Results 1 to 15 of 15

Thread: Is the GWB re-election stock market rally about to run out of gas ?

  1. #1
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Is the GWB re-election stock market rally about to run out of gas ?

    I happen to agree with this assessment - particularly the point that the 30 day post-election stock market rally has just about come to a halt ...

    ------------------------------------------------------------------------------------------------------

    Bush's bear market still growling
    By Peter Brimelow, CBS.MarketWatch.com
    Last Update: 12:01 AM ET Nov. 24, 2004

    Stocks have bounced after George W. Bush's re-election as president - but that's exactly what a leading bear predicted.

    Bush bear still growling

    After the election, I quoted an analysis by Investors Intelligence's Michael Burke of the impact of elections during the last prolonged period in which the stock market moved sideways. That was 1966-1982, when 1,000 on the Dow seemed to play the upper bound role that Dow 10,000 does today.

    In every case, the market broke down badly after the election, by as much as 25 percent to 45 percent.

    This made Burke distinctly uneasy about the current stock market. He described its five-year sideways shuffle as a "secular bear market," very comparable to 1966-1982.

    But, let the record show, Burke had an important caveat. He wrote:

    " ... On the positive side, the market usually shoots up right after the election for a month or so, but that has proved to be the limit. With this in mind, and the fact that our indicators and sentiment are now turning negative, we would exercise lots of caution in the post-election period." See my Nov 4 column.

    Well, the market did shoot up, coming up through Dow 10,000 (again) just before election day to a peak of Dow 10,655 a week ago. But it does seem to have stalled in the last few days.

    What does Burke say now?

    Perhaps not surprisingly, he is convinced of his analysis. He wrote yesterday:

    "The large number (500+) of buying climaxes last week is a worrisome event, and we plan to get a bit more defensive in the days ahead. We have been thinking that the post election rally could last into December or even January, but that outlook could change. With current broad overbought levels, and historical precedents, we are nervous that next year will be negative and will be looking to reduce our invested position here in the next few weeks."

    According to the Hulbert Financial Digest, Burke's record is solid. And market-timing is one of his particular strengths.

    In Burke's recent detailed comments on his portfolios, a couple of themes emerge.

    One is caution. He has just sold Johnson & Johnson ("with a modest 14.8 percent gain.") His rationale: "This is a healthcare leader, and we hope to buy it back later at a cheaper price. It had a buying climax last week and we wanted to get more defensive."

    Another theme: overseas diversification. Burke writes "Foreign issues continue to look better than US stocks, particularly for Asia. ... The Japanese market has been acting better recently, and it could well rally if the U.S. market falls ... we are looking for another investment in the Korea market."

    His only reservation: China "has now moved to overbought levels so we are now are considering this area a hold."

  2. #2
    Member
    Joined
    Nov 2004
    Posts
    21
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    I disagree and think many stocks will do well in 2005.

    The media has hyped the low and still declining dollar to be some evil monster that will bring the financial markets down. This is true for interest rate sensitive sectors like real estate, banks, and utilities. but not everyone.

    The fact that we have a declining dollar will boost most multinational corporations with large overseas exposure "most Dow components" especially large tech stocks like IBM, HP, dell, etc. the fact is the dollar is collpasing and that will make the exportes listed very profitable.

  3. #3
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    I don't know, Johny. The flip side of the weaker dollar is that every single commodity used by US companies to produce their products, from energy to steel to copper, is becoming more expensive in US$ terms. I agree that the large US tech stocks will be the least affected by this, which might bode fairly well for the QQQ's.

  4. #4
    God/dess montythegeek's Avatar
    Joined
    Oct 2003
    Posts
    2,103
    Thanks
    0
    Thanked 9 Times in 5 Posts

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    Melonie's comments about cost pressures are all true an also entirely normal at this stage of the global business recovery. They last 9 months to a year (and we are 6 mos into it). There are already signs of those pressures abating in the ISM and regional manufacturing surveys. The costs that really matter to profits are unit labor costs which are rising at a 0.6% rate year-over-year for nonfarm business and are still falling in manufacturing. http://www.bls.gov/news.release/pdf/prod2.pdf
    Table A

    Remember the costs of raw materials (copper, steel, etc., in dollars) are the same in China as they are in Detroit with minor differences. If they weren't they would sell the materials here at the higher prices.

    The stock market is set for 2005 to be an average year of 7-12% gains (probably to the low end because of valuation). As for the tech stocks in the QQQ there is a vulnerability to component costs from a yuan revaluation much more massive than the core industries face.

  5. #5
    Member
    Joined
    Nov 2004
    Posts
    21
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    we are not a manufacturing powerhouse anymore so generally speaking raw material costs have an impact on a very small part of the economy (oil being the exception, but still no where near what it used to be).

    I agree with monty on stock market outlook, but disagree on tech Yuan revaluation will hurt those dependant on chinese components or goods and that is not IBM, HP, etc its walmart, and the super discount retailers. 10%(last years' number) of our purchases from china are done by walmart so a more expensive chinese currency will hit them hard

  6. #6
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    I agree with monty on stock market outlook, but disagree on tech Yuan revaluation will hurt those dependant on chinese components or goods and that is not IBM, HP, etc its walmart, and the super discount retailers. 10%(last years' number) of our purchases from china are done by walmart so a more expensive chinese currency will hit them hard
    After percolating a while longer on this subject, I am convinced that a dollar devaluation / yuan revaluation will definitely have both a direct and 'back door' impact on high tech US businesses as well as 'smokestack' US businesses. The reason will be that American wage rates will come under tremendous inflationary pressure as unskilled and semi-skilled employees see their costs of living rise dramatically. As you say, WalMart and other discount retailers are heavily dependent on Chinese imports, and if the yuan revalues 10% this will effectively force WalMart to raise US$ prices 10%. It is these employees who are dependent on WalMart pricing to balance their weekly budgets, such that a 10% price increase will hit them very hard. Additionally, these employees will be unable to escape rapidly rising US$ denominated gasoline prices, fuel oil/natural gas prices etc.

    If unskilled and semi-skilled US employees are unable to balance their weekly household budgets due to price increases in these "basic budget items", it leaves them two choices - become very vocal and active about seeking pay raises, or defaulting on some portion of their weekly expenses i.e. mortgage payments or car payments or credit card payments. I won't even throw in the fact that many people in this category were 'subprime' credit customers to start with, meaning that they were only able to afford ARM financing to purchase a home they really cannot afford and will be immediately hit hard by rising interest rates, and that their 'subprime' credit card interest rates are probably at 18% percent before late fees and penalties start to accrue !

    At any rate, from an employer standpoint it would appear to me that there are the same two choices - go along with pay rate increases and confirm a new inflationary cycle, or allow tons of defaults / bankruptcies to occur. Neither of these alternatives is conducive to business profits, as one simply bleeds employers on a weekly basis while the other bleeds business profits suddenly and deeply as customers default on their payments / go bankrupt.

    IMHO the businesses which will benefit most / be hurt the least from an inflationary US$ scenario are indeed exporting high tech businesses and simple exported commodity businesses (hamburgers, toothpaste, etc.), which have little invested in 'raw materials' and which receive an automatic price increase on foreign business profits via a higher foreign currency vs US$ exchange rate. The US gov't and businesses also benefit in an inflationary scenario as US$ inflation reduces the 'dollar cost' of all US$ denominated debts. However, the vast majority of US businesses do rely on selling products to American consumers, and it would appear that all of them will be hurt - thus driving down the major stock indexes.
    Last edited by Melonie; 11-27-2004 at 12:07 AM.

  7. #7
    Member
    Joined
    Nov 2004
    Posts
    21
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    while walmart would love you to be correct, and we may have reached a point in discounting where that will finally happen, that is not what the last 20 years have shown. walmart has stiff competition and as in past cost crunches have tended to take a hit to profits rather then raise cost of goods(corporate motto as well). the deflationary pressures in our economy are fairly predictable due to an oversupply/capacity situation in many fields and the abundance of easy financing to keep that going in most sectors

    Yuan devaluation will hit profits of certain firms and will certainly bring discount retailers and many others down to earth, high tech ones will ride high though due to the falling dollar which a Yuan devaluation will only make it fall more (much more). Also most large exporters will benefit even farm equipment companies like john deere will benefit from weaker dollar and higher commodity prices raising farmer incomes world wide.

    you could be right though on the consumer credit squeeze, I didnt think about those subprime borrowers getting killed by rising payments as interest rates rise in 2005. while you are correct that majority of companies will suffer from this. major indexes like the Dow are so overwhlmingly dominated by large exporters that it will benefit tremendously from the positive factors I mentioned which will offset the negatives you mentioned.

    you do have some very valid points and for the first time in a long time actual talented stock picking maybe called for as indexes will not be the steady performers they once were.

  8. #8
    God/dess montythegeek's Avatar
    Joined
    Oct 2003
    Posts
    2,103
    Thanks
    0
    Thanked 9 Times in 5 Posts

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    Sorry folks, but the disaster scenarios do not fly. You guys are forgetting the rules of value added and proportionality of costs.

    Less than half of Walmart sales are goods which are importable/imported. Ever hear of food? Of that the actual value of the goods at the factory door that made them are 1/2 to 1/3 of their retail price. Ever hear of profits, labor costs, warehousing costs, delivery costs, shipping costs, heating/lighting the store? We also do still make a lot of that stuff. Those costs are dollar denominated. That turns your 20% yuan appreciation into 1-2% out the door at the WMT store if passed through. But it won't all be passed through because Southeast Asia, Mexico and Central America are their ready, willing, and eager to grab the business at half or less of the rise in goods costs. That trims the gains to 1% spread out over 2 years.

    If it matters so little, what is the point? The point is that it moves trade around the globe back to Mexico and Central America where they buy more from us. Where does a Mexican factory worker go shopping? Walmart of course--the profit centers for WMT change. The winner is Mexico which gets jobs, and income and buys drugs and cosmetics and stuff we are good at. Chinese growth slows releiving pressure on core commodities like steel and concrete.

  9. #9
    Member
    Joined
    Nov 2004
    Posts
    21
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    good point on costs, but with that the dollar going down drastically to 1.40 per euro and 90 against the yen (research consesnsus for 2005) will raise interest rates and that will squeeze interest rate sensitive sectors of the economy and consumers.

  10. #10
    God/dess montythegeek's Avatar
    Joined
    Oct 2003
    Posts
    2,103
    Thanks
    0
    Thanked 9 Times in 5 Posts

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    Quote Originally Posted by Johny
    good point on costs, but with that the dollar going down drastically to 1.40 per euro and 90 against the yen (research consesnsus for 2005) will raise interest rates and that will squeeze interest rate sensitive sectors of the economy and consumers.
    Johny,
    Year-end 2002 1.05
    Year-end 2003 1.25 ---19% appreciation of euro

    If it goes from 1.31 to 1.40 (pessimistic, probably closer to 1.35) --- 6.8% appreciation.
    Why did none of the disasterous things not happen in 2003? Because the US is a vital growing economy and Europe is a cesspool of malaise fascing the adjustments(drag) to having an overvalued currency whose performance sucked when it had an undervalued currency. Where would you rather invest your bucks as a business?

    The weaker the dollar gets short term, the safer it is for foreigners to invest in the US because the downside risks of devaluation go down. Get ready for Eurosclerosis Version 3.0 while the US adapts and grows like the vibrant/flexible economy it is. All the Europeans can do is bitch about how their currency is overvalued and suffering while they lose market share to the US.

  11. #11
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    I agree that the Euro countries economies are toast. In fact there is some speculation that the true intent of the Fed is to deliberately kill the Euro economies before the Euro can become a serious rival to the US$ for 'reserve currency' status.

    At any rate, this doesn't change the economic facts regarding the Chinese economy and the Yuan, and their ultimate effects on the US economy. Unfortunately, not everybody in the USA can be a gov't employee, stockbroker, banker, actor/performer, corporate exec etc. Much of our economy still depends on making goods or performing services where people actually "work" for a living. As long as Chinese workers are willing to do the same sort of jobs for 1/10th the pay, and as long as US employers are forced to pay high taxes, provide for employee health care, to spend money/decrease efficiency to limit pollution, to spend money/decrease efficiency to provide a 'safe' workplace etc., which the Chinese do not, the situation will continue to get worse.

    Here's an advance article about to hit the newsstands ...

    Businessweek
    DECEMBER 6, 2004

    SPECIAL REPORT -- THE CHINA PRICE

    {B]"The China Price"
    They are the three scariest words in U.S. industry. Cut your price at least 30% or lose your customers. Nearly every manufacturer is vulnerable -- from furniture to networking gear. The result: A massive shift in economic power is under way

    -------------------------------------
    From the rich walnut paneling and carved arches to the molded Italian Renaissance patterns on the ceiling, the circa 1925 council chamber room of Akron's municipal hall evokes a time when the America's manufacturing heartland was at the peak of its power. But when the U.S.-China Economic & Security Review Commission, a congressionally appointed panel, convened there on Sept. 23, it was not to discuss power but decline. One after another, economists, union officials, and small manufacturers took the microphone to describe the devastation Chinese competitors are inflicting on U.S. industries, from kitchenware and car tires to electronic circuit boards.

    These aren't stories of mundane sunset industries equipped with antiquated technology. David W. Johnson, CEO of 92-year-old Summitville Tiles Inc. in Summitville, Ohio, described how imports forced him to shut a state-of-the-art, $120 million tilemaking plant four football fields long, sending Summitville into Chapter 11 bankruptcy protection. Now, a tenfold surge in high-quality Chinese imports at "below our manufacturing costs" threatens to polish Summitville off. Makers of precision machine tools and plastic molds -- essential supports of America's industrial architecture -- told how their business has shrunk as home-appliance makers have shifted manufacturing from Ohio to China. Despite buying the best computer-controlled gear, Douglas S. Bartlett reported that at his Cary (Ill.)-based Bartlett Manufacturing Co., a maker of high-end circuit boards for aerospace and automotive customers, sales are half the late-1990s level and the workforce is one-third smaller. He waved a board Bartlett makes for a U.S. Navy submarine-detection device. His buyer says he can get the same board overseas for 40% less. "From experience I can only assume this is the Chinese price," Bartlett said. "We have faced competition in the past. What is dramatically different about China is that they are about half the price."

    Where the Jobs Went
    "The China price." They are the three scariest words in U.S. industry. In general, it means 30% to 50% less than what you can possibly make something for in the U.S. In the worst cases, it means below your cost of materials. Makers of apparel, footware, electric appliances, and plastics products, which have been shutting U.S. factories for decades, know well the futility of trying to match the China price. It has been a big factor in the loss of 2.7 million manufacturing jobs since 2000. Meanwhile, America's deficit with China keeps soaring to new records. It is likely to pass $150 billion this year.

    Now, manufacturers and workers who never thought they had to worry about the China price are confronting the new math of the mainland. These companies had once held their own against imports mostly because their businesses required advanced skills, heavy investment, and proximity to customers. Many of these companies are in the small-to-midsize sector, which makes up 37% of U.S. manufacturing. The China price is even being felt in high tech. Chinese exports of advanced networking gear, still at a low level, are already affecting prices. And there's talk by some that China could eventually become a major car exporter.

    Multinationals have accelerated the mainland's industrialization by shifting production there, and midsize companies that can are following suit. The alternative is to stay at home and fight -- and probably lose. Ohio State University business professor Oded Shenkar, author of the new book The Chinese Century, hears many war stories from local companies. He gives it to them straight: "If you still make anything labor intensive, get out now rather than bleed to death. Shaving 5% here and there won't work." Chinese producers can make the same adjustments. "You need an entirely new business model to compete."

    America has survived import waves before, from Japan, South Korea, and Mexico. And it has lived with China for two decades. But something very different is happening. The assumption has long been that the U.S. and other industrialized nations will keep leading in knowledge-intensive industries while developing nations focus on lower-skill sectors. That's now open to debate. "What is stunning about China is that for the first time we have a huge, poor country that can compete both with very low wages and in high tech," says Harvard University economist Richard B. Freeman. "Combine the two, and America has a problem."

    How much of a problem? That's in fierce dispute. On one side, the benefits of the relationship with China are enormous. After years of struggling to crack the mainland market, U.S. multinationals from General Motors (GM ) to Procter & Gamble (PG ) and Motorola (MOT ) are finally reaping rich profits. They're making cell phones, shampoo, autos, and PCs in China and selling them to its middle class of some 100 million people, a group that should more than double in size by 2010. "Our commercial success in China is important to our competitiveness worldwide," says Motorola China Chairman Gene Delaney.

    By outsourcing components and hardware from China, U.S. companies have sharply boosted their return on capital. China's trade barriers continue to come down, part of its agreement to enter the World Trade Organization in 2001. Big new opportunities will emerge for U.S. insurers, banks, and retailers. China's surging demand for raw materials and commodities has driven prices up worldwide, creating a windfall for U.S. steelmakers, miners, and lumber companies. The cheap cost of Chinese goods has kept inflation low in the U.S. and fueled a consumer boom that helped America weather a recession and kept global growth on track.

    But there's a huge cost to the China relationship, too. Foremost is the question of America's huge trade deficit, of which China is the largest and fastest-growing part. While U.S. consumers binge on Chinese-made goods, the U.S. balance-of-payments deficit is nearing a record 6% of gross domestic product. The trade shortfall -- coupled with the U.S. budget deficit -- is driving the dollar ever downward, raising fears that cracks will appear in the global financial system. And by keeping its currency pegged to the greenback at a level analysts see as undervalued, China amplifies the problem.

  12. #12
    Member
    Joined
    Nov 2004
    Posts
    21
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    I know euro economies are toast and getting worst but currencies move on flows of funds not GDP growth comparisons. the United States has a gigantic $500B+ annual trade deficit meaning that we must pull in at least that much in foreign investment to keep the dollar from falling. That has been getting harder with a new scandal on wall street every other tuesday. Europe for all its slow growth has a trade surplus (slow growth is part of the reason) and that means that even if they dont get anyone to invest in them their currency wont go down as they dont need it for the Euro to climb.

    The Dollar will keep on going down even past 1.40 per euro (in my opinion) as most foreigners like all other investors will actually dump dollars only when things get realy bad past 1.40 and currency markets always tend to overshoot because of that so if 1.40 is consensus the 1.50 is likely (believe it or not but most institutioanl trading programs are actual;ly programmed that way). The only way to get the dollar back up is for the US to have much higher interest rates to attract foreign investment in suficient enough quantity to cover the trade deficit.

    at some point foreigners will come bottom fishing but that wont be for a while (in bulk anyway). also as far as corpoaret earnings of exporters they lag currency movements by about 9 months so the move of the euro from 1.20 to 1.33 in the last few months will be fully reflected in Q2 or even Q3 earnings next year. This is why I am very positive on exporters but very negative on other industries.

  13. #13
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    just popping this thread back up to the top ...

    For the past week it's become pretty clear that the US stock markets have "topped out" after the GWB victory rally. What's next ? I'd guess a week of decline based on year end stock selling for tax reasons and various bad financial news, and then the beginning of a Santa Claus market rally carrying through new year's day ?

  14. #14
    Member
    Joined
    Nov 2004
    Posts
    21
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    most institutions already sold for tax reasons in october/november. only stocks that get hurt in december for tax reasons are ones where its mostly individuals holding most shares (penny stocks, etc)

  15. #15
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Is the GWB re-election stock market rally about to run out of gas ?

    popping this thread up to the top yet again ...

    I hope that everybody who wanted to cash in at the top did so. At this point there is extremely little doubt that the market is overbought and has topped out for the short term. Next opportunity will probably be a small Santa Claus rally beginning after Christmas and extending into the first week of January or so as retirement funds etc. bring new money into the stock markets.

Similar Threads

  1. Replies: 5
    Last Post: 03-26-2010, 12:15 AM
  2. Replies: 3
    Last Post: 11-07-2008, 02:56 AM
  3. stock market peak?
    By Adelina in forum Dollar Den
    Replies: 4
    Last Post: 10-05-2007, 07:07 PM
  4. US Stock Market Psychology ...
    By Melonie in forum Dollar Den
    Replies: 14
    Last Post: 01-20-2006, 03:12 PM
  5. The stock market for beginners
    By Juliette_deSade in forum Dollar Den
    Replies: 6
    Last Post: 12-19-2003, 07:10 AM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •