Recommended link of the day:
...I recommend reading the following article from Alan M. Newman entitled Still On Overdrive.
Here's the link:
http://www.cross-currents.net/charts.htm
...Great stuff! Newman runs a subscription site, but periodically publishes a free report. This one is outstanding, IMO. (Note: I don't subscribe to Mr. Newman's service, I don't know him or get anything out of this. I just think this article was particularly noteworthy for the wealth of pertinent data shared.)
...So much info in that article that I hesitate to highlight any one thing, but of particular note to me was the following:
...1. Program trading accounts for well over half the trading volume on the NYSE. Newman says that in the week ended September 16, it amounted to 70.9%. Program trading is defined as trades where at least 15 different stocks are traded with a total value of $15 million+.
...2. Mutual fund cash positions are near or at all time lows. Does that beg the question where will the new money come from to finance continued higher stock prices?
...3. Total margin debt is higher now than at the end of December 1999. The mania lives.
.
5th year of Decennial Cycle:
...Remember at the beginning of the year hearing about the 5th year of decennial cycles, and how great the returns were? In the 20th century, for example, the smallest gains for a year ending in '5' was 10.9% in 1965. The best was 81.7% in 1915. (Data in Newman's article).
...This year through Friday November 18 close, the Dow is still down for the year. According to Yahoo Finance, the DJI closed December 2004 at 10783.01. It closed this past Friday 10766.33.
...Note: From mid-October through the end of the year, the Dow went up in all those years ending in '5', and I certainly would not bet against it happening again. I think it will. In fact, the smallest gain was about 3%.
.
...Of particular interest to me was the data about program trading. To me, this past year has seen extraordinarily strange action. It has been different than I have ever seen. I think there are many reasons, and maybe I'll go further into that some other time.
...But think about this. When computer robots are throwing money around program trading a minimum 15 stocks at a time, that can account for some of the strange action one sees intra-day, or even days at a time, in the markets. For example, I have seen many times in the past year in particular, sessions where a stock would go up relentlessly all morning long, then fall just as relentlessly in the afternoon, making a perfect pyramid pattern. Does that make sense? Is it market efficiency, or is it manipulation and big guys forcing the action one way and then the other?
...And then there's the hedge funds. The last I saw, there were about 9,000 of them. And from what I understand, most have at least a $1 million buy-in. If you have to ask what the minimum is, you don't belong, I'm guessing. :)
...But consider this. When a deep pocket hedge fund sets its sights on a stock, do you think it is unreasonable to assume they have the firepower to move it whichever way they intend, without any regards to fundamental or technical considerations of the equity in question, and then, just as quickly jerk it the other direction?
.
Energy
...Energy stocks still taking it on the chin. That has been painful for me, as I keep long-term core positions in a few oil/gas stocks. Everybody's been talking the energy stocks down, there is political pressure from all sides, good weather forecasts, blah, blah, blah. I read recently where the legendary oil maven T. Boone Pickens, thinks that oil is going to $50. Many other folks think it will go a lot lower than that. Maybe it will. I'm certainly no expert.
...But at the same time, I don't buy a lot of the arguments against higher energy prices. The whole concept of demand destruction that I've been hearing so much about doesn't make sense to me, and I would appreciate somebody explaining it to me in terms this old country boy could grasp.
...To me, the market bulls and oil bears can't have it both ways. If demand is falling, how can that be good for the economy? If demand is really falling, then doesn't that mean that businesses are pulling back? Doesn't that mean that consumers are feeling the pinch and cutting back? Isn't that bad for the whole economy?
...And as for releasing oil from our strategic reserves, doesn't it have to be replaced? And did you know that Europe has been sending oil to us from their strategic reserves, and that is now going to stop?
...And here's still the whale in the pond. CHINA. That is what is different this time. We keep hearing about Chinese demand slowing, then later find out that it didn't. I don't think it will. Here's a couple of reasons: Short term, China is building their infra-structure. They are going to be hosting the 2008 Olympics, and every time I think of that, I think Germany 1936. They are going to want to impress the world. And that means a continuing big buildout, not a demand decline. Longer term, I think it is clear that China intends on becoming a world super power, and whatever you or I may think of that, it changes everything from the energy demand standpoint in my opinion. That genie is not going back into the bottle. When the world's largest nation decides to become a heavyweight, energy demand has to go up long term.
...Some folks believe in peak oil theory, some believe that we will never run out of oil. Some optimists believe that free market economies will find other, cheaper alternatives eventually. Whatever. For the foreseeable future, I think higher energy prices are here to stay unless the economy tanks.