5/5/03
With the Friday May 2nd close in the Dow at over 8500, the technicals of the market suggest we may get a further rise to 9000, but I do not see a rise breaking 9200. The Nasdaq could go to 1550, but I just don't see the Nasdaq breaking through 1800 anytime soon.

Why are the markets bullish? And should the markets be bullish? The bullishness is unbelievable (I watched the 2 hour block of business shows on Foxnews Saturday, May 3, 10am to noon and for the first time ever, every single talking head - some of whom I respect - all were bullish short term and only one saw this rise as a bear market rally), with the war over and a tax cut coming goes the talk the markets have bottomed in October at 7198 and a new bull market is beginning right now. Consumer confidence rose 20 points last month, the largest rise ever, GDP will soar, the job market will pick up - within 6 months new claims for joblessness will drop to 300 thousand or less, unemployment rate to 5% or less and GDP 4th quarter 2003 would be 4-5%, earnings will continue to soar as they have in the first quarter of 2003.

Of course pigs can fly, and they can - but only when shot out of cannons.

I really don't want to appear negative, but there are a few problems the talking heads are ignoring. Let me attempt to list them in no particular order:

First quarter earnings were great. Compared to expectations earnings were "great," but the expectations were generally ridiculously low. Further, the quality of the earnings is very suspect: Finance companies and banks increased earnings by reducing bad debt reserves, how was that in a poor economy? Retailers increased earnings by increased gross margin and lower costs, again - how? Etc... Most large companies showed pension gains (in earnings) like GE (pension earnings are projected) of over $1 billion, when in fact in 2002 the pension lost $6.3 Billion and had losses in 2002, 2001 and 2000, yet in each year GE earnings increased due to pension projections.

In order for the markets to really rally, we need new accounting regulations which are black and white and easy for anybody to understand. Obviously when a pension loses of $6 billion in value it should not be increasing earnings for that corporation. Actually, why should a pension's increased value even increase earnings at all? The corporation cannot take out the money - yes, the corporation can reduce contributions but underfunded pensions do not reduce earnings, otherwise half of the Fortune 500 would be losing big (like GM, underfunded over $10 billion, Ford underfunded by $5 billion, IBM underfunded by about $1 billion, Boeing underfunded by $2 billion, etc...)

There is a fundamental problem in a rally in the bear market, no there are many problems: P/Es are 30 - 32, debt levels are enormous, every ratio is completely out of whack, speculation as measured by penny stock interest is huge, the put to call ratio is way too low, bullishness is near the top at 2000, March. This is just nonsense.

Let us review the Arnold's Ramblings Inc. position:

a) Dow may hit 9000+/-, but before November 2003 should break down below 7198 to or towards 6000 or less.
b) Nasdaq may hit 1750 to 1800, but before November 2003 should break down below 1100 to below 1000.
c) The Dollar shold continue its colossal decline.
d) Gold will rally above the recent price of $389 and break through $400/ounce.
e) Long-Term Yields on 30 year Treasuries presently at 3.90% should start to rise above 5% by year-end.

Many of you have taken enormous losses in your stock portfolios since 1999 and 2000. Should you be one of these people, and most especially you dealt with one of the ten firms settling with the SEC for $1.4 billion - you need to hire an attorney to get back some (or all) of your losses. It is highly unlikely you will get back all of your losses - but you should be able to stake your claim to some of that $1.4 billion.

If you already have an attorney who specializes in brokerage/client investment issues, great, go and file! If not, please contact me at once so that we can find you an attorney who will get you what is rightfully yours!

Do not delay, the sooner you file, the sooner you will get what is yours and the money will still be available.

As a reminder: For all of you who are passing Arnold's Ramblings on to friends, family members, enemies - whoever, now you can provide them a fresh copy, direct from the source! Ask them to go to http://www.arnoldsramblings.com/NavLinks/Subscribe.html.

Copyright 2003 Arnold's Ramblings Inc., All Rights Reserved.
- posted by Arnold @ Monday, May 05, 2003