Will Someone Please Explain Why Recent Profit Reports Haven't Taken a Bite out of the Market?

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Okay, I'll admit, I'm clueless about these things, but with all the negative earnings reports that have been released recently (i.e. Compaq, Xerox, U.S. Steel, Raytheon), combined with this coming fuel crisis, why is the market still going up? Anyone care to illuminate the situation?

Thank you! Claudia

-- CD (cdokeefe@firstva.com), January 27, 2000

Answers

Liquidity Rules!!

Ray

-- Ray (ray@totacc.com), January 27, 2000.


Hi, Ray!

Good to see you're still hanging in there on this forum. But what do you mean, "liquidity rules?" Is that something akin to "stupidity rules?"

Claudia

-- CD (cdokeefe@firstva.com), January 27, 2000.


Claudia: When a market, which has been caught up in a mania, reaches this stage, none of the usual indicators that move investors work.Look at P/E ratios,and dividend return for example.So basically the market reverts to a herd mentality,and right now the herd milling around unsure which way the stampede is going next. James

-- James (brkthru@cableone.net), January 27, 2000.

You have discovered the dirty little secret of America's "prosperity." It has nothing to do with actual productive activity. That is evidenced by the hundreds of billions of dollars that are "invested" with start-up Internet companies that employ a handful of people and have yet to turn a profit. The actual economic output of the U.S. as measured in real terms as opposed to mere dollars has been in decline for years. The stock markets are helium bloated bubbles that are primed to burst, not because investors will suddenly wake up to reality, but because the parasitic speculative economy will eventually kill off the host, which is the real economy. There will reach a point when the real economy will no longer be able to support the gutting, and looting and profit taking and lack of authentic economic investment.

-- O Yeah? (worldpage@aol.com), January 27, 2000.

Thank you, James.

I knew that P/E ratios and dividends were no longer benchmarks of value, but I thought that at least these horrible profit reports (dividends related, I know), would shock some sense into the day traders, et al. Could it just be that the institutional buyers are on permanent automatic? Continually pumping money into the system from 401K's and the like?

Sorry if this sounds double ignorant.

-- CD (cdokeefe@firstva.com), January 27, 2000.



O Yeah! writes:

The stock markets are helium bloated bubbles that are primed to burst, not because investors will suddenly wake up to reality, but because the parasitic speculative economy will eventually kill off the host, which is the real economy. There will reach a point when the real economy will no longer be able to support the gutting, and looting and profit taking and lack of authentic economic investment.

This an intriguing way of coming at the problem. Could you explain further? How will gutting these Internet companies destroy the "real economy". Given nothing and no one operates in a vacumm, but won't this type of Internet IPO profit taking carnage be limited to that sector? And how can taking profit from the run-up of individual stocks affect those individual companies, and in turn the economy?



-- CD (cdokeefe@firstva.com), January 27, 2000.

Just like all great Ponzi schemes, all you need is a constant flow of clueless new money.

-- James (brkthru@cableone.net), January 27, 2000.

CD -

It's my understanding that the vast majority of managers are under orders to be fully invested in the market, every last cent. If current downtrends continue (e.g., if the Fed gets very serious in Feb and March about cooling things down), those orders will change.

-- DeeEmBee (macbeth1@pacbell.net), January 27, 2000.


Claudia:

The daytraders and spectualators play it on a day to day,hour to hour,minute to minute basis,they could care less what the trend is and the funds don't make any money accumulating cash.

-- James (brkthru@cableone.net), January 27, 2000.


OBTW

A big chunk came under the door at,1800 zulu , lets see if it works!

-- James (brkthru@cableone.net), January 27, 2000.



Actually most of the profit reports are equal or better than expected. The American economy is chugging into the 9th year of amazing growth. There have been some pull backs like you would expect. Compact's profits were down 56% and thus they took a hit. Dell is predicting problems as they will fail to grow by another 30% next year. Lucent is down for not having as much innovation. RJR Renalds is also down due to reduced shippments of products. Other than these 5, the companies with profits(Pharmaceutical, durable goods manufactures) are doing good.

The part that will be creating a problem is the tech sector. They have high prices and little or no earnings. Ex: Amazon, B&N.com ect. There is where you may have that speculative bubble growing by leaps and bounds. It may burst or it may not. But by applying traditional earnings to tech companies, does not seem to work. If it did Microsoft would have earnings of 72 B each quater.

-- ned (ned@nednet.com), January 27, 2000.


CD, I'm on my way out the door, when I get back I will give you my thoughts on this buble of all bubbles!!

Ray

-- Ray (ray@totacc.com), January 27, 2000.


If Microsoft shows stock options as an employee expense, they have not turned a profit for three years.

-- James (brkthru@cableone.net), January 27, 2000.

James -

Boy howdy, did it work!

Bloomberg: Intraday on the Indices

I was just wondering out loud on another thread what hit the markets at 1PM EST. You pegged it. Got a 0.2% rise in 15 minutes.

So, did this "chunk" just buy all the heavily-weighted stocks in the DJIA/COMP/S&P500, or was it even more selective?

-- DeeEmBee (macbeth1@pacbell.net), January 27, 2000.


DeeEmBee

It was a large hedge fund and they spread it across call options on all the "Heavies "

-- James (brkthru@cableone.net), January 27, 2000.



James -

Many thanks! Amazing what a few $M can do when properly applied, ain't it? ;-}

-- DeeEmBee (macbeth1@pacbell.net), January 27, 2000.


"Just doin'my job,Mam'"

-- James (brkthru@cableone.net), January 27, 2000.

TO cd You said: "This an intriguing way of coming at the problem. Could you explain further? How will gutting these Internet companies destroy the "real economy". Given nothing and no one operates in a vacumm, but won't this type of Internet IPO profit taking carnage be limited to that sector? And how can taking profit from the run-up of individual stocks affect those individual companies, and in turn the economy?"

I was not referring to gutting the Internet companies. There is nothing in them to gut. Selling a stock is not gutting a company. I was referring to the ongoing plundering of the economy as measured in terms of industrial output. The companies the original poster spoke about, the steel companys, Raytheon, and others, are essential in that they produce actual products that are needed to build and grow the economy. When companies cut thousands of jobs and export their manufacturing operations to exploit cheap labor THAT IS WHAT IS MEANT BY "GUTTING." The only benefactors are the stock holders. The real economy is not really profited, but the profit-takers move on and take the loot from an actual productive and essential part of the economy and they invest it in some worthless dot com because it is more profitable in terms of dollars. And it is only more profitable, not because it actually makes a profit, but because hot money has artifically inflated the value. So that is how the speculative financial economy is really living as a parasite at the expense of the host economy.

-- O Yeah? (worldpage@aol.com), January 27, 2000.


James,

How did you see this "chunk"? I am confused?

-- J (Y2J@home.com), January 27, 2000.

J:

Real time data feeds and incredibly expensive analysis software.

-- James (brkthru@cableone.net), January 27, 2000.


James,

Thanks for the info. I obviously don't have the incredibly expensive analysis software, but which real time feeds do you use?

-- J (Y2J@home.com), January 27, 2000.

And we're all very much appreciative of your sharing the wealth of info that these tools provide. I knew you had to be using some pretty sophisticated (and expensive) systems to get that kind of G2 on the markets. Thanks again.

The intradays are getting ugly. Bloomberg just changed the scale on their charts to accommodate the nearly 3% swings we're seeing on the Nasdaq COMP (-1.3% as I write this).

Cartoon in yesterday's paper:

Guy and gal at a bar. Guy says, "I love to skydive, bungee jump, and eat fire, just for fun." Gal says, "That's nothing. I buy tech stocks on margin."

-- DeeEmBee (macbeth1@pacbell.net), January 27, 2000.


Many thanks, James, for the explanation. The only thing is, hasn't this type of gutting of the capital within a company that produces real things has been going on for at least a decade? Wait a minute, I think I just answered my own question. This is how the bubble has gotten this way. Okay, got it. I guess it's just a matter of how thin that bubble's membrane can stretch before the "real economy" goes into the comode. One more question, though, years ago, I read somewhere that we had officially turned into a service/information economy. Even if manufacturer's go into the dumper, we still do have those services, and the information/intellectual goods which we export to the rest of the planet (no, I'm not talking about nuclear secrets going to China). Won't that keep us from taking the Big Sleep economic-wise?

-- CD (cdokeefe@firstva.com), January 27, 2000.

CD -

Consider what sort of services are important/valuable when economic times are tough. It's a much shorter list than those which currently support families and such.

-- DeeEmBee (macbeth1@pacbell.net), January 27, 2000.


CD-

If we survive the loss of our manufacturing base ,it will the first time any state/economy has ,since the beginning of the industrial revolution.

-- James (brkthru@cableone.net), January 27, 2000.


DeeEmBee-

Thanks for the comic relief, it came at just the right moment.

-- James (brkthru@cableone.net), January 27, 2000.


James -

So, how'd you like that session? COMP up 1.5%, then down 2.5%, finally climbing back to finish down a mere 0.75%. The markets get more and more like the NBA all the time -- all that really seems to matter is the "4th quarter" (2-4PM). COMP recovered 1.5% in the last 45 minutes. Looks like the bears need to play some D late in the game. ;-}

One question: why the heck do the Dow 30 and S&P500 track so strongly of late? Their charts move right in tandem with each other. Is the weighting in the S&P such that its key components are essentially the same as the Dow's, and thus cause the two indices to move almost in lock-step?

-- DeeEmBee (macbeth1@pacbell.net), January 27, 2000.


That and everyone is keying off the same narrow sector. The last hour stuff is a combo of end day squaring and all those who are late to the game.

-- James (brkthru@cableone.net), January 27, 2000.

DeeEmBee

Another interesting place to watch is at 1800z when they all come back from lunch.

-- James (brkthru@cableone.net), January 27, 2000.


Hasta Luego , My work day starts at 0530PST (1330-800z)

-- James (brkthru@cableone.net), January 27, 2000.

From The Street.com: Mark et Roundup

Taken by Surprise

"This market was a surprise today," said Peter Cardillo, chief strategist at Westfalia Investments, in an early-afternoon interview. Cardillo said he expected that the Nasdaq would've moved lower at least initially because of the Dell news. The fact it didn't right away "has sort of taken me and the rest of the Street by surprise."

The surprise, considering the fact that the Nasdaq eventually faded, was short-lived for the most part.

Cardillo said the market has discounted a 25 basis point interest rate hike next week by the Fed. The Federal Open Market Committee is slated to meet Feb. 1-2.

Over the short-term, Cardillo said he's expecting the market to hold in until the Fed is out of the way. However, the strategist sees some trouble after that. The strategist said that as the 401(k) money flowing into the market subsides, the market could endure a correction in late February and early March, with the Nasdaq slammed the most. He said that the Nasdaq could suffer a 15% to 20% correction.

However, Cardillo said he does see the Dow at 12,500 at year-end. Cardillo noted that as the market faded early in the afternoon, the bond market rose, suggesting money flowing out of stocks into bonds.

Cardillo also said the huge volume the market's seen lately suggests investors will be seeing volatility for quite some time yet.

Volatility was on other market watchers' minds also.

John Hughes, technical analyst at Shields, said the market's volatility is "at best disconcerting," even to the "most seasoned investors."

As the market prepares to say goodbye to January, what comes next investors (who are long) may not like.

Hughes pointed out that February is not typically a positive month for returns in the market, and he said that the S&P 500 could perhaps go down to 1300 and the Dow to 10,500... Geez, if February is worse than January, we're almost certain see a lot of that margin action work its magic in the opposite (and very bad) direction...

-- DeeEmBee (macbeth1@pacbell.net), January 27, 2000.


CD,

IMHO the Fed encouraged by .gov decided 5 or 6 years ago that inflation rather than deflation was the way to go. This was the ONLY way they could attack the national debt and have plenty of money to continue to expand government The Federal Reserve has always been somewhat politically motivated. For whatever reason (you pick em) they went along with the game.

We had an opportunity to tighten our belts so to speak back then, it would have been painful but by now we would have been through the worst of it. This type of political decision was TOTALLY unacceptable to TPTB it would have meant the party in office would be signing up for unemployment

The decision was made to turn on the printing presses and make every attempt to hide or disguise inflation. This started gradually and has built up a head of steam in the past 2 years. Last quarter, I believe the money supply expanded at an annualized rate of 70%, this is unbelievable. The banks have been given the green light to continue this credit expansion ad infinitum and they have happily joined the parade.

I believe Alan Greenspan is painfully aware of his predicament and the legacy he may garnish as a result.

Next week the Fed meets, a < point raise in interest rates is already factored in the market, a = point rise would let Wall Street know he is serious about putting an end to the largest financial bubble in the history of the world. If he decides to raise rates >% or more watch out below. There is no way to deflate this bubble without a considerable amount of pain on the part of all Americans (depression). Andy posted an excellent article I had read last evening that aptly sheds more light on this tragedy, here is the link:

Idiot Americans (I can criticize my own people)

Ray

-- Ray (ray@totacc.com), January 28, 2000.


Thank you, Ray! FINALLY I understand the problem. The editorial Andy posted is extremely helpful, too. A credit wedge. Of course, I knew that we had crossed the line on our savings rate (saw that little alarm bell go off a while ago), but until I could picture it as a graph, it was difficult to put all the pieces together. Deflation, and then inflation. Geez, what a nightmare! At least my silver went up 12 cents an ounce yesterday (she says, like that's a big deal). Now if only the bubble will last until I get my next contract and can put a hefty chunk down on a house here in Lexington, VA. God speed to us all!

-- CD (cdokeefe@firstva.com), January 28, 2000.

This morning's numbers (ECI and GDP) both came in with inflation attached, so score one for the bears. It's now lunchtime back on the East Coast, so per James' comment above, we should watch for some possibly interesting action when they come back from lunch in an hour (1PM Eastern, 10AM Pacific).

-- DeeEmBee (macbeth1@pacbell.net), January 28, 2000.

DeeEmBee, I think some of the folks forgot to go to the lunch room, it's 12:30pm EST and the Nasdaq has slipped a good bit below the all important 4000 level the Bulls were trying to hold. Might get ugly this pm.

Ray

-- Ray (ray@totacc.com), January 28, 2000.


Just turned on the radio, 570 am Dallas. Excuse if this is old news. They reported that Amazon.com is laying off 100 people. Didn't hear the whole newscast but will find in on net. Curious in our "booming ecconmy, huh???

-- granny-TX (westamyx@bigfoot.com), January 28, 2000.

Posted for educational purposes only. Jan 28, 2000 8:21 AM PT Amazon to lay off 2% of workers Amazon.com (Nasdaq: AMZN) will lay off 150 workers as part of an internal reorganization, Dow Jones reported. The layoffs represent around 2 percent of the company's work force. The company said the changes were not related to holiday sales or seasonal fluctuations. Story to follow. --Margaret Kane, ZDNet News

-- granny-TX (westamyx@bigfoot.com), January 28, 2000.

Ray -

Maybe. Here are the charts: Bloomberg: Intraday on the Indices

Drop at the open, struggled up, dropped until 11AM, more scrambling back up the hill, then a big ol' drop right around 11:45AM (possibly less liquidity), and now holding through lunchtime. Stay tuned. As noted by our friend James, a big fund sent some money "under the door" at 1PM yesterday.

Watch bonds as well. Cramer at The Street.com pointed out that they shouldn't have jumped like they have today unless someone big got on the wrong side (was short bigtime) and now has to recover. More craziness in this very irrational market.

-- DeeEmBee (macbeth1@pacbell.net), January 28, 2000.


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