"Stocks Aren't Cheap ..."
A much busier than anticipated weekend kept me from putting together
the second installment of the above. Rather than project a specific date,
I'll just say that I expect to have it out during the current week.
Stocks are not likely to get appreciably cheaper over the next few
days, although they may get a little cheaper for the week as a whole ... More on
stocks later.
"The War at the Shore"
Monmouth University 10
University of Albany 7
More later on what turned out to be a great football game last
Saturday at West Long Branch, New Jersey.
Interest Rates & Related
* Rates were up across the Treasury yield curve last week, with the
increase more pronounced at the short end. The yield on the two-year note rose
to 1.85%, up 22 basis points, while the yield on the Treasury 5.375s of 2031
ended the week at 5.25%, up seven basis points.
* The Federal Open Market Committee holds a regular policy meeting a
week from tomorrow (10/28). With Greenspan at the helm, these get-togethers
now possess the same manipulative powers that futures and options expirations
do, with the rate cabal pulled by Greenspan at the May FOMC meeting serving as
a prime example.
At present, the FOMC is in no position to cut rates. In fact, I
suspect we've reached a juncture at which the longer end of the Treasury curve
would actually take comfort in the idea a rate hike was not too far around the
corner. It is unlikely one is, however.
* Still, the federal funds futures market continues to signal that
between roughly April and August of next year, the FOMC might be raising the
Federal Funds Rate by upwards of 75 basis points. And as Table 1 in the appendix
indicates, the futures market is presently indicating no further reductions
in the funds rate from its current 1%.
* Stock-market bulls will quickly point to the current run in fed
funds futures as an indication of this market's strong conviction of a greatly
improving economy next year. This might partly explain the configuration. But
concerns about inflation -- yes, "inflation" -- and hundreds of billions in new
Treasury offerings might well explain some of it, too.
Predictably, Wall Street put a great deal of favorable spin on the
most recent reports on inflation at the consumer and producer levels. But
neither report was nearly as innocuous as Street bulls would have people believe.
At both levels, there has been a discernable upward drift in recent months.
(See Table 2.)
Remember, too, that during Alexis Herman's tenure as Labor Secretary,
she made an art form of bastardizing the CPI and PPI, always in the direction
of lowering the numbers versus their respective historical records. Her
growing use of "hedonic" techniques is a prime example, just one reason leading to
my having dubbed her the "statistician magician."
The financial rewards to the federal government were and remain very
significant, because of the amounts already saved in payments to Social
Security recipients and to others where benefits are indexed to the annual change in
the Consumer Price Index. Government credibility is another story, though,
since few people can square their own increase in living costs with anything
resembling what the CPI claims they are.
Nevertheless, even with the games that have been played with the CPI
and PPI in recent years, both are currently trending in less favorable
directions. And the CRB Index is another measure indicating that if Greenspan and
the Fed were to have been genuinely concerned about deflation, they should have
been more vociferous in expressing long before the May 2003 meeting of the
FOMC. (See Table 3.) Please note in Table 2 that the year-over-year decline in
the PPI ended in May 2002, with the same phenomenon showing up in the CPI a
month later.
Of course, sounding a warning about deflation is not what the
Greenspan Gang was really up to in May, as more and more people now realize.
* As of the end of last week, yields available on the obligations of
the governments of Australia, the United Kingdom and Germany remained more
than competitive with those of the US Treasury. (See Table 4.)
The Stock Market
* My seven-measure tracking group was up an average 0.1% last week,
recording a slightly better median gain of 0.2%. The week's highs were put in
during intraday trading last Wednesday (10/15). From those respective highs
through last Friday's close, the tracking group registered respective average
and median declines of 1.9% and 1.5%.
* If the stock market really is climbing the "wall of worry"
professed by bulls, the wall is not terribly formidable in height. The CBOE
Volatility Index finished last week at 17.62, having traded at a 52-week low of 16.86
on Thursday. (See Table 5.) Moreover, the Investors Intelligence numbers
continue to show a great deal of enthusiasm for stocks.
* Although last week contained an expiration, its overall influence
on the market did not appear excessive. Prices peaked on Wednesday,
consistent with the historical pattern of much of an expiration's influence washing
through the market by that day, with most of what remains washing through on
Thursday. Last week's NYSE core volume was low, coming in at 6.42 billion shares,
an average of 1.28 billion per day. Peak volume occurred on Wednesday, at
1.47 billion shares. (See Table 6.)
* Some variety of market top occurring during an expiration week has
some possibilities. Something of a pressure point also exits coming out of
last week regarding short-term rates of change. (See Table 7.)
* Key moving-average relationships for the DJIA, the NASDAQ Composite
and the S&P 500 are found in Table 8.
More on "The War at the Shore"
Put two strong defensive football teams on the field and, if both
play to their defensive potential, you should wind up with a low-scoring game.
That is exactly what happened in West Long Branch, NJ, on Saturday, as the
Monmouth University Hawks defeated the University of Albany Great Danes, 10 to 7.
Monmouth entered the game with the country's number one defense at
the NCAA 1-AA level, having yielded an average of only 225 total yards per game.
It surrendered 236 to Albany, including only 68 rushing yards. Sixty-seven
of those were to Gary Jones, Albany's All-America tailback, who carried the
ball 16 times to get them. Net, net, Jones did little damage, and Monmouth's
ability to control the ball for almost 39 of the game's 60 minutes, while not
resulting in many points, was exceptionally instrumental in the victory.
Monmouth's All-America linebacker, Joe Sentipal, intercepted a pass
in the first quarter, leading to a 44-yard Hawk field goal. As it would turn
out, this represented the margin of victory.
There were five turnovers in the game, three by Albany and two by
Monmouth. In no way did this denote a sloppy contest, however. Rather, it was a
reflection of bone-crushing defense by both teams that rivaled anything you
would witness at any level of football.
MSG did a great job in its telecast of the game, and you will find a
summary of some of the stats in Table 9.
__________
TABLE APPENDIX
TABLE 1.
--------------------------------------------
FEDERAL FUNDS FUTURES -- 10/17 VS. 09/12
--------------------------------------------
10/17 09/12 BP Scheduled
Contract Close Close* Chg. FOMC Meetings
----------------------------- -------------
2003
----
Oct. '03 1.01% 1.01% 0 Oct. 28
Nov. '03 1.02% 1.01% 1 No Meeting
Dec. '03 1.02% 1.00% 2 Dec. 9
--------------------------------------------
2004
----
Jan. '04 1.03% 1.00% 3 Jan. 27-28
Feb. '04 1.06% 1.02% 4 No Meeting
Mar. '04 1.12% 1.06% 6 Mar. 16
Apr. '04 1.20% 1.09% 11 No Meeting
May '04 1.33% 1.19% 14 May 4
June '04 1.36% 1.22% 14 June 29-30
July '04 1.53% 1.34% 19 No Meeting
Aug. '04 1.68% 1.44% 24 Aug. 10
Sep. 21
No Meeting
Nov. 10
Dec. 14
--------------------------------------------
*Friday prior to FOMC meeting on 9/16.
--------------------------------------------
TABLE 2.
--------------------------------------
CHANGES IN THE CONSUMER AND
PRODUCER PRICE INDEXES
--------------------------------------
CPI* PPI#
--------------------- --------------
Month Trailing Year/ Trailing Year/
Ended Quarter@ Year Quarter@ Year
--------------------- --------------
09/03 3.1% 2.3% 3.4% 3.5%
08/93 2.6% 2.2% 4.6% 3.5%
07/03 1.3% 2.1% 1.1% 3.0%
06/03 -0.7% 2.1% -5.9% 2.9%
05/03 0.0% 2.1% -2.8% 2.5%
04/03 2.4% 2.1% 3.4% 2.4%
03/03 5.2% 3.0% 16.8% 4.0%
02/03 4.3% 3.0% 9.2% 3.4%
01/03 2.2% 2.6% 3.2% 2.5%
12/02 1.6% 2.4% 0.9% 1.2%
11/02 2.0% 2.3% 3.2% 1.0%
10/02 2.5% 2.0% 4.4% 0.7%
09/02 2.5% 1.6% 1.2% -1.6%
08/02 2.2% 1.7% 0.6% -1.5%
07/02 1.8% 1.5% -1.1% -1.1%
06/02 2.9% 1.1% -1.7% -2.2%
05/02 3.6% 1.2% 0.9% -2.7%
--------------------------------------
Note: All data are seasonally adjust-
ed. *All urban, all items, 1982-1984
= 100.00. #Finished goods, 1982 =
100.00. @Compound annual rate.
______________________________________
TABLE 3.
---------------------------------------
CRB FUTURES INDEX & RELATED MEASURES
-- TO 10/17/03 FROM YEAR-EARLIER LEVELS
(Sub Indexes Ranked in Year/Year Order)
---------------------------------------
10/17 Year Year/
Group Indexes Close Ago Year
---------------------------------------
CRB Futures 243.31 230.81 +5.4%
=======================================
Industrial 239.92 162.57 +47.6%
Livestock 269.40 219.60 +22.7%
Prec. Metals 316.62 266.44 +18.8%
Energy 344.82 312.85 +10.2%
Grains 201.38 207.95 -3.2%
Softs 247.27 317.79 -22.2%
---------------------------------------
TABLE 4.
-------------------------------------------------
APPROXIMATE INTEREST RATES OF SELECTED
COUNTRIES' GOVERNMENT NOTES AND BONDS
-------------------------------------------------
Maturity
Date ----------------------------
Country 2003 1-Year 2-Year 5-year 10-year
-------------------------------------------------
Australia 10/17 5.10% 5.30% 5.62% 5.77%
United Kingdom " 3.78% 4.44% 4.77% 4.90%
Germany " 2.24% 2.67% 3.60% 4.31%
UNITED STATES " 1.01% 1.85% 3.33% 4.39%
Japan " 0.02% 0.10% 0.62% 1.42%
-------------------------------------------------
THE US DOLLAR'S EXCHANGE-RATE PERFORMANCE
AGAINST THE CURRENCIES OF THE ABOVE COUNTRIES
(Listed in Same Order as Above)
-------------------------------------------------
% Change
To 10/17 From
Country/ 10/17 06/30 12/31 -------------
Currency 2003 2003 2002 06/30 12/31
Close Close Close 2003 2002
-------------------------------------------------
Australia Dol. 1.4447 1.4843 1.7819 -2.7 -18.9
UK Pound 0.5962 0.6039 0.6212 -1.3 -4.0
Germany (Euro) 0.8565 0.8684 0.9524 -1.4 -10.1
Japanese Yen 109.40 119.72 118.76 -8.6 -7.9
-------------------------------------------------
FRB $ Index 92.29 94.73 101.85 -2.6 -9.4
-------------------------------------------------
TABLE 5.
----------------------------------------------------
THE BEHAVIOR OF CBOE SENTIMENT-RELATED MEASURES
AND THE S&P 500 FROM 06/20/03 THROUGH 10/17/03
----------------------------------------------------
S&P 500
Date CBOE Options -------------------
or Put/Call Ratios Versus Cum.
Week CBOE -------------------- Prior 10/9/02
Ended VIX* All Equ. Ind. Tot** Close Week = 100
----------------------------------------------------
2003
10/17 17.62 0.64 0.46 2.00 0.82 1039.3 +0.1% 133.81
----------------------------------------------------
10/16@17.19 0.65 0.51 1.00 0.82 1050.1 -- 135.20
----------------------------------------------------
10/10 18.45 0.93 0.70 2.18 0.81 1038.1 +0.8% 133.66
10/03 19.50 0.75 0.55 1.45 0.81 1029.9 +3.3% 132.60
09/26 22.23 0.98 0.87 1.28 0.81 996.9 -3.8% 128.35
09/19 19.07 0.68 0.54 1.38 0.82 1036.3 +1.7% 133.42
09/12 20.25 0.90 0.70 1.36 0.82 1018.6 -0.3% 131.14
09/05 19.37 0.72 0.55 1.68 0.81 1021.4 +1.3% 131.51
08/29 19.49 1.29 1.15 2.14 0.80 1008.0 +1.5% 129.78
08/22 20.27 0.91 0.72 2.07 0.79 993.1 +0.2% 127.86
08/15 20.20 0.53 0.43 1.16 0.79 990.7 +1.3% 127.55
08/08 21.29 0.81 0.63 1.31 0.79 977.6 -0.3% 125.87
08/01 22.78 0.91 0.74 1.30 0.78 980.2 -1.9% 126.20
07/25 19.94 0.67 0.54 1.03 0.78 998.7 +0.5% 128.58
07/18 21.36 0.61 0.53 1.11 0.79 993.3 -0.5% 127.89
07/11 20.72 0.98 0.89 1.34 0.78 998.1 +1.3% 128.51
07/04 21.61 1.08 0.85 2.08 0.77 985.7 +1.0% 126.91
06/27 21.71 0.99 0.81 1.89 0.76 976.2 -2.0% 125.69
06/20 21.09 0.51 0.36 1.30 0.80 995.7 +0.7% 128.20
----------------------------------------------------
*2003 VIX highs and lows through 10/17: high =
41.16 (3/12), low = 16.86 (10/16). *2002 VIX highs
and lows: high = 56.74 (7/24), low = 18.87 (3/28).
**P/C ratio of total open interest of all products
as of dates shown. @S&P high close since 10/2/02.
---------------------------------------------------
TABLE 6.
----------------------------------------------------
NEW YORK STOCK EXCHANGE BREADTH MEASURES
----------------------------------------------------
Volume* Issues 52-Week
---------------- -------------- --------------
Week -A- -B- -A- -B- A/ H/
Ended Total Advan. B/A Adv. Decl. A+B High Low H+L
----------------------------------------------------
2003
10/17 6.422 3.088 0.48 8289 7755 0.52 1757 25 0.99
10/10 6.192 3.541 0.57 9238 6810 0.58 1746 26 0.99
10/03 7.268 4.673 0.6410626 5567 0.66 992 40 0.96
09/26 7.062 2.160 0.31 6316 9794 0.39 584 52 0.92
09/19 6.746 3.948 0.59 9248 6815 0.58 1050 48 0.96
09/12 6.747 3.256 0.48 8655 7455 0.54 796 45 0.95
09/05#5.987 3.575 0.60 7632 5302 0.59 1477 28 0.98
08/29 5.289 3.237 0.61 9393 6555 0.59 679 57 0.92
08/22 6.340 3.589 0.57 9107 7019 0.57 1309 110 0.92
08/15 5.166 3.111 0.60 9234 6700 0.58 693 132 0.84
08/08 6.529 3.154 0.48 7854 8281 0.48 253 254 0.50
08/01 7.051 2.934 0.42 6811 9443 0.42 735 245 0.75
07/25 6.941 3.649 0.53 8092 8094 0.50 527 94 0.85
07/18 7.623 3.355 0.44 7024 9218 0.43 781 80 0.91
07/11 7.154 3.858 0.54 8676 7492 0.54 1264 33 0.98
07/04#5.265 3.012 0.57 7404 5457 0.58 648 23 0.97
06/27 6.806 2.842 0.42 7984 8289 0.49 423 42 0.91
06/20 7.451 3.665 0.49 7847 8452 0.48 1272 26 0.98
----------------------------------------------------
*Billions of shares. #Four-day trading week.
----------------------------------------------------
TABLE 7.
------------------------------------------------
DJIA, S&P 500 AND NASDAQ 100 -- TW0-
WEEK COMPOUND ANNUAL RATES OF CHANGE
------------------------------------------------
PROJECTED VALUES TO 10/24/03 FROM 10/17/03 CLOSE
------------------------------------------------
Projections to 10/24/03
>From -----------------------------------------
10/17 2-Wk. S&P 2-Wk. NASD 2-Wk.
Close DJIA ROC 500 ROC 100 ROC
------------------------------------------------
+5% 10208 +304% 1091 +264% 1464 +192%
+3% 10013 +144% 1070 +120% 1436 +77%
0% 9722 +14% 1039 +2% 1394 -18%
-3% 9430 -49% 1008 -53% 1352 -63%
-5% 9236 -70% 987 -73% 1324 -79%
------------------------------------------------
TABLE 8.
-------------------------------------------------
200-DAY MOVING-AVERAGE VIOLATIONS --
VALUES PROJECTED FROM CLOSE ON 10/17/03
-------------------------------------------------
% Decline From
MA Violation/ 10/17 Close At
Resulting Price Violation Of:
10/17 --------------- -----------------
Measure Close 1% 3% 5% 1% 3% 5%
-------------------------------------------------
DJIA 9722 8693 8518 8342 10.6 12.4 14.2
NAZ Comp. 1912 1562 1531 1499 18.3 19.9 21.6
S&P 500 1039 933 914 895 10.2 12.0 13.9
-------------------------------------------------
DJIA, NASDAQ COMPOSITE AND S&P 500 CLOSING
PRICES ON SELECTED DATES VERSUS RESPECTIVE
20-DAY, 50-DAY AND 200-DAY MOVING AVERAGES
(In Percent or Portion Thereof)
-------------------------------------------------
DJIA Vs. NAZ Comp. Vs. S&P 500 Vs.
------------- ------------- -------------
Date 20D 50D 200D 20D 50D 200D 20D 50D 200D
-------------------------------------------------
2003
10/17 +2 +2 +11 +2 +4 +21 +1 +2 +10
09/18 +2 +4 +11 +4 +8 +26 +2 +4 +12
08/19 +2 +3 +10 +3 +4 +19 +2 +1 +9
07/18 +1 +2 +8 +1 +5 +19 +.3 +2 +10
06/20 +2 +6 +10 +1 +7 +19 +1 +5 +12
-------------------------------------------------
03/14 +.6 -3 -7 +2 -.2 -.7 +.4 -3 -7
2002
10/09 -7 -13 -23 -7 -12 -30 -7 -12 -24
07/16 NA -12 -14 NA -11 -22 NA -12 -18
-------------------------------------------------
TABLE 9.
-----------------------------------
Albany NY 7, Monmouth NJ 10
---------------------------
1st 2nd 3rd 4th Total
Albany 0 0 7 0 7
Monmouth 3 7 0 0 10
===============================
Scoring Summary
---------------
Monmouth FG - 44 Yards
Monmouth TD - 15-Yd. Pass (Kick)
Albany TD - 36-Yd. Pass (Kick)
================================
Team Statistics
---------------
Albany Monmouth
First downs 6 13
Rushed-yards 34-68 52-143
Passing yards 97 113
Sacked-yards lost 1-7 4-23
Return yards 71 5
Passes 6-18-2 11-20-0
Punts 9-38 10-36
Fumbles-lost 2-1 2-2
Penalties-yards 4-30 4-44
Time of possession 21:13 38:47
-----------------------------------
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