STOCK MARKET WATCH, FRIDAY NOV 21....(#1)

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The Problem With Wall Street Analyst Calls

Analyst upgrades and downgrades are usually based on predicted short-term business conditions. The analyst’s decision to upgrade or downgrade the stock is usually based on the current market value of the stock (typically assumed to be at “fair value”). The short-term business conditions cited by the analyst provide the basis to upgrade or downgrade the stock from its current “fair value”. In the case of the Merrill Lynch recent upgrade of the broad line retailers, the analyst is citing improved short-term business conditions that, when compared to slower conditions last year (but better conditions the year before), will appear as “growth” to the stock market. However, as any logical person can see, this is not growth. It is just a cyclical fluctuation in business conditions.

In any valuation model for shares in a business, the fluctuation in business conditions would only result in negligible changes in stock value. In spite of this, Wall Street uses these tactics to “job” the price of stock shares while increasing trading volumes. And yes, orchestrated short squeezes are also an integral component of many such analyst calls. Trading resulting from analyst calls supports the bottom line of the brokerages since their profits and revenue are directly linked to the trading volume supported by speculation. Hidden in this stock jobbing is the amount taken from the trading “gamblers” by the “House” via bid/ask spreads. In 1988 Warren Buffett estimated that these costs to traders amount to a sum equivalent to 8% of corporate profits.

A Solution

The Securities and Exchange Commission (SEC), who is charged with serving the public’s interest and is funded through tax dollars, could effectively end this useless and deceptive stock jobbing with practically the stroke of a pen. They could pass regulations that required all analyst reports, and stock upgrades and downgrades to contain a recognized long-term cash flow valuation model. One such model by Warren Buffett is described in, The Warren Buffett Way: Investment Strategies of the World's Greatest Investor, by Robert G. Hagstrom. The model would have to indicate all long-term assumptions along with predicted sales growth, margins, and other key fundamental data. Such rules would not entirely eliminate stock jobbing, but listing the analyst’s assumptions would provide traders and the public with a basis to evaluate whether their predictions were reasonable. In many cases, I’m sure that such predictions and assumptions will be exposed as obviously unreasonable or even absurd. Consider the string of crazy assumptions and predictions needed to justify a market capitalization of $20 billion for Amazon.com.

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Will Things Change?

Will things change in the near term? I don’t think so. The SEC is currently part of the problem and not part of the solution. Our political leadership feels that our overvalued stock market should be supported no matter what. They do not want to rock the boat for the public’s long-term good. They want us feeling rich and spending. Business as usual on Wall Street is part of that. Our economy is now too dependent on an undependable character – the stock market. The SEC makes us comfortable that the stock market is fair by parading Martha Stewart in front of the TV cameras every few days for several years. Then they rapidly settle with proven and admitted mutual fund thieves in a (figuratively) smoke-filled room behind closed doors.

Nothing has changed on Wall Street!

Will it be a second down week or will Something intervene and make it all better? :shrug: Tensions are high across the globe, but hey, Disney had a good quarter and mortgage rates dropped a bit again, so....

The Mother-in-law is In The House, so I won't be around today to watch. Enjoy the casino!

Have a wonderful visit with you MIL. I will be around for much of the morning but very absent in the afternoon.

It looks like this game could go either way - just like yesterday.

NEW YORK (CNN/Money) - U.S. markets could be poised to close out a second straight losing week Friday, but early indications point to a strong opening that could at least mitigate some of the declines.

At 5:25 a.m. ET, futures pointed to a solidly higher open for the major indexes.

The Dow Jones industrial average enters the final day of the trading week down by more than 149 points after a 0.7 percent decline Thursday that followed a new wave of bombings in Turkey, so it would take about a 1.5 percent rally to move into positive territory.

The road's a little tougher for the Nasdaq composite index; it's more than 48 points lower for the week after a 0.9 percent retreat Thursday, meaning it would need about 2.5 percent to climb into the black (see chart for details).

article

NEW YORK (CNN/Money) - Though Federal Reserve Chairman Alan Greenspan said Thursday the huge U.S. trade deficit can shrink without crippling the dollar, and U.S. financial markets along with it, analysts warned a dollar plunge can't be ruled out.

In a speech in Washington, Greenspan said the U.S. current account deficit, the broadest measure of U.S. trade with the world, which has widened to about 5 percent of gross domestic product (GDP), can shrink without a sharp dollar correction.

"Should globalization be allowed to proceed and thereby create an ever more flexible international financial system, history suggests that current imbalances will be defused with little disruption," Greenspan said.

While a small drop in the dollar could be a good thing for U.S. exporters, making U.S. products more competitive overseas, too sharp a decline would slam stock and bond markets, raising interest rates and slowing the economy.

more...

I notice that the word "recession" is conspicuously absent in most rah-rah analysis. But that is the word I heard on marketplace over the past two days. And the sages at FinancialSense have dared utter "recession" as it pertains to currency wars breeding trade wars.

http://quotes.ino.com/chart/?s=NYBOT_DXY0

Last trade 90.71 Change +0.05 (+0.06%)

looks like it has firmed up a bit - down from earlier highs but still not down for the day.

Mostly I think it will depend on intervention from the ECB and BoJ - part of its propped up by the need of foreign banking communities to not allow the dollar to have an "unruly slide" - will they succeed?

Anyone's guess is as good as mine.

You could have knocked me over with a feather yesterday when I saw the day's closing. Didn't expect that at all -

Today at 2 EST the budget numbers come out (no one is talking about that in the economic community) and I wonder how much influence a $71 Billion dollar month will have?

Have a great day Marketeers!

LONDON (Reuters) - The dollar firmed away from this week's record low against the euro and three-year lows on the yen on Friday, weathering heightened security concerns after a two-week run lower left the market in need of a breather.

Rockets hit the Iraqi Oil Ministry and two Baghdad hotels used by foreign contractors and journalists on Friday, a day after blasts in Istanbul killed 27. But traders said the market was reluctant to sell dollars aggressively on the news.

Suspected Bank of Japan intervention this week helped put a floor under the greenback, as did minor position squaring after a heavy spate of dollar selling. Dealers also see a lot of bad news priced into the dollar.

story

http://money.cnn.com/2003/11/21/commentary/bidask/bidask/

NEW YORK (CNN/Money) - Way back in May, Treasury Secretary John Snow gave what amounted to a substantial rejiggering of what the market thought was the United States' "strong dollar" policy.

Keeping the dollar strong wasn't about keeping it strong against other currencies. Rather, it was a policy of keeping the dollar's internal qualities strong. Don't judge the greenback against those other kids in the class, judge it on its own merits.

"You want people to have confidence in your currency," said Snow. "You want them to see the currency as a good medium of exchange. You want the currency to be a good store of value. You want it to be something people are willing to hold."

But even under the Treasury Secretary's definition, the dollar doesn't seem very strong lately. These days, it seems, when the going gets tough, investors get out of the greenback.

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Second, investors appear to believe that the United States' financial stability is at higher risk than other major economic powers'. This squares with growing concerns over the current account deficit -- the gap in the United States' trade in goods and services with the rest of the world.

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I actually believe that point number 2 should have been point number one in this case.

today. Will Disney making a few extra pennies save the world? Will geo-politicla events keep traders inthe realm of reality? No telling.

will check back in a bit.

Julie

Krispy Kreme Profit Climbs 43 Percent

NEW YORK (Reuters) - Krispy Kreme Doughnuts Inc. (KKD.N: Quote, Profile, Research) on Friday said quarterly earnings rose 43 percent as new store openings propelled sales.

However, average weekly sales, a closely watched measure for Krispy Kreme, fell 3 percent.

story

NEW YORK - U.S. stocks are leaning toward the positive before the open Friday, as investors look to snap up some bargains following Thursday's sell-off. With no economic news on the menu Friday, investors will be left to sort the weeks' news including Friday's on-target earnings and updates from Kripsy Kreme. Option expirations might also add some volatility to the market as traders square up positions.

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story

DUBLIN (Reuters) - European Union (news - web sites) trade chief Pascal Lamy said on Friday the EU is determined to take steps against the United States if it fails to comply with WTO rules, but retaliation would be a last resort.

Despite the threat of EU sanctions against the United States, he said there was not "overall sickness" in the world trade system and was optimistic that world trade talks which collapsed in Cancun, Mexico, in September would be revived.

Lamy said the EU did not relish the prospect of imposing penalties in two rows over U.S. tax breaks for exporters and steel import tariffs.

story

WASHINGTON (Reuters) - Freddie Mac (FRE.N: Quote, Profile, Research) , the No. 2 U.S. mortgage finance company, on Friday said it overstated earnings by $989 million in 2001 and understated profit by more than $5 billion in 2000 and 2002 in order to smooth out results and show the steady growth favored on Wall Street.

Including periods before 2000, the cumulative result of the data manipulation was an understatement of earnings by $5 billion, the company said.

The disclosure closes one chapter in a scandal involving shady accounting, a doctored diary and ousted executives. The company still faces investigations by regulators and law enforcement officials, and likely tougher government supervision.

story

Doesn't this poke a big ol' hole in the argument for voluntary oversight?

Dow 9,636.90 +17.48 (+0.18%)
Nasdaq 1,889.69 +7.77 (+0.41%)
S&P 500 1,036.35 +2.70 (+0.26%)
10-Yr Bond 4.147% -0.007


I'm off to strategically place some Dean signs around town. Will check back in a bit. :hi:

Julie

Thanks for fighting the good fight!

Bonds looking weak, though.

Dow 9,634.83 +15.41 (+0.16%)
Nasdaq 1,893.06 +11.14 (+0.59%)
S&P 500 1,037.08 +3.43 (+0.33%)
10-Yr Bond 4.140% -0.014

MIL in the shower...and the habit of checking in is too strong to break!

Dow 9,608.68 -10.74 (-0.11%)
Nasdaq 1,884.52 +2.60 (+0.14%)
S&P 500 1,033.70 +0.05 (0.00%)
10-Yr Bond 4.150% -0.004

10:28 numbers show averages dithering around the waterline.


Dow 9,624.39 +4.97 (+0.05%)
Nasdaq 1,888.93 +7.01 (+0.37%)
S&P 500 1,035.09 +1.44 (+0.14%)
10-Yr Bond 4.140% -0.014

Dow 9,593.14 -26.28 (-0.27%)
Nasdaq 1,881.29 -0.63 (-0.03%)
S&P 500 1,032.13 -1.52 (-0.15%)
10-Yr Bond 4.127% -0.027


But at least more folks in my region will be asking about this Howard Dean guy whose name they are starting to see all over the place. ;-)

Julie

How many signs did you place?

I believe that it is still too early to expect a significant negative move in the Bush approval ratings because there still is little name recognition among the Democratic candidates across the general populus and particularly the swing voters. Even more to the point of Bush vs. "Unnamed Democrat" - there is no solidified resistance against Bush as long as we have Dems dogging each other in the primaries.

Now, more to the topic at hand: when one name is recognized and Democratic economic principles are disseminated, then we will at least have a guiding principle for extracting ourselves from the looming economic mess.

As Martin Goldberg says in the WrapUp - the SEC is no help. Nothing will change on Wall Street as long as collusion with the White Whore House tips the balance in favor of fraudulent fiscal reporting for the sake of political/electoral expediency (read: higher approval numbers for *).

I want to see if they get torn down or what first. I choose the most traveled routes. High profile, hard to get to (damn hard haha) places. STeeeeeeep hills along road. Managed to make it back down them on my feet not my bum so was happy.

Will drive around tomorrow to see how they fare. Am scouting out other great locales.

ABB all the way! That will be good for the markets and I don't mean fake good. ;-)

Julie

11:05


Dow 9,614.84 -4.58 (-0.05%)
Nasdaq 1,886.16 +4.24 (+0.23%)
S&P 500 1,033.88 +0.23 (+0.02%)
10-Yr Bond 4.127% -0.027

Several errands need running and my son is chomping at the bit to get outside (sounds like oss-aye).

Have a great weekend!

Ozymandius

A little down, now a little up - looks like an interesting day ahead.

Dow 9,634.83 +15.41 (+0.16%)
Nasdaq 1,893.12 +11.20 (+0.60%)
S&P 500 1,035.99 +2.34 (+0.23%)
10-Yr Bond 4.125% -0.029

Dow 9,620.39 (+0.97)
Nasdaq 1,889.41 (+7.49)
S&P 1,034.64 (+0.99)

Friday looks to be dead.

http://story.news.yahoo.com/news?tmpl=story&cid=568&e=1&u=/nm/minerals_gold_hedging_barrick_dc

Won't this push gold up? Any help understanding this type of stuff would be greatly appreciated.

on Edit add following
LBN thread on this here:
http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=102&topic_id=233189

I've been reading for some time about the practice of 'gold leasing' done by banks, etc... I've heard that this is one place where many financial institutions would be very vulnerable to rapid increases in the price of gold.

I'm wondering whether this decision by Barrick has anything to do with gold leasing (since it would be a hedge).

to look to the derivatives market -

here a great link that has a very good chart (and is reasonably recent) regarding "futures" and would have more relative merit in watching the price of gold.

As more and more entities get out of derivatives, the price of gold will be allowed to increase - seeing as there will not be so much at stake to lose by betting against the rise in the price of gold.

http://www.goldensextant.com/Charts.html

I am beginning to get very concerned about the dollar value, recession and inflation. There has been so much manipulation of the cuurency markets and central banks for so long. Frankly Greenspan's comments have me leery. Been a bit jumpy lately. So much insider hanky panky going on, the report on Barretts just got me going again.

Shouldn't be such a worry-wart.

I think it is stupid how these investors,,,buy,,,run up the price and then...Sell....I guess I mean "Shorts". They always Screw up my portfolio's Weight. Oh well Thats why I keep most of my investments in low risk investments like IRA's and CD's. Rate of return is not as good, But it always Meets my required returns, unlike stocks. BTW....Check out NYSE.COM and BLOOMBERG.COM....GOOD source of Stock info.

Rollercoaster down and up. Volumes are a little light, though, s owe could be looking at the second string in action.

Dow 9,634.83 +15.41 (+0.16%)
Nasdaq 1,894.13 +12.21 (+0.65%)
S&P 500 1,035.85 +2.20 (+0.21%)
10-Yr Bond 4.147% -0.007

Everyobody's above water on Wall Street.

Dow 9,621.35 +1.93 (+0.02%)
Nasdaq 1,890.59 +8.67 (+0.46%)
S&P 500 1,034.32 +0.67 (+0.06%)
10-Yr Bond 4.147% -0.007

Dow 9,628.53 +9.11 (+0.09%)
Nasdaq 1,893.88 +11.96 (+0.64%)
S&P 500 1,035.28 +1.63 (+0.16%)
10-Yr Bond 4.147% -0.007

Yahoo Finance Wrapup for week:
"Close: Stock market finished the day pretty much as it started - with modest gains for the session... Not a whole lot happened in the interim as a number of overhangs kept the indices from building onto their lead... To begin, today marked a triple witching options expiration that brought with it choppy trading action and mixed industry leadership... Secondly, reports that al Qaeda warned of major attacks by February conjured up geopolitical fears and led to modest profit-taking...
Finally - and most importantly - buyers were held hostage by the same valuation concerns that have plagued the market for the past two weeks... The indices have soared over the past year, and with tax selling around the corner and institutions apt to reduce exposure at year-end to protect profits, investors have opted against adding to positions... Drug shares fell the most in today's trade, although their weakness rested with Merck's (MRK 42.29 -2.87) announcement that it was discontinuing its Phase III developmental program for its diabetes drug... The move prompted Morgan Stanley to downgrade MRK to Equal-Weight from Overweight, saying this was the "last straw" after a series of recent setbacks...

Elsewhere, technology groups such as semiconductor, software, and internet edged higher, and blue chip sectors like financial, homebuilding, and retail advanced slightly as well... The latter benefited from stronger than expected Q3 (Oct) reports from Nordstrom (JWN 34.79 +2.97) and Dillard's Inc (DDS 15.52 +1.02)..."

Have a good weekend. See everyone in the Casino on Monday morning!