toward Baghdad, where Saddam was said to be personally celebrating the assaults on the U.S., and refusing to even utter a remark of compassion regarding the thousands of civilian victims), to the very necessary caution to make sure that whatever we do is deliberate and not reactive as a sole motivation. So far authorities seem to properly be making preparations deftly.

Over the last couple weeks we expressed fears about the 'sleeper cells' particularly in New Jersey, and unfortunately did not exaggerate this from the most recent reports. It was the main reason we focused less on the international military response, and in the initial stages more on the domestic response, which is clearly making progress in many ways comforting to all Americans (though surprising to many as they learn who lived near or in their midst). Every arrest or detention (subject to proper investigation) is one less threat on the streets of America or Europe, and as Canadians realize they allowed their own scandal (by their easy immigration policy), we'll see that addressed as well. As we've already discussed the risks of chemical or biological warfare (which of course would be a horrific second shoe to drop, further proving these aren't devout human beings as if more proof was needed, though they hide behind faith) we're very worried about the security of major cities and even agriculture, though factoring that into a market equation is impossible, other than to say periods of decline likely in fact can comprise the structuring of a bottoming formation, with buyers awaited later-on. It was the Dow Industrials and Oil, expected to be hit the most, and they surely were.

In the meantime Q3 GDP will show substantial decline; maybe Q4 as well; but why is that causing stocks to sell-off when companies announce what's been obvious before the surprise attack on our Nation, or patently evident with respect to worsening profit pictures once the post-attack unwinding increasingly spooked virtually all investors. In the meantime there's too much uncertainty for investor comfort, but they should look to a time when bad news is ignored, when reactions to poor (obvious) results occur, but little more, and to understanding that besides breaking every long-term technical indication, markets have given about every excuse imaginable for panic selling; thus an exhaustion has occurred; but with a shell-shocked investment community heavily unwilling to assume positions (for the moment), buyers are a scarce commodity. This will possibly change (besides the obvious news sensitivity) with the shifting of things into a new Quarter, and as we move past fiscal year restructuring by certain funds.

Speaking of funds, there has been some scuttlebutt today about an old connection, between Bin Laden and the seized-assets of the defunct BCCI back in 1993, which may have (in theory) as much to do with his megalomania as his professed beliefs. (We'll reserve comment on this subject both for brevity and to keep thoughts private.)

Meanwhile, after days and days of (often) multi-thousand point theoretical guideline gains in S&P moves, Wednesday was particularly tough, though about the time we'd felt it was inappropriate for investors to chase rallies, and also as the resistance was deflected about where suspected for the first post-sneak-attack run-up. Many players retired from the Wall Street scene early in preparation for relatively a somber holiday observance, which tended to weigh-on markets too, though there are other reasons (we'll note). In terms of S&P action, there was a playable move to the downside early, for those very quick in embracing our shorting idea (defined from equity approach) at the 1024 level of the December S&P. After hours of rangebound action, late rebound as suspected; but that was mostly intra-day squaring, and not more, at least as of yet.

We have indicated for many months that we were in a Recession, before this started. It seems to us that trying to define after-the-fact negative accomplishments (whether in the market or the economy) is of limited academic curiosity, and irrelevant for the most part to our daily lives, including the markets, and the recovery of this Nation. It may be that before the War started, some in Government were restrained from being enthused about further stimulus or tax cuts, and wanted to see nonsensical recession data formalized. As noted months ago, by the time that occurs you would historically be at the bottom, or after the bottom, though doubtless such stimulus helps further. It is all out-the-window once the War started, as everyone (in both parties) generally is on the same page with respect to recognizing the necessity of setting-in-place what is necessary to ease the depths of despair, to stimulate the economy, and to see it very strongly enhanced as it ultimately not only recovers, but advances beyond belief now.

Hence, as we look at where things stand, and providing our security apparatus holds up (at least until real improvements are implemented, rather than just stop-gap ones), here at and on our hotline, we continue to suspect short-term volatility which shouldn't be overemphasized by all normal investors, who probably need not chase rallies but should accumulate under (outlined) soft circumstances on occasion. If one presumes the only reason it is not a soaring market on a continuing basis is the security aspect, then one may be able to understand trepidations at buying declines, relegate fear as relates to stock market plans to a comprehension that this is all part of a complex bottom, and realize that there are no assurances, but that free men and women must believe they will be able to prevail, and as that ultimately occurs a tremendous recovery lies out there. (Balance reserved.)

As for the McClellan Oscillators, the NYSE data is at -141 (retreating from the rally, expected to follow very extraordinarily oversold conditions last week on a daily basis, which suggested at least some important exhaustion on the downside, but were not expected to give us more than a few days of relief before the downside was revisited. Early action Wednesday gapped-above the 1020 resistance, but wasn't expected to hold, which is why we shorted the first out-of-the-box rally on the 900.933.GENE calls Wed. Late last week we suspected the selling was just waiting for excuses to run-in shorts, albeit temporarily; though a stunning success militarily would obviously set-up a more significant rebound, even if fundamentals remain somewhat elusive.

In the meantime, as noted the other night, just because one knows he or she may be a little paranoid, doesn't mean they're not out to get you. And therein, with inhuman enemies plotting havoc of all sorts, it's fine to resist the temptation to freak about all this (which would play into their hands), and go about our lives as best able (as we all are trying), but recognize that the risks aren't about to vanish overnight. In the interim let's be wary and watchful, and continue seeking to score base hits, with more than an occasional homerun (in S&P behavior) while this all sorts out further.

Wednesday evening's S&P premium of 746 at 8 p.m. EDT has futures little changed. Our very best wishes to all our Jewish friends for a happier New Year than the past one, and certainly may those thoughts be with all of us during these days of tension.

The California Gold Rush began on January 24, 1848 when gold was found by James W. Marshall at Sutter's Mill in Coloma.
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