Hello My Old Friends

I wrote this last evening for my trading group


Strap-yourselves, as it is sure to be another wild another wild rollercoaster ride! The question is do you want a ticket to partake of this amusement ride Remember folks when in doubt CASH is always King/Queen.  

I am once again expecting a 60:40 chance of some additional bullishness the open as we ended this day on as dismal note and very oversold so the dipsters should attempt to come in …(I bought calls into the close as the selling was FEAR Driven and we saw that with a massive spike up in the VIX spike above 48, VXO above 55 and the VXN above 50 indicating extreme levels of FEAR); and with a 98% down volume wash-out selling event we have historically traded up-back up to the start of the downtrend…only time will tell! Since I’m a contrarian investor, I took a hedge today by buying calls into the close as I expect that we are close to a near term bottom….and I started to leg into the markets with calls and I will sell them into any substantial pop….as my last batch soured as I held a day to long! Let’s keep our focus on the price of crude as a continued drop in price would be a mixed positive for equities (the SPX will see downside pressure from the energy patch, if we see a pull-back in crude, natural-gas etc.) …, I will also watch the bond market as a retracement here could result in a further rotation out-of equities in the short term. Once again I’ll be watching the Transports, Small/Mid-caps along with the SOX for early directional indicators; they have been hit hard of late, and these signals and clues along with the overnight Asian markets could be crucial in the initial tonality of the markets….after hours I sent out an IM a little after 1730 hours suggesting that traders Buy (go long) on a speculative basis the SPY and ES/YM …I took a small lot of SPY at $111.47 in after hours trading and poked 4-ES contracts at 1115.25 with a price target of 1129-1133 and 4-YM contracts @ 10,444 with a price target of 10,550 as I believe due to the technicals that I follow that we move up overnight and into the early morning hours (my best guess)!! 

A likely scenario is that we awake to the futures running up pre-market and we gap up after the massive selling event…and run hard for 30-90+/- minutes…then I’m guessing that the profiteers and smart money will take the opportunity to unload into strength (technology should be the leader tomorrow) at 9:45 we get the Chicago PMI report and expectation are for a reading of 53.0 after last months reading or 57.9 thereafter at 10:00 we get a reading of consumer confidence expectation are for a reading of 55.0 after last months reading or 56.9 (I believe the number will sorely disappoint I am expecting a reading of 47.8) so we do have a little bit of economic data on tap. It is very possible that the markets will attempt to shake down and extort a bailout package from Washington with continued selling tomorrow…as all they have to do is step away from the bids and fold their arms! They may even attempt to take the Dow down to 9700, the Nasdog down to 1900 and the SPX down to 1022 before they look to buy (likely a Thursday event) The drop could continue into the start at our next major/major turn-inflection period forecasted to start in and around 10/3/08 +/- a few days as the timing of such events get skewed at times where we have massive volatility due to political/geopolitical events like the looming issued surrounding the credit-crisis and subsequent taxpayer bailout of wall-street.     

I am also looking toward an FDIC depositor rescue on Wednesday/Thursday as well wherein they will look to attempt to quell depositors FEARS by increasing the insurance threshold to 500,000 to 1-million my best guess!  

The Dow's 777-point plunge today was the worst since the Crash of '87. But that doesn't mean automatically that today was a selling climax or that the stock market decline is reaching an absolute bottom/end.  Quite to the contrary, I still believe that the overwhelming majority of mom & pop have been paralyzed and they like many hedge funds are still holding on to their shares. They're hoping that Congress will ride in on their white horse (more likely an ass) and will still pass some kind of legislation to bail out sinking banks, lenders and the stock market. They're hoping that the Fed-heads led by B-52 Bernanke will some how continue to inject massive and I mean sums of liquidity into the credit markets to prevent a panic. And they're assuming that these efforts will somehow turn the market around for good….this is a wishful premise for the long run, but we are closing in on a massive relief rally (can’t say short squeeze anymore as they have taken so many shorts out of the stimulation role in such a manner! 

I expect that we will definitely see some more extreme volatility this week as we encroach into the end on the third quarter especially an d we can not rule out a late week relief rally as we start the 4th quarter as this type of scenario could spark rally as so many are leaning and filling the boats of extreme despair. I believe the bears and bulls will wage a bloody battle these next few days. I still believe that investors are skittish, and the path of least resistance on any weakness or signs of trouble will be to trigger the sell-buttons however we are nearing capitulation levels…..Determining market direction for this week is no easy task (we are set up, coiled tightly, for a relief rally which could be violent as we are deeply oversold on a near-term basis) and on the other hand there are many growing conflicting factors which taken together could cancel each other out. The bear market in financials is becoming worse.  

As I sated this weekend….should prices drop decisively below our recent lows, (10,460) which they did in today’s reactionary environment then it would likely mean that wave {2} had topped, and the most devastating drop-off (selling) in years has likely started to ensue (we have/had several factors that could delay the drop-off and these need to be watched [wall-street bailout and elections] Expectations are running extremely high that the bailout will be approved and work {I believe it will be approved but will not work, as this is only the tip of the iceberg, of this debacle}. If anything goes wrong with this proposal and delivery and wall-street pitches a fit or tantrum, due to not getting what they demand (extorting) from the taxpayers…..we could see a quick kick off a stock market purge on the disappointment/fear. This suggests there significantly more pain ahead for the markets; add into the mix that the pending earnings warning and confessional cycle will be in full bloom this week and next it could become a very-nasty landscape to navigate for the bulls and many funds may just sit this battle out. We all know that the consumer is more than struggling as we saw this past week that bankruptcies; foreclosures and defaults numbers are increasing.

The last 1-2 days of a quarter and first 3-5 days of a new-quarter are generally bullish especially as retirement funds are depositing new funds and putting the money to work so we need to remain watchful of these inflows and any PPT action! 
Congress delivered a stunning defeat to legislation designed to rescue our nation's troubled financial system, as republicans swept aside a call from President Bush to "send a strong signal" of confidence to markets at home and abroad. Their 228-205 vote Monday exposed deep uneasiness among lawmakers in both parties with what would be an unprecedented intervention in the private sector (For what its worth I agree with their rejection of the bill but for many different reasons.). We lost $1.48-trillion in market value today and this was utterly amazing! After the House voted against the bailout package….they voted down a plan that was different than what the Bush administration had originally proposed. There were restrictions allowing Congress to limit how much of the money goes out the door at once. It also included caps on CEO pay packages and top executives as well as assurances that the government also would ultimately be reimbursed by the companies for any losses. The Treasury would have been permitted with this bill to spend $250 billion to buy bank’s risky assets, giving them cash infusions. There also would be another $100 billion for use at the president's discretion and a final $350 billion if Congress signs off on it.   


The Dow plummeted a staggering 777.68 points, its biggest one-day drop in history; it ended down a whopping 6.98% at 10,365.45; all 30 of the components traded in the red as the selling was extremely broad base as Wall-Street attempted to send a very self-centered message to Washington. Support on the weekly chart was tested today at 10,355 and it sure looks like the Dow is heading back to retest the October lows of 2005 (10,155-10,175)….the near-term charts are grossly oversold but could remain there for some time in this credit debacle environment that is littered with political and event-landmines; if the bulls return tomorrow they will need to come back and retake a lot of today’s lost levels OHR will now come in at 10,525 thereafter 10,677
 
The Nasdog dropped a staggering 199.61 points, one of its biggest one-day drops that I can remember in many years; it ended down a whopping 9.14% at 1,983.73…. all 30 of the components traded in the red as the selling was very broad base as Wall-Street attempted to send a message to Washington bend over and give us what we want or we will stick it to you politically. Support on the weekly chart was tested today at 2013 (the 7/17/06 lows) and it failed to regain or close above this level as it ended the secession at the lows today and it sure looks like the Nasdog is destined to head back to retest the March lows of 2005 (1905-1920), though maybe not immediately; the near-term charts are grossly oversold but could remain there for some time in this crappy trading environment that is littered with political and event-landmines continues to play out to the downside; if the bulls return tomorrow they will need to come back and retake a lot of today’s lost territory OHR will now come in at 2,035-2040 thereafter 2069-2076  

The SPX coughed up a very nasty furball today as it choked up a staggering 106.85 points, its biggest one-day drop in over 8-years; it ended down a whopping 8.81% at 1,106.42; as only one stock out of the 500 (Campbell’s Soup) traded into the green today, this was amazing) all the rest traded in the red as the selling was extremely broad base as Wall-Street sent a very sharp and dicey self-centered message to Washington; bailout the financial markets or suffer the consequences politically was what I saw. Support on the weekly chart was tested today at 1,100-1,105 and it barely held it looks like the SPX is heading back to retest significant support at (1065-1,075)….we have significant stronger support at 1,022……the near-term charts are grossly oversold but could remain there for some time in this credit debacle environment that is littered with political and event-driven landmines; if the bulls return tomorrow they will need to come back and retake a lot of today’s lost levels OHR will now come in at 1,131 thereafter 1,157

Traders/investors and of course Wall Street's worst fears came to pass toady, when the government's financial rescue plan (taxpayer-bailout) failed to pass in Congress and stocks plunged precipitously thereafter…the credit markets, whose turmoil helped feed the stock market's angst, froze up further amid the increasing belief that the country is headed into a spreading credit and economic crisis that is starting to spiral out of control. I was very sick today but came back late in the day to watch on my screen the vote tally in the House as they voted down the bailout package to and as soon as the numbers showed that the vote was a no-go we saw frenetic and frenzied selling as the orders blew in like a force 5-hurricane.  
The Dow told the story of as it dropped by 198 of points in a matter of minutes, and by the end of the day had passed by far its previous record for a one-day drop of 685+/- points seen after the first trading day after the 9/11, terror attacks. The selling was so intense that just 162 stocks rose on the NYSE and over 3,100 dropped; this is in-itself a contrarian buy-signal as a huge Tsunami wave of selling smashed the markets. It takes an incredible amount of False Evidence Appearing Real to set off such an intense reaction, and the worry now is that with the rescue plan's fate uncertain, no one knows how the financial sector which is already hobbled by hundreds of billions of dollars in bad mortgage bets can recover.  

Banks' Subprime-Related Losses Surge to $591 Billion The following table shows the $590.8 billion in asset writedowns and credit losses at more than 100 of the world's biggest banks and securities firms as well as the $434.2 billion capital build up to deal with them.

While investors didn't believe that the plan was a magic potion, as many understood that it would take months for its full effects to be felt, most market watchers believed it would be a very viable start toward setting the economy right after this massive credit crisis unfolds that began more than a year ago and that has spread overseas.  Clearly something needs to be done, and the market dropping 350 points in 10 minutes is telling you that if something fails to transpire very soon they are going to continue to bleed red….trading these markets is like juggling chainsaws blindfolded while walking on the edge of a high-rise building one false move and you lose a hand or worse yet you plunge off the building and as today’s action depicted this isn't a market for those with weak stomachs. 
Today’s defeat overshadowed for the most part more reminders of how troubled the nation's financial system is as before the bell sounded we saw that Wachovia one of the biggest banks was being rescued (sold out to) Citigroup. It followed the recent forced sale of Merrill Lynch and the failure of three other huge banking companies like Lehman and Bear Stearns…..Washington Mutual and Lehman Brothers Holdings; all of them were toppled by bad mortgage investments.  
These large bank failures raised the question: which banks are next, and how many other shoes are to drop? The Federal Deposit Insurance Corp. has a list of over 110 banks that were in trouble in the second quarter, and its speculated that the number surely has grown by triple that number.  


The markets are contending with many contagionous issues against the backdrop of a credit market debacle and implosion where bonds and loans are bought and sold and this market is barely functioning because of fears that anyone lending money will never be paid back. The evidence of the credit market’s contagions could again be found as the Treasury's 3-month bill; as investors were stashing money there, willing to take the tiniest of returns (when factoring in inflation it equaled negative returns) simply to be sure that their principal would survive. The yield on the 3-month bill was 0.15, down from 0.87, and was approaching zero, a level reached last week when fear was also running extremely high….better to put your money in a tin can and buy it in the back yard!  

We also saw a panic drop in the price of crude today as crude prices were another sign of the price action chaos. Light, sweet crude dropped $10.52 to settle at $96.36 on the NYME as investors feared that energy demand or lack there of would continue to slide amid further economic weakness. (Recession) 

A Major Market Inflection Turn is near!

My turn wave forecast is getting significantly stronger, and it pointing toward a HUGE inflection period ahead, the window is tightening as we get nearer to the potential turn....and according to my wave analysis we have multiple waves converging and a major Inflection & Fibonacci collision possibility hitting the overall markets on/between 4-04 and 4-10 and since we have been in somewhat of a bullish-up-trend, this could (key-word could) be the start of a significant major corrective period ...my system and analysis is telling me that this could be a significant correction period lasting 21-38 trading days...with the potential for a slight relief rally after the initial down-cycle then another downward corrective wave will likely play out.

Please trade cautiously
Steve from
www.twaves.net

Here is my take for the SHORT -Term (tomorrow)

I am looking for a potential mini-follow-through on the open (selling)…then a reversal as the charts are indicating some more weakness looms ahead. I'm expecting (65-35 percent) chance for some additional bearishness tonality after the open, we could see some overnight futures bullishness due to over-sold conditions (we could see a near-term rally attempt that could last 30-60-minutes) thereafter I am expecting that we could see some selling into the rally…and this new selling could last for 60-120 minutes then we could see a reversal starting with a crawl upward off of the support levels I mentioned below...volatility continues to be flashing extreme moves. Remember folks never forget the power of greed and fear, and the propensity for investors wanting to own stocks (taking long-side) especially if they think the bull-train is pulling away they will want to hop on board, Please, remember when in doubt as to market conditions/direction CASH is king please trade cautiously and be quick to protect your profits. I’m guessing that this the days ahead we will become embroiled in a major bull-bear battle as we end the quarter and start the 2nd quarter. We will see if the bulls can somehow continue to reverse the current phase of bearishness tonality to renew some buying interest, or will the bears start once again to exert pressure on the markets as they attempt again to slowly grind down and press the markets.

All the major indices fell after inflation remarks from Fed Chairman Bernanke did nothing to calm the market’s jitters. We saw a sell off today after Helicopter Ben Bernanke express disapproval of the investors who may have looked past the long-standing concerns the FOMC has maintained about inflation.

The Dow dropped 96.93 points to close at 12,300, right at the 23.6% Fibonacci retracement and the a tad below the daily 90ema….the near term charts are nearing over-sold conditions and though we may have 2-6 more hours of down-side left to this drop…we are on the threshold of a mini-relief rally in my opinion…. As we near near-term strong support at 12,200-12,220, the 50% fib-retracement and the daily 20sma at 12,260…the weekly 20ema comes in at 12,300; there after the weekly 40ema comes into play at 12,030

The SPX dropped 12.38 points to close at 1,417.23, right at the 20ema at 1,417.17 and the a tad below the 34ema at 1418.09….the near term charts are nearing over-sold conditions and though we may have 2-6 more hours of down-side left to this drop…we are on the threshold of a mini-relief rally in my opinion…. As we near near-term support at 60-minute 200sma @ 1417.18 and the 100ema @ 1416.95, the next level of near-term support comes into play at the 38.2% fib-retracement and the daily 90ema at 1408…the weekly 20ema comes in at 1,407.57.

The Nasdog dropped 20.33 points to close at 2,417.10, it stopped right above the 20ema at 2,410.64 and the a tad below the 34ema at 2,426.24….and the 100sma @ 2433.95 the near term charts are displaying very negative conditions and unlike the Dow and SPX this index looks to have considerable downside left to this drop… we are on the threshold of some near-term support at coming into play at 2395-2402 and the 38.2% fib-retracement…thereafter support would come into play at 1375-1380….the weekly 20ema comes in at 2,410 and thereafter the 34ema at 2,375.

The Housing Melt-down is just starting and the cancer will grow in my opinion

In my humble opinion the contraction in the subprime mortgage market is just starting and it will no doubt lead to a significant retraction in and impede any near-term housing recovery despite what we have been hearing from the parade of so called experts being pranced about on the various bubblevision media channels. I have read recent reports (which I believe underestimate the contagion) that have forecasted that we will see a 20% - 30% reduction in available buyers (these are huge numbers folks) as these subprime borrowers will not now be able to get funding/loans over the ensuing months and years due to tighter restriction in credit. And I believe that this is only the tip of the proverbial iceberg as we are only seeing the beginning of the perfect-storm [a force 5-huricane] that will result from the impact of the subprime mortgage mess, and that this cancer will feed into the Alt-A borrower class of loans as well as it is just beginning to show up in the delinquency and foreclosure data that I have been reviewing these past weeks as such, it is way to fricking early for the fed-heads or the so-called self-professed housing guru’s to be proclaiming that the worst is over in the housing sector.  

For the first time in our nation's history, a large number of Americans are going to be adversely impacted and many will most likely lose their homes even though they still may have a steady job or two in most cases. And unfortunately it's not just an issue for low-income people with those with poor credit and those with subprime loans. It will also affect people with good credit who qualified for a prime loans known as Alt-A mortgages (the proverbial middle-calls in America), these loans were written for 3 out of every in 10+/- mortgages and this could have a big impact on the overall economy and on credit markets and I believe it is significantly bigger, perhaps, than the effects of the recent subprime contagions.



Who are the main contributors to the housing-market implosion?

Bubble creator Greenspam and Helicopter Bernanke will be the main-players along with the other fed-heads and to some extent the brokerage-dealers and banks…..as they are responsible for the mega-bubble-implosion of the housing markets. I believe that the housing-market is on the threshold of suffering a serious collapse in many of the once hot-real estate markets. Jim Rogers, a true and seasoned market guru has warned that real estate in expensive bubble areas will drop 40 to 50%. Mainstream bubble-vision talking-butt-heads are stating just the opposite as they are basically reporting that the possibility of widespread defaults on subprime mortgages seeping over into prime mortgages is highly unlikely. I get sick to my stomach ever-time I hear this crap, as none of them even warned about the sun-prime cancer, not they want us to believe their unfounded hype. When this bubble finally starts to burst millions of Americans will be looking for someone to blame (and the fingers will be pointing everywhere). The democratically controlled Congress will certainly be holding hearings into subprime lending practices and “predatory” mortgages; and the next phase will be the role of brokerage and banks. We will no doubt hear a lot of grandstanding about how unscrupulous lenders took advantage of poor people, and how rampant speculation caused real estate markets around the country to overheat; and the hearings will take on an Enron type of cancerous contagion to those affected and the message will be the same: free-market capitalism “greed” when left unchecked, leads to irrational- market moves, fraud, and unethical if not illegal business practices (like the ones I have repeated-reported on….making FDIC issued loans to known illegal aliens). But unfortunately excessive-greed is not solely o blame for the housing mega-bubble, the FOMC and their hyper-inflating money supply is the real-culprit in my opinion. Their direct and indirect) in my opinion illegal” intervention in the economy through the manipulation of interest rates and the creation of “cyber-mystical” money has caused the huge bubble (debt-bubble) in the mortgage arena.

The FOMC has roughly increased by 440-500% the amount of dollars and credit in circulation just since 1990. Housing prices have risen dramatically not because of simple supply and demand, but because the Fed-heads have literally created demand by making the cost of borrowing money artificially low; as historically every-time when credit is very cheap, individuals (and corporations) tend to borrow much more than needed and they in turn spend recklessly without abandon believing that more easy money is just around the corner.  It’s the age old premise of finding the next-bag-holder to pass off the hot-potato to….everything is fine as long as there is a greater fool to be found….Congress needs to get their proverbial head out of their ass…and stop kissing the ass of the fed-chairman and respective large brokerage firms like GS as the Federal Reserve provides the basic mother’s milk for all the booms and busts wrongly associated with a mythical “business cycle.” Imagine a Brinks truck driving down a busy street with the doors wide open, and money flying out everywhere, and you’ll have a pretty good analogy for Fed policies over the past 8-10 years. And until we get the FOMC out of the business of creating money out of thin air and setting interest rates, we will remain vulnerable to market bubbles and painful corrections. If housing prices plummet and millions of Americans find themselves owing more than their homes are worth, the blame lies squarely with Greenspam and FOMC in my opinion.

In the months and years ahead this cancerous credit-crunch will not only adversely effect those in the low-to-moderate income brackets but the 3cancer will most likely in my opinion hit millions of middle-class homeowners who took out riskier loans during the great housing boom earlier in the decade thinking that they could not lose. I have read reports that are forecasting that 1-2 million families will/could lose their homes in the next 1-4 years, while one study predicts the number of foreclosures could reach 2.4-3.00 million over the next 2-4 years….these are staggering numbers folks. 
This threat to our economy and upon the highly sought after American Dream could have serious and powerful negative implications. This time is very different folks as in the past homeowners have generally lost their precious homes due to foreclosure when they suffered a major life-changing event such as (loss of their job, a major illness or death of a family member). Historically a big jump in the foreclosure-rates was unheard of outside of a deep a recession that brought about as through a significant higher unemployment rate. 

We have also seen a compounding negative contagion that will only grow in my opinion over the next 1-4 years in the form of loans such as ( 0% down, no interest for 3-5 years, home equity loans for 100-125% of the current value of the home etc.) that were geared primarily utilized to allow people who could not…in reality in any other manner…afford to buy such an expensive home (or extrapolate more equity then by standard historically norms) ; which was unfortunately much more than they could truly afford in the first place, all it will take is just one blip in their incomes to trigger a default; and worse yet at some point, most of all of these risky-hybrid loans are going to soon adjust from these abnormally low monthly payments to significantly higher rates….and in the not-too-distant future, millions of or brothers and sisters Americans will be receiving letters if they have not already advising them that their mortgages are resetting/recasting with a dismal affect.  Most so called economists that have been given air time on the various financial bubblevision media channels have stated that the problems won't spread beyond the poor, and that the extent of the losses to families, mortgage underwriters and investors will be small in the context of our $12-14 trillion dollar economy. And you all know that I have a significantly differing opinion as I believe that the risks are much more wide widespread and that the economy will be hit hard by these failures that will take on a cascading affect in the US credit market; and in my humble opinion, it will take years for our economy to recover from this cancerous affect. Its basic economic 101 as tighter lending standards, increased foreclosures, more homes being brought on the market, resulting in lower prices, and thereafter we will see less construction of new homes which will result in unemployed construction worker etc. will led to adverse implications of all parts of our economy and markets. 

The data is proving my underlying premises to be right, as last year, 55% of Alt-A loans came with simultaneous second mortgages; while the average loan-to-value ratio was 89%; and more than 80% of all Alt-A borrowers chose to provide no documentation of their income, and 62% took an interest-only or option ARM that reduced their payments at the inception that would lead toward higher payments later. More than 28% of the Alt-A loans were one-year adjustable loans, not the five-year adjustable that has been the standard for prime borrowers in the past. So as you can infer this situation/contagion could get very ugly very fast!! Trillions of dollars worth of adjustable-rate mortgages will reset in the next few years. That could dent consumer spending, but the wave of resets may end up being a ripple for the U.S. economy. More than $3.29 trillion worth of ARMs were originated in 2004, 2005 and 2006, at the peak of the recent housing boom, according to a study released this week by a unit of real estate data company First American. This year, it is estimated that almost $470 billion worth of first ARMs will be resetting, and more than $420 billion worth will reset in 2008 and 2009 and another $975 billion will do so in 2010; as a result you can see how this wave can have on the economy. 

A mortgage meltdown tsunami which in my opinion will rattle the economy; the first stage will come as a result of falling home prices; as with new supple coming onto the markets supply will increase and demand will continue to fall. And with the nearing increase of tougher mortgage underwriting standards we will see the elimination of 25-35 additional buyers from the pool of potential buyers, including 50% of the subprime buyers and 25% of the Alt-A buyers, according to estimates and research that I have reviewed. Its elementary as basically when the supply of homes grows; through foreclosures and new-homes dumped on the market by desperate sellers this depress prices (a supply/demand function), which in turn would further depress voluntary home sales and home building in a vicious downward cesspool type spiral.

Also when confronted with a weak market, many lower wage homeowners even numerous middle-class home owners facing higher resetting payment shock would find it difficult, if not impossible, to refinance their loan or sell their home for what they currently owe on it as home prices have been slipping downward. About 13-17% of the owners who face the unfortunate resetting of their mortgage rates this year have less than 3-5% equity in their homes, and therefore with tighter lending standards will be unable to refinance unless they have other hard tangible assets, and according to the industry research I have read if home prices fall 4-5% more the percentage of those with no equity would grow to 23-26%, this is a huge economic contagion folks…and if god forbid if home prices fall 8-10% the numbers could to 35-40%.

Now you ask why we should be so concerned about the housing market…well lets reflect on simple economics-101 when consumers have their discretionary incomes where they are severely impacted by higher mortgage rates it results in what we call a chilling effect on consumer spending and since the American consumer accounts for 65-75% of our economic activity the economy suffers. According to recently released Federal Reserve data, consumers have taken about $3 trillion in equity out of their homes in the past five years, adding about 7-8% to disposable incomes every year (hell their wages have been stagnate to decreasing when accounting for inflation). This ongoing scenario (cashing out equity) has consistently helped to boost kept the otherwise sagging economy, and it’s kept it humming however it has driven the personal savings rate below zero for over 2-years now the first time since the Great Depression. 

If home prices continue to fall the American consumer's ability to continue to cash out home equity to feed their enormous appetites for spending will not only curtailed but significantly negatively impacted. What is also damaging to our overall economy will be the inability, of many consumers who have yet to extrapolate out any equity from their homes during this recent housing bubble. During this recent period where the housing bubble was increasing to mega proportions most homeowners experiencing rising equity, and they felt richer and didn't feel the need to save as much; however we see now that this situation/scenario called the paper “wealth effect” is coming to an end.  

Also let’s face it folks homeowners are starting to be (and many more will be over the ensuing months/years) faced with much larger mortgage payments and you do not need to be a rocket scientist to determine that this will reduce their over all discretionary spending (especially on durable-goods and luxury expenditures) so as to avoid defaulting on their mortgages….this cut back in spending will affect many firms catering to these sectors.  

The real $64,000 question that remains to be answered is what will happen to overall investor sentiment once these new contagions start to take root. If what I believe happens, happens then investor sentiment will start the erosion process with US investors and it has the potential to act like a cancer and undermine even global investor confidence. The result will most likely result in a general drying up of credit, and it will likely affect even the most qualified and untainted borrowers. The markets believe that helicopter Ben Bernanke come to the rescue and does he and his fed-heads even possess the know how or resources to be the saviors that everyone believes that they will be.  So remember to ask yourselves can and will the fed come to the rescue and prevent an even more potentially more damaging crisis then we saw with the Asian financial crisis of 1997-98. 

I sincerely believe that the markets haven’t even begun too priced in the risk associated with defaults on non-traditional loans, or of the even-more complex mortgage-backed derivatives; and I believe even investment-grade CDOs will experience significant losses if home prices continue to fall. And the contagions could take on a life of their own as any decreased the overall funding for mortgages from large banks, institutional investors and pension funds, and any such pull-back could set a chain affect creating a downward spiral in credit availability. 

In the worst-case scenario involving a significant credit crunch (hopefully it will only be localized), is a ferocious cycle of weaker/lower spending, slower or hiring and most-likely lay-offs that could lead-toward mass-lay-offs, and these contagions will lead toward less income gains, tighter credit and significantly lower spending and it would result in the forcing our economy into a steep recession.

Who here trusts these wild M&A gap-run Monday's....remember last Monday...a nice rally the SPX ran up 6.5 points intraday only to fall 30+/- points the next day.....the Nasdog closed up almost 14-points the sellers piled in on Tuesday and it gave back the 14+/- and another 46-points to end down 52+/- oh and lets not forget the Dow it posted a gain of 43+/- points on Monday...and the next day it gave back the 42 and an additional 200+ points will tomorrow ve a repeat ??

Hello Folks
I am expecting a slight continuation to this relief rally....then another major down leg to finish this ABC corrective wave JMHO

Ask Yourselves, what do those closest to the company, the internal data and financial conditions, the demand for a corporations products and business conditions know that you do not….We have just seen that Insider-selling has hit the highest rate seen in the past 4-years…seems strange to have these same folks appearing on CNBC and Bloomberg TV touting their firms, and giving rose-colored glass outlooks, thus attempting to induce others to buy and hold their stock all the while these same (so-called) corporate leaders and executives seem to be running for the doors, like rats deserting a sinking ship. We saw that insider selling has increased significantly in recent months, with insider selling rising to their highest level in more than four years in the month of November; and according to my data December will trump November. Insider-trading trackers at Thomson Financial say the recent selling bonanza is "particularly noteworthy" as we have seen about $6.6-6.9 billion in insider stock sales last month, the highest level since the $7.7 billion in sales that was posted in August 2000, according to Thomson….now that doesn’t sound that bad until we contrast that number against the puny $144 million worth of stock that was bought by insiders this past month that is a ratio of almost 48:1 selling vs. buying. The biggest percentage of selling strangely came from within the financial sector, where executives sold about $882 million of their own stock in November, and health care companies, where insiders sold about $734 million worth of shares….when I reflect upon the past 5-years we find that insider selling in both sectors was almost triple the monthly average.

I always have the hairs on the back of my neck, stand up when someone wants me to do one thing and they do the exact opposite if these executives thought their firms are doing so great, and their stock prices will continue to climb, wouldn't it be in their interest to hold on to their shares for the most part rather than bailing out?

This is a TEST

The Futures are pointing to an Nice Big Crap-up Opening as I write this

We are expecting loads of data, which is due out at 8:30 a.m. EST, this will be a potential market mover as market players look for signs on how well consumer spending is holding up at a time when the nation may be on the verge of going heading into the BUSH war. I also have a MAJOR turn forecasted for 10:00 this morning...which could be a continuation of yesterday's move...

Uncle Al the stealth rally maker injected a measly $10.0 Billion yesterday, which was good for 60-80 Dow points alone

While the snap-back relief rally has taken on a huge push The Dow reversed 140 points on Wednesday and added 270 +/- yesterday that is a reversal of over 400 points, while the OEX rallied almost 9 points and the SPX almost 16 points off their intraday lows on Wednesday and significantly added to their position yesterday. The fact that they came after the completion of the head and shoulders and while the bullish percents are sitting in oversold territory sure tossed up a big red flag for the bad-news-bears, and I warned folks of the potential for such a move, I hope my perma bear friends heeded my warning.

The  big players were out yesterday with cattle prods in hand as they continued to turn the bulls, and they came back in a stampeding fashion into the markets yesterday for no particular reason, other than it’s our right to buy…they did so by ignoring more bad economic news. Was it the rumor of mass defections of Iraqi generals that turned the tide? Did Bush come out like Jim Carry and say “I’m only joking about going to War” I amazed at the 180 degree turn around with such magnitude… they sure had the bears on the ropes yesterday…I was further amazed that the World is pricing in a rosy scenario as well as spot Gold Fell precipitously this past week, about $10.00 yesterday alone hence they are already pricing in a peaceful solution and an end to terror…and great global economic solutions…I know I have been under the weather all week now…maybe it’s the meds I’m on I must be dreaming as I do not understand this disconnect. 
 
Yesterday we saw a HUGE I repeat HUGE Reversal Candle when added to Wednesday’s action, if this is indeed the start of another Bear Market rally like we saw in October/January/February than we should expect another big day today…and we need to monitor the herd and process. Yesterday’s gains have stimulated the Europe/Asian markets to fresh gains after a deep sell-off and we should see a positive open today. The futures are up nicely and there was no real negative news after the close. The Nasdog chart above and I am sure you will see that very strong resistance at 1350. This is going to be a challenge to the bulls after a +61 point gain on yesterday. The next significant overhead resistance in the Dow is 7,910-7,920. Couple that with news that the UN vote or no vote; has been put off until Monday and the war until April, the giddy bulls may be dancing in the streets today. As I have said there are still shorts in the market and after being hammered yesterday and seeing the result of the Osama rumors this week they will NOT want to be short over the weekend. This should provide some fuel to the markets today.  

This Market is indeed wild and the pent-up demand to buy is huge as we saw on the silly-ass techno-bubble heads as they swarmed back into technology stocks without any regard towards earnings or company liquidity…after two weeks of consecutive down days the Nasdog recovered all the losses in just a day with a 61-point gain…remarkable…and it has jumped up almost 100 points from the intraday low posted on Wednesday …we are moving into a huge overhead supply at 1,350 (OHR) and the only way to get over such a supply may be a GAP/CRAP scenario. 

I would expect a somewhat bullish bounce today; if the economic data supports such an event. We also have what is referred to as a "forced bottom play" tactic by big smart money. Sometimes referred to as sharks as when they see potential bullish conditions ahead, and they are looking for a good potential entry point they try to force a near term bottom as they have done during the past several day’s of sell-offs by stepping away from the bids. They sell short stocks they really want to buy to try in an attempt to find a significant support level where buyers appear. Essentially they try to run and take out the stops and take out all the weak holders and then they find out where the real buyers are lurking. When conditions are ripe for profit taking they can accelerate this process and when the market stops falling they cover the shorts and go long. What a cute game they play huh. So basically a folk, the game is still on…they have seen a 5-10% rise in stocks is just a day or so, and we could see a continuation of such a play for a few more day’s unless news of WAR or pitiful data stops them short in their tracks.

On Wednesday 15% of the S&P set new 52-week lows and Volume was down 2:1 despite the end of day relief rally. This was almost bullish compared to the 18:1 down volume we saw on Monday. Yesterday the volume was over 7:1 to the upside with over 1.7 billion shares traded. This was the most volume in a single day since late November. Yesterday started out with a gap open and sold off to just above 7,600 before charging off to a break over 7,800. It was not a raging bull but more of a determined walk by the entire herd or a few key players controlling futures action. There were numerous strong resistance points broken at 7,600, 7,650, 7,750, 7,785 and even 7,800. Please folks make no mistake this orchestrated move was set up to appear to be a very powerful move…however it was not powerful enough to propel the new highs over the new lows which came in at 110 highs to 256 lows (combined NYSE/Nasdaq), but strong enough to get the bad-news-bears attention as they scrambled to cover. However I think many of them were in denial all day…and

I’m expecting a continued rally this morning…(unless the economic news knocks the crap out of the potential) as may bears will want to cover ahead of the weekend and incase this rally has legs…especially after yesterday’s denial outlook, as many have that deer caught in the head light look 

I warned my subscribers of such a situation as on the morning of 3/12/2003 when I cautioned that “Folks this market is coiling into extreme oversold conditions...I have changed my bearish out-look to BULLISH and am recommending stepping into the DJX, OEF, SMH, OEX on the long side...(or for some their favorite high beta stocks) I believe we are hours/days away from a substantial relief rally” I believe that the oversold conditions created earlier this week were just too severe to be ignored prior to a Fed meeting once the war was postponed for maybe (key word maybe) delayed for 2-3 more weeks. As I pointed out Tuesday there was likely to be some strong asset allocation moves soon. I think it was the combination of all these factors that stimulated the initial move and short covering did the rest.  However this quick magnitude is greater that I expected I thought.... such a move has no foundation and has left so many gaps.  

I have also heard reports that the large drops over the last month may have created serious deficiencies in market makers option accounts and along with institutional traders and they are trying to square these positions by running the markets up. 



The market was definitely not moving up on yesterday on great
economic news.
The Jobless Claims fell 15,000 from last weeks upwardly revised number of 435,000. Unfortunately that meant we still had 420,000 new claims and the four-week moving average has risen to 420,000. This was the highest level since December.
The Retail Sales fell a whopping 1.6% in February and well below the consensus estimates for zero growth. The consumer is not rushing out to hold up the economy and longer and is essentially starting a cocooning stage. However the Butt-heads were full of excuses why we had weak numbers reasons given were blizzards, high gas prices, unemployment, terror alerts and war fears.
Import and Export prices both rose primarily due to high oil prices.

Next week we have Uncle Al and his band of merry followers meeting on Tuesday and there is a 32% chance of a 25 point rate cut as predicted by the Fed Funds Futures. Not a big chance but the various economic indicators could be weighing more on the Fed than on consumers, as the job-less so-called recovery could implode upon them. There are some thoughts that if the Fed cut rates they would take a bigger cut of 50 basis points to send a stronger message. A minimal 25 point cut would have no impact and they have only a few bullets left in their gun. Plus with another 50-basis point cut they could stimulate another huge round of refinancing and expand the housing bubble even more. However the odds are much better that they will change the bias to easing and plan on a rate cut at the May 6th meeting if the economy stalls or plunges further, currently the Fed funds futures predict a whopping 82% chance of a cut at that meeting.


We are on the threshold of Confessional season/warning season and the onslaught should arrive next week but there were several high profile warnings yesterday that went un-noticed or were ignored.
TYC warned that it was slashing profit forecasts for 2003 and had fired a division president for accounting irregularities. The current chairman, Edward Breen, vowed to clean up the "crap" and that heads would roll if any more problems were found inside the company.
Schwab warned that current outlooks were too aggressive in light of trading volume that was continuing to fall. They declined to issue an outlook claiming no visibility. They said trades entered had dropped 20% in February to 101,000 a day and so far in March that number had dropped another 5%.
International Paper said demand was weak and getting weaker as the quarter progressed.
MYG said that demand began falling off in February and had been decreasing rapidly since.

Folks the mantra of a demand drop appears to be the common thread, sharp drops in demand across industries in February with increasing weakness into March…is a piss-poor economic sign. The main reason given for the yesterday’s today was the removal of the war premium from the market; and the starting date pushed off until at least April 1st ((Black moon) for a WAR…3/18 is a New Moon, who ever thought we would lift off then was kidding themselves…however the market is acting like the WAR is off…and I believe that it’s a 99% GO so I must be wrong. 
Geo-Political News

This should have been disturbing…Dow Jones reported that Iraq has moved artillery capable of firing chemical or biological warheads to several locations just north of the Kuwait border. US officials said the artillery posed a direct threat to the US troops in the Kuwait staging areas. US officials also said Iraq was positioning surface to surface missiles in far western Iraq in an apparent attempt to use chemical or biological weapons against Israel. NBC reported that the US military was prepared to launch preemptive attacks against the new artillery and missile sites before the Saddam has a chance to use them.




TECHNICALS as noted YESTERDAY THURSDAY !!!!! NOTE my charts are hyperlinks and do not show up here !!

Head & Shoulder Objectives 
Dow H&S Objective = 7,550 - 7,560 Chart Objective Attained, and we slipped a bit underneath the targeted objective, as we slid to 7,416.64, 134 below the objective before today’s late stage relief rally brought us to a close of 7,552.07, as we sit right on the threshold of the objective zone. We have now fulfilled the objective on 3/11/2003 and tested it on 3/12.2003…this action has plunged us into deep oversold territory on the Daily chart…%K = 8.06 and %D = 11.23, RSI = 35.7 and appears to be now turning up, the bottom of my BB band reads 7,535 however MACD has establish a bearish crossover…CCI indicates a near-term bottom may be forming. The Weekly Dow Chart, is also indicating that we are at significant support and it too is demonstrating over sold conditions, however there could be 1-2 more days of selling within this set-up…but both are enjoining and could establish a trend reversal.

S&P 500 H&S Objective 790-792 Chart  Objective Attained, 3/12/2003, as today we dropped into the objective zone and with an intraday low 788.90, before a late day rally pushed the SPX up to 804.19, we have fulfilled the H&S objective, and will most-likely test it on Thursday… this action has plunged us into oversold territory on the Daily chart…%K = 8.97 and %D = 15.02, RSI = 37.3 and appears to be now turning up, the bottom of my BB band reads 803.51 however MACD has establish a bearish crossover…CCI indicates a near-term bottom may be forming…however we may have an additional day or two of selling before we reach extreme oversold conditions…however the proverbial rubber band is tightening. The weekly chart indicates that the SPX could fall to 768 before a potential bottom is formed, key word potential

S&P 100 H&S “OEX” 398-402 Chart   Objective Attained, 3/12/2003, as today we dropped into really skimmed the objective zone and with an intraday low 400.24, before a late day rally pushed the OEX up to 408.92, we have somewhat fulfilled the H&S objective, and will most-likely test it on Thursday again, and maybe slide a tad below it (maybe)… this action has plunged us into oversold territory on the Daily chart…%K = 10.02 and %D = 15.92, RSI = 38.9 and appears to be now turning up, the bottom of my BB band reads 803.51 however MACD has establish a bearish crossover…CCI indicates a near-term bottom may be forming…however we may have an additional day or two of selling before we reach extreme oversold conditions…however the proverbial rubber band is tightening. The weekly chart indicates a retest of the October lows at 384 +/- could be in the cards

Nasdog H&S Objective 1,137-1,140 Chart     Not even close yet (Intraday lows today touched 1,253.22, we are about 130 Nasdog points away from the H&S objectives, we closed at 1,279.47, and we may not make the confirmation plunge as yet)

NDX H&S Objective 810-815 Chart  Again not even close yet (Intraday lows today touched 946.79, we are about 130 NDX points away from the H&S objectives, we closed at 970.54, and we may not make the confirmation plunge as yet)

The NDX bullish percent indicator coughed up another 2- point yesterday as it traded down to 30 yesterday, however this is still well off of historical bottoming zones of (8-20) NDX Bullish Percent Chart The S&P 500 Bullish Percent Chart showed that it has given up 1-points and is at 27.40 since my last comments and is trending into the potential reversal zones associated with bottoms (12-20) this bears watching  The Dow coughed up 3+ points to post deeply oversold reading of 10, DOW Bullish Percent Chart, ). 

The dollar has actually caught a little relief rally as well Daily Chart of US Dollar which helped to support the rally yesterday as well.

As I stated on Monday we saw a huge potential for a reversal potential…the NYSE TRIN Chart indicates that we have entered very extreme  oversold on a short term basis, we closed at a whopping 5.93 on Monday, and current reading on the 5sma = 2.05 off of the 2.46 that we saw on Monday, the 10sma has increased to 1.82, and I believe was are just hours/days away from being deeply oversold on the 20sma/50sma this foretells a looming reversal ahead and it could be quite severe, the potential for an reversal increases when we look at the Advancing/Declining Issues charts as they are also pointing to a near-tem over sold condition as well NYSE A/D Issues Chart Nasdaq A/D Issues Chart

The Dow Transportation average was very weak again today before the late day rally, as we broke the October lows with a deeply disturbing intraday hit at 1,918.12l before the late day rally helped to lift the sector into the green, to 1950.65…but I do believe the bad-news-bears have seen the technical damage and may try to claw away tomorrow  Dow Transports (daily chart);  The weekly chart of the Transports is extremely buried in oversold conditions, and we could be near a significant relief rally zone, key word (could) Dow Transports (weekly chart)  

Another favorite indicator of mine that has been pretty reliable in predicting trend reversals in the recent past has been the Mr. VIX he has been range bound between 32-34% and 39-41% for the past couple of months, with moves to those distinct zones signaling at least short-term reversals in the equity market. Mr. VIX, which we all know measures the underlying option premiums in the OEX; usually increases as the market drops and investors become more fearful and skittish we saw the upper end of that range has been between 40-42 intraday, and especially with a topping range of 50+/- wherein we have seen an a market relief rally. The 40 mark was hit again yesterday for the first time since February 13th, and voila! A relief rally was produced as yes. We had traded as high as 41.16 intraday, but finished the day at 38.99. Investors and especially traders should monitor this market indicator on their trading screens and exercise caution with their positions short/long as we approach Mr. VIX’s range extremes.


Uncle Al the stealth rally maker injected a measly $10.0 Billion yesterday…which helped to fuel the rally  "Open Market Operations" .. So far this week he has injected only 20.5 billion when compared to last week where he had injected a whopping $27 Billion, ....  I expect that Uncle Al will open up the wallet again today....I expect several 9-10 billion infusion today to mitigate the Bush guns are a blazing speech that was delivered last night.... The markets are still acting like a junky waiting for their next liquidity infusion. The infusion today helped to add some slight stabilization to the DOW, and kept it from dropping as quickly as it could of. The FED is going to start to have to deal with the liquidity issue surrounding how they are going to retract some of the HUGE injections that they have flooded the markets with since the WTC tragedy. Industry "bean-counters" have suggested that any daily liquidity infusions over $9.75-10.0 billion can have the effect of lifting the DOW (60-80 points).  



As I have said for a week plus now !! A perfect Storm could be brewing, if we do not see a significant rally soon

Fund managers are a very sick cancerous lot of late as the fund industry and most of Wall Street thinks that we are in a new bull market that began last October…I do not share this view of course, I saw the rally as an deeply oversold manipulative bear-market rally…however at present Fund managers are sitting on the lowest cash reserves in decades. Many funds have had to procure additional lines of credit in an effort to keep up their respective buying power. And upon reflection they are still buying the same bubble-techno stocks that they have in the past…those so-called leaders in the last bull-run… (CSCO, INTC, MSFT, JNPR, DELL, JDSU, CIEN etc.) They are still buying overly valued tech stocks many in excess of 50 times future earnings in the belief that that there are greater fools out there who are willing to pay even higher prices, on any really that can be fueled. In other words, they believe there is a chance that retail is coming back into the market in a big way and once again they will be able to dump the crap into the arms of the foolish retail green-chasers they are still dreaming of the good old days and are hoping for another irrational exuberance aura.   If they funds can-not manufacture a rally, they will be in dire straights, especially if they face redemptions…these fund managers have been taking massive doses of Prozac and smoking that wacky tobacco… as they are living in an illusion, if they can not obtain a significant rally, and soon. Now folks I may be dead wrong…but I have never heard of a new bull market emerging and a bear market ending with P/E ratios at 50-75, associated/combined dividend yields at less then 2% and worse of all mutual fund cash positions at record lows coupled with the majority of ding-bat fund managers and their investors fully invested…something is very out of whack here…Bear markets don't end that way, nor do bull markets begin under such erroneous conditions…we could be seeing the set-up for a huge purge on any signs of a relief rally in the near-term as war still is a reality along with potential terror events.

FYI GNSS....Genesis Microchip: Piper sees downside to $8-$10

Although the company raised their March quarter revenue guidance to $54 mln from $52 mln, USB Piper Jaffray recommends that investors lighten up on their positions by selling into the near-term strength; firm notes that the stock trades at a 25% premium over the mkt multiple, and believes GNSS shares have downside to $8-$10 as ASP declines accelerate due to intense competition in 2H03.


Steve

Thoughts on BRL (on a split run), FRX and MYL ?

Food for thought on EXPE splits on 3/11/2003, maybe a pre-split run will be seen…they also have an analysts Day on March 12th Huge Short Interest...40% Better (I believe this type of stocks provides a safer long side play due to a leveraged squeeze on an oversold basis, for the average investor) You could always use a straddle or strangle play to effectively take advantage of the volatility… Overhead resistance and overhead Gaps at $ $70.90 from 1/3/2003 and at $74.25 from 12/03/2002...

Should be a very decent SHORT after the Split...I'm looking to buy some Puts right into the split run if we see it... UEDPO's April $75's, will utilize a stp-in average in approach

EXPE has a reported Book Value of $8.55 and free Cash of $10.00...however their pro forma earnings are quite questionable. When EXPE cracks it cracks big…typical roll up firm…Expedia noted that results for the fourth quarter and full-year 2002 included the operations of Classic Custom Vacations, acquired in March; Metropolitan Travel Inc., acquired in July; and Newtrade Technologies Inc., acquired in October, hence very difficult to track organic growth


TSG (Sabre Holdings) warned 2/26 that its revenue for the current quarter may fall below projections because of declining travel demand.

Steve
T-Waves

We have a perceptional battle being wager here today folks…basically speaking it is for bragging rights over the weekend…a close over 8,443 and the bulls can tout all over the air waves 4th weekly green close in a row, an this would be perceived very well ahead of next week's elections. On the other hand the bad-news bears want a close under 8,443, so the headlines can read “November starts in the RED” with the market doing its first Red weekly close since the Oct. 10th rally.



Now I have some food for thoughts folks…it goes back to a risk/reward/greed equation Since almost everyone down to the neighborhood paper boy/girl believes that Uncle Al is going to cut rates next there will be a pile of so-called investors that will want to get in before the jump that happens historically after such a rate cute, just listed to CNBC, and they are professing such a move next week. Knowing this, the shorts may be relinquishing and covering their short positions until after the fed meeting. I doubt that they will want to be very short come Monday when Ma and Pa Kettle read the weekend paper and find out that a rate cut is almost assured. Let’s face it folks, If I had a buck for every time I thought I knew a significant drop was coming on Friday, and instituted an early short position, only to see short-covering into the late day close pump the close even higher, hence I am trying to saw…beware of the power of Shorts covering. From what I can see, after today’s dismal reports there's no more bad news coming to fuel a market drop in the very near term that I can see, that we have not already digested and for some reason the Pepto-Bismol has worked as we have not puked up the overvalued equities yet. Risk/Reward…why would someone stay short between now and Monday or Election Day?



Those traders who believe there will be a rate cut, and an subsequent market rally afterwards there is no reason to be short and every reason to be long. The keyword here is "believe" since the economic numbers today make that chance much less likely in my opinion, and as you all know I believe that we will not see a rate cut (I’m in the minority group). Ma and Pa investor are starting to dip their toes back into the shark infested waters…thinking rate cut is assured and I think some of today’s buying due to this but I think more relative is the "short covering" to avoid a positive surprise by the Fed. I have been warning about that in the QQQ all week. If we see some news seep out that changes the landscape to a "rate cut not in the bag" then I think you will see weakness return.

Pension Issues are the next market Contagion

The first full week of the third-quarter earnings season brought a torrent of nasty disclosures, as company after company reported huge shortfalls in their employee pension funds. To make up for the shortfalls, executives are being forced to divert billions of dollars to pension plans in moves that will lower earnings, limit spending and choke expansion plans. "Everyone knew the drop in the market would affect the value of the pension funds, but people weren't familiar with what the ramifications were," said Robert Willens, accounting analyst at Lehman Brothers. IBM said it will contribute $1.5 billion to its fund by 2005, including $700 million next year alone.

Let’s face it, there is great uncertainty about future stock market returns and that should be prompting many companied to reduce their fund expectations from the high levels of the past (10-12%); to more realistic expectations, according to my calculations 6-6.5% is a realistic expectation. This past week IBM said it is looking at reducing its expected rate of return to between 8-8.5%, down 1.5% from its previous range of 10%. But I must state that even this new level may be too high, for this reason, I am very skeptical of the earnings presented by the Dow components and many of the S&P 100 starlets. I have been speaking regularly about pension fund accounting and how unrealistic the accounting premises and projections are; and how they are subject to great manipulation; along with hyper inflating the earnings outlook. Now, do not get me wrong, there are some very respectable firms/funds that have had proverbial cushions left over from the last bull market, when returns were higher than they had projected. However so many firms like IBM, GE, MMM, PG, GM, F, CAL, UTX, MOT, IR, WHR just to name a few used the surpluses to pad their profits.

During this so-called mild recession we're seeing plan assets finally melting; last Friday (sort of under the radar)
**NUI Corp. said it will record a pension expense in 2003, instead of a credit, for the first time in eight years.

This past week alone
**IBM said it will have to contribute $1.5-2.0 billion to its fund by 2005, including $700 million next year alone.
***United Technologies stated that they made cash infusions totaling $1 billion to its fund in the last 12 months; and they may need to add another 2-3 billion over the next 2-3 years.
**Ingersoll-Rand (last paragraph). On their conference call with analysts, that it may have to put more assets into its pension plan as a result of recent stock market declines. The exact amount will be determined as of November 30th, the end of the plan year. Based on current market levels, 2003 earnings per share could be hurt by 25 cents to 30 cents a share, Chief Financial Officer Tim McLevish said. He said the company was considering making a cash contribution to the plan, although it would not be required to make one.
**Motorola said it expects to contribute $150 million to $200 million to its fund in 2003.

A recent study by Credit Suisse First Boston estimates that of the 360 companies in the Standard & Poor's 500 index that have pension plans, 325 will have shortfalls by year end and only 33 out of 360 will be over-funded. Currently on my radar screen, and according to David Zion, the study's author; the airline and automobile industries will be hit hardest, companies in the S&P 500 will face a total pension shortfall of $240 billion by the end of the year simply put about the gross domestic product of Hungary. The pension fund issues are also spurring downgrades of debt downgrades, which will put additional pressure on profits by raising borrowing costs. Let’s fact it folks, accounting 101 states an underfunded pension plan is equivalent to debt, plain and simple; however you will not see a line item for it as firms burry this information deep in their 10-Q/10-K’s.

Merrill Lynch & Co. last month estimated that pension plans of 98% of the 346 Standard & Poor's 500 companies it surveyed will be underfunded by year end. Struve said: "Two-and-a-half years of negative stock market returns, a recession, weak operating earnings, and low interest rates are the perfect storm for pensions."

U.S. auto-related companies will likely end their 2002 fiscal year with more than $30 billion of underfunded pensions, more than double the level a year ago, as stocks head for a third straight annual loss, according to Fitch Ratings. General Motors Corp. and Ford Motor Co. might be responsible for $22 billion of underfunded pensions together by year end, Fitch said. Suppliers such as tire maker Goodyear Tire and Rubber Co and diesel engine maker Cummins Inc. might also face "challenges," it said. Fitch said it expects the funding shortfall for GM, which is based in Detroit, to rise this year to about $17 billion from $9.1 billion. It said the shortfall for Ford, which is based in Dearborn, Michigan, should total at least $5 billion, compared with a $596 million over funded status last year.

I personally believe there needs to be more regulation on pension fund assumptions, and a cap put in place. I do not expect that significant downward revisions will become a trend, until such measures are undertaken. There are still way to many aggressive “floundering / irresponsible and hinging on legal fraud” accounting tricks for companies to manipulate pension fund numbers.

For example, corporations' continue to use a best fit matrix which include assumptions about future wages over-time levels, as well as life expectancy, that can greatly affect the status of the pension funds. This is the next area of corporate manipulation that must be addressed.

Best of Luck
Steve
www.twaves.com

The Headlines once again have given me that warm and fuzzy feeling all over.
**Microsoft Blows Past Expectations for 1st Quarter
**Microsoft Announces Record First Quarter Revenue
**Microsoft Profits More Than Double

It’s a pity that they paint such an inaccurate picture. The street had been expecting Microsoft Corp.'s to post EPS of $0.43 on revenues of 7.1 Billion, fiscal first-quarter results MSFT utilized some interesting accounting gimmicks, and I will not be 100% sure until I see the 10K…however it appears that MSFT marked up it’s XP system as they want the public to believe there was a shift to higher-priced versions of its Windows operating system, you see MSFT recognizes revenues as systems are shipped to OEM and resellers. According to the releases MSFT guides up the December quarter to $8.5-8.6 billion in pro forma revenues, above the consensus of $8.45 billion however the guides EPS to $0.45-0.46 vs. consensus current consensus of $0.50. This makes very little sense, unless there are some significant write offs in the pipeline.

I’m not the brightest bulb in the closet, but they reported EPS of $0.50 on earnings of $7.75 billion for the quarter, now they say they intend to grow revenues by 750-850 million next quarter but that EPS will $0.04 -0.05 lighter…this is a RED Flag if you ask me. MSFT also played an other accounting trick this quarter…they used price cuts for the Xbox game console which increased their write off…as the X-Box is a losing venture…MSFT makes revenues from games/licensing fees not the console.

There was no mention at all of the impact on regarding the cancellation of the Extraterritorial Income Exclusion Act due to a World Trade Organization ruling recently. It is likely to reduce export subsidy income for several large U.S. companies including MSFT, which reportedly benefited by $0.06 worth of EPS from ETI in FY02; MSFT could see a material impact of $0.07 -0.08 this year and an impact to cash flow by $400-415 million going forward. I tried to get in on the conference call and ask this question…however they would not accept my question…(I guess I need to belong to top 10-pack of hypsters/shills) 

During the Conference call:
"Results for the first quarter were exceptionally strong, exceeding our expectations," said John Conner, the company's CFO, who cited quicker than expected customer adoption of its new long-term licensing programs. The MSFT CFO said on the conference call that the "tech spending environment remains tough".

Microsoft, which has a monopoly on the desktop software market through its Windows and Office franchises, recently moved many customers to new, multiyear software- licensing plans, helping to squirrel away billions in revenue to recognize during future quarters. The predictability of that long-term revenue is really a good corporate move on MSFT’s part…as it gives it a leg up on competitors, many of whom are still struggling financially from the downturn in the PC market. Microsoft has been able to use its market heft to steer clear of many of the problems plaguing other technology companies. However many states and the Government are looking into this recent practice as many of MSFT’s customers have filed complaints. This was a strong arm tactic to increase revenues a one time last chance sale of software licenses. Their old license plan changed as of June 30th and there was a rush to buy software at the old terms. The key here folks is that this is not a repeatable event.

Microsoft Corp. reported revenue of $7.75 billion for the quarter ended September 30th, 2002, a 26% increase over revenue of $6.13 billion for the same quarter last year.
Operating income for the first quarter was $4.05 billion, compared to $2.90 billion in the same period last year.

Net income and diluted earnings per share for the first quarter of fiscal year 2003 were $2.73 billion and $0.50, which included an after-tax charge for investment impairments of $291 million or $0.05. For the same period of the previous year, net income and diluted earnings per share were $1.28 billion and $0.23, which included an after-tax charge for investment impairments of $1.22 billion.

First Quarter 2001…Microsoft Corp. reported revenue of $6.13 billion for the quarter ended September 30th, 2001, a 6% increase over the $5.77 billion reported in the prior year. Operating income totaled $2.90 billion compared to $2.78 billion in the prior year. Net income for the quarter was $1.28 billion including a $1.24 billion after-tax charge related to the impairment of certain publicly traded and private equity securities, predominantly in the cable and telecommunications industries. This charge is reflected in the $980 million investment loss reported this quarter. Diluted earnings per share for the September 2001 quarter were $0.23, including a $0.20 charge for net recognized investment losses which includes the impairment charge noted above. So EPS was $0.43 before dilution

Business Outlook 
**Management offers the following guidance for the quarter ending Dec. 31, 2002:
**Revenue is expected to be in the range of $8.5 billion and $8.6 billion.
**Operating income is expected to be in the range of $3.2 billion and $3.3 billion.
**Diluted earnings per share is expected to be either $0.45 or $0.46. (Red Flag #1)

Management offers the following guidance for the full fiscal year ending June 30, 2003:
**Revenue is expected to be in the range of $32.2 billion and $32.6 billion.
**Operating income is expected to be in the range of $14.1 billion and $14.4 billion.
**Diluted earnings per share is expected to be in the range of $1.89 and $1.95.



Best of Luck
Steve

PLAY of the Week

The Games market Makers/Specialist and brokerage firms play… it looks like they filled the pool with crystal clear sparkling water, and removed the beware of corporate sharks sign beckoning new investors to plunge head first into this beautiful arena.  As Clint from dirty Harry fame would say… Do you feel lucky, well do you…go ahead make my day! As soon as jyou jump in ther release a pool of Piranhas.

Now let’s put things into a logical perspective. Since IBM’s close on the 11th $57.58…IBM has made a made dash for the golden ring as it has gained $14.62 as it closed at $72.20 today however the Big-Bad-Bear persona that I attempt to keep in check and repressed is screaming this is a DEAD SHORT….as when we reflect upon the huge move of $14.62 in 5-days that move included $11.06 worth of unfilled Gaps.  I am recommending November/December Puts on Big Blue on any sign of strength off of the MSFT earnings Gap/Play today. Please be patient and selective. My optimal entry target is $73.10 - $73.80 ***Disclosurer I still have a straddle on IBM, which I will be legging out of for a pure put position

How the script played out: The Street was touting IBM all day, in an attempt to bring in some new calves into the slaughter house. Most folks did not realize that IBM actually traded down on the day…Wall Street played the game in grand style with IBM in my humble opinion, like a concert violinist playing a Stradivarius.

On October 8th  IBM gets down graded by Goldman Sachs as they cut 2002-03 EPS estimates based on expectations that IT spending will remain sluggish at least through 1H03; in addition to weak IT spending, firm expects a drop-off in IP transaction-based royalties as well as incremental pension-related expenses to negatively affect earnings; on the other hand, revised model shows improved profitability in IBM's microelectronics biz and slightly more savings from restructuring; cuts 2002 to $3.90 from $4.00 and 2003 to $4.30 from $4.50

IBM trades down from $58.00 to $54.80

Mid afternoon there is a report that came out that IBM was buying back shares today. An IBM spokesperson is cited, the stock was lifted off the bottom $2.50+ to close at $57.05

IBM Waffles between $54.01 and $58.50 for the next 2-trading days @ 125% normal volume…was under accumulation as we saw many large block orders being filled.

On October 11th Dan the man Niles decided to institute a mother of a Short Squeeze in IBM… He upgrades IBM to Overweight from Equal Weight; and he vaguely cites recent reduction in consensus earnings estimate and resulting ability to meet estimates (double talk for IBM is oversold and I can orchestrate a squeeze based on the recent downgrades by competing firms, especially after we have been buying), US stability offsetting European weakness, possible slight improvement in 2003 IT spending, and likelihood that any 2003 estimate cut will be modest ($0.05-0.10) (He was expecting a reduction in visibility and a slight pullback in IBM’s outlook…not a resounding upgrade at all.).

IBM gapped up to $62.00 a huge $4.42 point gap…on the upgrade and only filled $0.50 of the Gap…thus leaving $3.92 left unfilled. it closed the day out at 63.92

On October 14th Morgan Stanley reduces their estimates on IBM as they believed that IBM did not experience the normal pickup in hardware orders in the last few weeks of the qtr, and that Microelectronics remains a wildcard; cuts 2002 estimates to $3.80 from $3.82 (Wow a hole 2-cents that is a reduction of a ½ of a percent) and 2003 to $4.05 from $4.25 (below consensus of $3.93 and $4.41). The headline was all that was needed to scare some longs

IBM sold off $2.38 (still not filling the $4.41 gap) then low and behold some buyers stepped in and drove up the price to $63.42, a loss of $0.50 for the day. On light volume.
On the 15th after the Holiday the futures were on a tear…IBM again saw a huge Gap up of $4.33, as it opened at $67.75…it traded to an intraday low of $66.58 thus filling in $1.17 of the $4.33 leaving a Gap of $3.16

On October 16th IBM traded down intraday t0 $64.24, which filled in all but $0.81 of the Gap on the 15th After hours IBM reported their lackluster earnings, however they were touted as extraordinary…and the race was on.

On the 17th IBM Gapped up Huge $7.90 it opened at $72.80…and ran to $73.00 before closing at $72.20 …(Intraday low = $71.23…hence it filled $1.57 of the $7.90, leaving $6.33 unfilled). To me this is a bearish sign, to close lower than the gap.



JMHO

Hello Folks

As I promised...I have scoured what I could of IBM's earing's as release and I'm not impressed at all.

IBM Corp.'s third quarter profits dropped a mere 18%, but they still managed to beat the according to the talking-butt-heads on CNBC the street's earnings expectations by $0.03. Or did they?

IBM reported a profit of $1.31 billion, or $0.76 per share on revenues of $19.82 billion in the quarter that ended September 30th …That compares with year-ago profits of $1.60 billion, or $0.90 per share, and revenues of $19.78 billion.


IBM's Q2 revenues from continuing operations were $19.7 billion, down 6% compared with the second quarter of 2001.

Second-quarter net income from continuing operations was $445 million, or $1.6 billion before the charges, compared with $2.1 billion in net income in the second quarter of 2001. Hence IBM net income on a quarterly basis Y/Y dropped a whopping 78%....and if we use the pro forma numbers like CNBC and other hypsters wants us to IBM still was off 23.8%

Year-To-Date 2002 Results
For the nine months ended September 30, 2002, income from continuing operations was $3.4 billion, or $1.97 per diluted share, including $.64 per diluted share, or $1.6 billion in incremental pre- tax charges, associated with the realignment of the Microelectronics Division and productivity actions.

In 2001, income from continuing operations was $5.6 billion, or $3.14 per diluted share. Revenues from continuing operations totaled $57.5 billion, a decline of 6% compared with the first nine months of 2001.

For the first nine months of 2002, the loss from discontinued operations was $862 million, or $.50 per diluted share, including $.23 per diluted share, or $573 million on a pre-tax basis for asset write-offs and the loss related to the HDD sale, compared with a loss from discontinued operations of $191 million, or $.11 per diluted share in the prior-year period.

For total operations, net income for the first nine months of 2002 was $2.6 billion, or $1.47 per diluted share, including $.87 per diluted share, or $2.2 billion in incremental pre-tax charges, associated with the realignment of the Microelectronics Division, the agreement to sell the HDD business, and productivity actions. In other words IBM in 9-months has net income of 600 million or $0.60 EPS. In the prior-year period, net income was $5.4 billion, or $3.03 per diluted share. On revenues of $58.9 billion, this includes $1.4 billion of revenues from the HDD unit.

Why do I get the feeling that the talking-butt-heads have no clue… on a year/year comparison IBM revenues have increased 1.4 Billion or 2.4%...however their net income has decreased $2.8 Billion what a HIT !!!!!!


Revenues increased by (19,821-19,783) a mere $38 million or 0.19%

Gross Profit decreased (7,323 -7,434) a mere $111 million or 1.4%

3rd-quarter revenues from Continuing Operations were $19.8 billion, up 2 tenths of a percent from 3rd quarter 2001 and up 9 tenths of a percent sequentially from 2nd quarter 2002.



Pension Issues:
IBM pension assumptions for 2002 have migrated from 10% to 9.5% these assumptions are ridiculous, they have attempted to explain it away by saying that the assumptions are consistent with return assumptions of many other companies. They have continued to realize net pension income reflected by GAAP in recent periods/years. In their 8K, they waived a flag and said that in the interest of increasing their transparency, and given the current market trends and historical trends, they are looking at reducing their expected return assumption for 2003 in the range of 8% to 8.5% (Wow what a relief). They believe that this will affect the income statement by roughly $700 million next, year just a few little dollars. Then they throw in a caveat. They expect to more than offset the pension impact through $900 million in productivity savings from the restructuring actions that they took in the 2nd quarter (meaning a head count reduction). Regarding funding levels in the pension plan: “They stated it should come as no surprise that the market's downturn this year has resulted in a drop in the value of our pension plan assets. Our current working assumption is that we will start contributing as much as $1.5 billion to the U.S. pension plan, targeting the plan to be fully funded by 2005. We will not finalize this funding decision until the end of the year; (they also have other pension issues in euro-land).

Bad debt expense was up $79 million, the eighth straight quarter they have absorbed a year-to-year increase in reserves for Accounts Receivable.

Year-to-date, IBM has absorbed $480 million in A/R provisions, up $180 million from the first three quarters of last year.

IP Income was down $161 million. With economic uncertainty and consolidation, there is not as much opportunity to monetize their intellectual property.

Net pension income drew from the bottom line $88 million to cost and expense.

They were also impacted year-to-year in cost and expense by their currency hedging contracts as the dollar weakened.

Equity transactions net of impairments were actually a loss of $6 million this quarter, but last year we had a net loss of $133 million.

Elimination of goodwill amortization was another $63 million loss,

IBM had a year-to-year benefit of $29 million from real estate transactions, which included a land sale in Japan of about $50 million.

Year-to-date, they have spent $4.1 billion to buy back about 47 million shares, with $3.9 billion remaining in their last Board authorization at the end of the quarter.



IBM 3Q 2002 RESULTS
(Continuing Operations)
Actual Yr/Yr Qtr/Qtr

Revenue $19.8B 0.2% 0.9%
EPS $0.99 2% 11%*
* Excluding 2nd Quarter Charges


--------------------------------------------
IBM Credit Corporation today also reported Q3 net earnings of $63.3 million, a 44% decrease over $112.7 million in the third quarter of 2001. Net earnings for the first nine months of 2002 were $229.4 million, a decrease of 28%, compared with $320.2 million for the same period of 2001. The annualized return on average equity was 20.3%, compared with 23.6% in 2001.

New customer financing originations(a) for acquisition of information technology products and services decreased 14% to $1.2 billion in the third quarter of 2002, compared with $1.4 billion for the same period in 2001.
New commercial financing originations providing working capital financing decreased 4% to $2.6 billion, compared with $2.7 billion for the same 2001 period.

For the nine months ended September 30, 2002, customer financing originations* decreased by 11% to $4.1 billion, compared with $4.6 billion for the same period of 2001, and commercial financing originations decreased by 11% to $7.5 billion, compared to $8.4 billion for the same 2001 period.

As of September 30, 2002, total assets were $13.2 billion, compared with $15.3 billion at December 31, 2001, a decrease of 14%. Retained earnings were $1.0 billion, compared with $1.1 billion at December 31, 2001, a decrease of 9%.

-----------------------------------------------------------

During the conference call
Chief Financial Officer John Joyce said, "I am generally comfortable" with expectations for the fourth quarter, excluding the impact of the acquisition of the computer-consulting business of PricewaterhouseCoopers, which was completed October 2nd. According to Multex, analysts expect IBM to report earnings from continuing operations of $1.35 a share, up narrowly from $1.32 a share a year earlier. Analysts expect fourth-quarter revenue of $22.27 billion for the year, and Mr. Joyce said the PwC acquisition could add $1 billion to that figure in the quarter. IBM reiterated that it expects costs related to PwC to reduce earnings per share in Q4 by $0.30. Mr. Joyce said that with many customers prolonging decisions on whether to sign new services or sales contracts, he isn't able to make any predictions about the condition of business in 2003.


I am a bit confused after reading IBM’s prepared remarks and after listening to the conference call…according to their prepared text….."Looking to Q4, we will now begin to benefit from the added revenue from our enhanced Business Consulting Services. Most Street models have not yet taken this into account. After adjusting for that revenue and the earnings impact, I am generally comfortable with the range of expectations for our performance in Q4"... At first blush I am leaning towards interpreting this comment as a warning.

"The biggest change we have seen is that customers are spending much more time analyzing IT investments, both in hardware and services," CFO John Joyce said on the company's conference call. "They're taking a lot more time to make sure they're going to receive returns based on investments, so that's elongating the sell cycle."

IBM's current earnings report is somewhat cloudy as it reflects several structural changes that have taken the firm away from the business of manufacturing computer hardware and closer toward maintaining it, it is the services sector from which most of its revenues now flow. Earlier this year IBM announced the reorganization of its older aluminum-based semiconductor works, and transferred much of its PC assembly work to contract manufacturer Sanmina. IBM is also in the process of selling its hard disk manufacturing business to Japan's Hitachi.


IBM is attempting to bolster its services sector division with the $3.5 billion purchase (completed in this month) of PricewaterhouseCoopers' consulting arm. IBM has stated that it expects the acquisition to reduce its fourth quarter earnings per share by about $0.30 -$0.32 EPS. IBM said in August that it had laid off more than 15,600 workers, or 5% its global work force, which dropped to about 305,000.


Hope this was a help

Best of Luck All, May the market forces shine brightly upon you all

Steve
www.twaves.com

This is a brief out-look of what I sent to my readers this morning

To Test, Or Not to Test ... That is the Question! When I was looking at the charts this morning I’m starting to see the first sign of a diverging signal again. Since August 25th when I instituted a Major warning of a pending reversal and sell-off, the signals had been pretty clear that we would in all likelihood be re-testing the July lows. I recently “Prematurely I admit” issued a reversal call

The first stage that confirmed that plausibility came on September 3rd, when we experienced a cliff dive event for the DOW as it shed more points than a Jenny Craig group sheds ounces. Usually such a significant drop can signal a change in investor sentiment, that cliff dive was important technically as it marked the first lower low since the volatile reactionary rally from a low of 7532 on July 24th took hold. The Dow then found support and rallied up to September 11th as a patriotic gesture. Unfortunately for the bulls that high was a lower high following a lower low, a significant bearish formation. This set up was then followed by several defining days of market action which resulted in the development of a classic head and shoulders pattern, with a neckline break at 8260 that signaled the continued drop, we came within 50-60 points of completing a normal H&S retracement (I had projected a drop to 7,355 -7,365, and on Monday we dropped to 7,422 only 57 points shy), hence this may be deemed a success. However as of right this writing we still have not seen a higher high in the Dow or Nasdaq. we have recently been probing fore just such an occurrence and I believe we could very well, see such an reversal event so I am looking at several key areas of overhead resistance that I thing you all should put on your radar screens.

A key area of overhead resistance in the DOW that needs to be overcome 7,998 – 8,012, yesterday’s rally fell short of reaching this level by approximately 30 points. I have received many emails from loyal readers warning me that a potential whoosh could be around the corner. I agree, there is that potential, however that potential exists on almost any day, as many market participants are as skittish as a long tail cat on a geriatric ward. As if we experience another terror attack, large blue chip corporate scandal etc. However, I believe that since we have recently seen that the objectives of the bad-news-bears was to test the reactionary lows of 7/24 (7,532) which was just accomplished…then to probe the zone of the 7,405 -7,415 that related back 4-years ago to September 1998, which they did, they failed right at the linear regression zone of 7,460-7,480. Hence I believe we have successfully tested the July low’s and are now on stage #1 of a rebound.

So, I believe that we need to be on the look-out to ascertain whether this was in fact the first stages of establishing a true bottom or just another trap being set by the bad-news bears. A break through the 7,998 -8012 zone on the DOW above and a close above the psychological 8000 barrier would be the first sign of such a potential reversal. The bears are running around saying that since we actually saw a lower low than we did in July, that we are still on track to DOW 5000. They have a chance at being right however I believe the Bears as did the Bulls suffer from Irrational Exuberance as they will tend to overshoot rational valuations just as the bulls did. Now for my Bearish View, my balanced approach…After today's warnings after the bell, we may be close to a second retest of the July reactionary lows, as we are only 220 points away, and triple digit moves are becoming the norm of late, after failing to power through the aforementioned overhead resistance zone.

After a massive rally of almost 350 points in the Dow on Tuesday, we expected to see a retracement/pullback could be expected. That makes it hard to tell whether the failure under 8000 is a significant sign of weakness from a failed rally, or a normal pullback. We closed at 7,939 on Tuesday…hence:

A retracement of 23.6% would have resulted in a drop of 82.6 points, or a retracement to 7,856

A 38.2% retracement would result in a drop of 133.8 points, or a retracement to 7,805

A 50.0% retracement would have resulted in a drop of 175 points, or a retracement to 7,764

Prior to the White house announcement of the IRAQ resolution and the uncanny screw-up in the data feeds system wide, we had rallied from 7,803, the 38.2% retracement level up to 7,960 21-points into the Green zone the markets were demonstrating what I called a healthy retracement, some back filling and then a gradual move up, all this was happening after A warning from Dow Chemical, rocked the Dow on the open. As the President was talking the markets were waffling, then the data feed issues started a sell-off as skittish longs decide to book-em as they could not trade appropriately. The Dow traded off down to 7,850 and started to rebound into the Bear Stearns fiasco…as it appears that a clerk apparently hit the wrong button and almost turned off the S&P (imagine a clerk could do such a feat, and that there were not safe guards built into the process?). Shortly after 15:00 hours a Bear Stearns clerk was supposed to enter an order to sell $4 million worth of S&P equities, a normal type of occurrence as it was a basket sell-program, however the normal part stopped there, it is reported that the clerk rather than execute a $4 million order typed in a $4-billion dollar sell-order. It was reported that they were able to cancel all but $622 million of the orders prior to execution. This tends to explain the sudden whoosh for the end of day drop


Best of Luck folks
Steve
http://www.twaves.com/

T-Waves view Patience and discipline.

Wait for the trade come to you. The idea is to make money consistently because you are patient and disciplined and don't over-trade. Protect your assets and trade only when the odds are in your favor. Trade when a situation is a high-percentage situation and back away from all other trades. WAIT FOR THE STOCK TO COME TO YOU !! There is no need to over-trade. Every trade costs commissions, and losses can add up dramatically. A few profitable quality trades brings profits you need with low volatility for your account. This rule is used in both trading styles.

1. Patience and discipline **Bears repeating**
2. Capital Preservation (Limit losses), Always take a loss quickly and hopefully mitigate your losses, do not become emotionally attached to a stock.
3. Do not trade if your head is not in the game!
4. Observe the buy limit.
5. Don't buy gap openings that pass the buy limit.
6. Use stop loss orders. A primary ingredient for successful money management
7. Always follow a position up with a trailing stop.
8. Never EVER let a winner become a loser.
9. Utilize the concept of scaling into/or average, into and out of positions.
10. Develop a money management strategy that fits your risk tolerance and account.

Buy Limits
Nothing goes straight up or straight down. If a stock passes the recommended buy limit, don't chase it. If you miss a trade, there is always another coming right up. Often times it will come back and give you a second chance to enter. Chasing stocks up destroys the risk/reward ratio and can leave you holding the bag. Trading Gap Openings: A gap is created when the opening price is higher than the closing price on the previous day. If you are looking to buy a stock on the open and it gaps past the buy limit, be patient and wait for a pullback to enter. Gap openings are most often traps and patience will provide a far superior entry for a long position.

Stop Loss Orders:
We suggest that on most of your positions you employ a stop-loss or buy-loss. Anyone can make a wrong selection in the stock market. When this happens, it is important to adopt a defensive posture: sell (or cover) for a loss. Remember that no one establishes a position to lose money; preservation of capital is paramount. The best stop orders are mental. A hard stop (a stop limit or stop market order that you place in your trading account) resting in the market is visible to specialists and market makers and is likely to be triggered. If you can't watch your positions a hard stop is better than no stop, but in volatile issues you can have unpleasant results using hard stops. Use common sense on determining stops for your positions. We almost always suggest a stop. If your entry price is substantially higher or lower than the price at the time of recommendation you should adjust your stop accordingly. We use wide stops on volatile stocks; this is because frequently traders will stop out only to have the recommendation go up without them. Common sense is a big help here; if the stop is past your pain threshold, try a smaller position to reduce your risk.

Using Trailing Stops
Protect your profits. Plain and simple. As a position moves in your favor raise your stop to lock in profits. Many stocks that are the most profitable to trade move through extreme ranges. In some cases a trailing stop based on percentage may be more useful or use a trailing stop based on points. NEVER LET A WINNER BECOME A LOSER. Use your cost as a stop once a position moves in your favor. Remember you can always re-establish a position in a stock. Be prepared to exit positions that continue to fail at key resistance and support points. If a stock loses momentum, before it reaches our target we may close the position to secure a profit before it vanishes.
Alerts

T-Waves is dedicated to closing the communication loop on each recommendation. We have a comprehensive alert system that enables us to make you aware of changes to our recommendations. Alerts inform you when it is time to adjust your stop, take profits or make changes to your position. Many of these alerts will be included in the Evening Recaps


Best of Luck
Steve

GE Merrill Downgrade is a SHAM

Merrill Lynch came out and decided that GE needed another spanking today, as Lehman’s down grade evidently was not enough they decided to cut their 12-month stock-price target to $28 from $35 and they lowered earnings forecasts.

General Electric fell 7.2% to $24.47 on Friday, after Lehman Brothers downgraded the company’s earnings target and estimates on the stock, citing worries about the stalling short-cycle business. Lehman cut their rating after GE indicated they were less positive about results going forward. While Lehman highlighted an earnings risk in 2003, Merrill believes that 2004 could be an even more difficult year for General Electric. What a blatant SHAM, these analheads can’t predict the current or next quarter, but thy want you to believe they are accurate 12-24 months out…"While 2003 is shaping up to be a challenging year for GE, we caution that 2004 could be as challenging, if not more challenging, as the company faces its greatest 'headwinds' at Power, as domestic gas-turbine units are forecast to fall to 50 from 260 this year," Merrill analyst John Inch said. A skewed statement as the forecast is for 75; however GE expects foreign sales to more than offset the domestic reduction. After the dismal out Merrill painted, they did not change their buy recommendation on the stock a logical conclusion NOT!! They reduced their 2002 earnings-per-share estimate to $1.63 from $1.65 and its 2003 forecast to $1.70 from $1.78. The third-quarter estimate stays unchanged at $0.41, while the fourth-quarter number falls to $0.43 from $0.45. Inch agrees with Lehman that a slightly more sluggish economy near-term should pressure the short-cycle business. Inch now expects short-cycle operating profit next year of $4.7 billion, against the $5 billion that GE had targeted at last May's Electrical Products Group conference.

ANALHeads should be locked in a full porter-potty and then rolled down a large hill

JMHO
Steve

Current Jobs data STUNK... here's the Scoop

As many can tell, I am more than a little upset at the recent unemployment numbers released by our deceitful government.

I know that these are strong words but I feel passionately about the continued release of pro forma propaganda numbers from our government. (By the way some of my readers have thought I spin these numbers to enrich my analysis of a pending double dip recession please, this is so far from the truth you can see for yourself the full report is here for all to view) http://www.bls.gov/news.release/empsit.nr0.htm

This months report was filled will illusions and was inundated with crafty smoke and mirrors effects, who ever crafted it should look up Steven Spielberg as I’m sure he has a better paying job waiting in his special effects department.

The headline numbers alluded to 39,000 new jobs being created in August. What the headline numbers failed to point to was that, 22,000 of the 39,000 were hired as airport security personnel and 34,000 were teachers going back to work. I am really getting sick of the deception. Neither of these increases which totaled 54,000 are going to be repeated next month !!

In effect the employment rate should have flashed a negative sign…After the large number of jobs that have been lost and are proposed to be cut in September we could see the next number come in at 6.2+%

How many heard from the talking-butt-heads that the help supply industry, which provides workers to other businesses, added 51,000 jobs over the month, following a decline of 30,000 in July. **This means that corporations are still unsure about their staffing, and would rather hire temporary non-benefited workers

Good paying manufacturing jobs )Those jobs that help to stabilize our economy) were still slashed, as employment declined by 68,000 in August. In August, job losses were widespread, including substantial declines in electronic and other electrical equipment (18,000) and industrial machinery and equipment (13,000). After remaining fairly steady from January through July, employment in fabricated metal products decreased by 10,000 in August. Rubber and plastics manufacturing lost 7,000 jobs, offsetting the previous month’s increase.

A key point remains that after reviewing the data…53.3% of companies cut workers during August. Those jobs created by the Transportation Authority may have added to the net total of job created but they do squat to add to the GDP. They are service positions…nothing gets manufactured or sold and no equity is built into the overall economy by hiring a clerk or airport screener such employment will not keep us from a double dip recession.

This is my Take

Best of Luck to All
Steve
http://www.twaves.com/

Hello AJS

I will attempt to answer your questions, though vague…

My current subscription base is small…T-Waves has only be in existence as a fee based service Since May 2002, Prior to that I was publishing Weekly Newsletters and Market Reversal projection as Stocks Unlimited…I provided this service for over 18 months. There is usually ample liquidity in most of the Swing-Trade Suggestions and Option Suggestions…and yes if you are as Cheap, patient and disciplined as me you too can enter at the levels I do. As A matter of Fact I continually preach discipline & patience to my subscribers.

On the option suggestions, We play the DJX, OEX, DIA, SPY, SMH, BBH, MSFT, MMM, IBM often just for their liquidity

If a stock in the option suggestion list lacks liquidity, we utilize credit/debit spreads etc.

The Swing-Trade Suggestions and Option Trade Suggestions are suggestions formulated after Friday’s close for the following week, with detailed analysis.

During the day…I send out additional suggestions to Level II Subscribers, not include in the aforementioned lists.

I hope this helps...if not continue to ask away

Steve

Pictures are worth 10,000 words....

http://stockcharts.com/def/servlet/SC.web?c=$indu,uu[g,a]ieclynay[pb10!b20!b50!b80!b100!b150!b200!d2...

Information on T-Waves Turn Signals

Several readers have asked about how to play these forecasted Turn-Times... So here is a brief out-line...I will expound on this this weekend...
The turn signals are just that, signals that are generated through intense and multiple calculations. I use 11 different variables and indicators, and of as you all know these forecasts and market turns are predicted in advance I can not foretell, a week in advance which direction the turn should break...yet, I am beta testing 3-new variables that may render such information...still in it's infancy and undergoing an extensive back-testing process.

The suggested way to play the turn-signals is as follows. If the specific index is rallying into the turn signal expect a sell-off reversal to commence. And just the opposite to happen if the indexes are selling off, expect a buying reversal.

If the markets are trading in a sideways trend wait for confirmation of the trend..i.e. either a 3-5 candle trend on a two minute chart or my favorite a 3 three-minute candle confirmation to establish the market direction. Please When in doubt wait for confirmation...

The turn remains in effect until the trend is broken i.e. a higher high is made or a lower low... depending on the turn...turns can overlap trading days...and can be canceled out by subsequent turns...and/or the turn can be enhanced

Major moves can last between 6-32+/- hours 150-300 point moves

Major/Minors moves can last between 6-18+/- hours 90-180 point moves

Minor Moves can last 1-6+/- hours 50-125 point moves


Best of Luck
Steve

Hello Mike

I will be watching HRB very closely....

Hopefully we can nail it again

Steve

topcard2.... I am perplexed !!

My site is http://www.twaves.com/

My subscription page is http://www.twaves.com/T-Waves_Subscription_Prices.htm

I Only have Level I & II subscriptions no life-time ?



Steve

Folks I am going to issue another T-Waves GENERAL WARNING,

In my view the current deteriorating economic conditions, the threat of WAR on the horizon, increasing debt loads in consumer-land, corporate-land not to mention the ever increasing federal budget deficit…the contagion that increased energy cost will have…the likelihood of continued pressure on the global economic front from South America… increased and continued move towards excessive stock market valuations will push us deeply into the double dip recession that I have spoken so often about. When it was so unpopular to do so. I am issuing a broad based warning to all my readers…I believe that the current rally that so many talking-butt-heads and anal-heads have called the next bull run. Is about to implode…I believe it will suffer the same fate of the three previous Bear market rallies of the past two and a half years. At their peaks these moves registered gains of 14.2%, 21.7% and 24.6%. At Thursday's high the current rally had jumped 22.6% off the July 24 bottom, within the range of the previous three. In our view another interim top is likely in the period ahead, and the market will drop to new lows. Yes I know that more than 80% of the so-called market guru’s have stated that the bottom is in and that we will rally from here. However I do not believe so…and you folks read me for my opinions…not the hyped and popular opinions you find on CNBC etc. I hope this warning scares you…as my last warning came true enough! http://www.twaves.com/Archive%20Folder%20Pre-Market%20Updates/T-Waves_Pre-Market_Update%20%20%206-6....


Best of luck
Steve

Hello Be Profitable yes I did...Please use your Private link...

If you have a problem email me

Steve

My Explanation on my Negative Semi-Opinion
I have been asked by several readers to expound on why I am so negative on the Semi-conductor group, as my views seem to be 180 degrees from anal-heads and the talking-butt-heads in the media ...Yes I am still very negative on the Semi-sector as a whole, especially after this irrational recent run-up in stock prices as the valuations are now even more out of whack, and it is ridiculous on how the media feeds this hype. They still believe the promote daily that the Semi-conductor industry will lead us out of the recession...this just is not so. What they fail to do is a simple supply/demand analysis, along with a driver analysis...according to my research the P/C sector is in a trough period and will not see an uptick until Q3 of 2003, the Mobile Phone industry is troughing as well and I do not expect to see a bottoming here until Q2 of 2003. The Semi-conductor industry lacks sufficient drivers currently to sustain growth and with out such, will continue to falter. Especially the semi-equipment makers as capex expenditures are pushed out and/or canceled.

Global sales of chip making equipment fell 18.4% in June from a year earlier, a sharp slowdown from the heated pace of declines over the past year. The media recently only focused on a snap shot of information when they forecasted that the semiconductor sector has bottomed...the recent book-to-bill numbers. While I will concur that it appears that the industry may be applying the brakes on the recent free-fall, and is starting to trough, it has not done a reversal from last year's record-breaking slump. Sales of equipment to make and test microchips rose to $1.85 billion in June, the highest since September, however this is a seasonal blip spurred by over an historic over estimation on the demand front with regard toward restocking ahead of Q4 needs.

However, forward-looking data, has recently cast doubts on the recovery's prospects. remember folks it is not as important to see where you have been, when evaluating a sector...but where you are headed. The latest figures from the North American industry showed a 2% fall in July chip equipment orders, a leading indicator of future sales. The data for June continued to show relative strength in Asia's emerging semiconductor centers, with Taiwan posting 49.3% growth to $463.1 million while South Korean sales fell 29.0% to $101.1 million. Sales in North America fell 33.0% to $473.6 million, while Japan also posted a drop of 37.9% $350.3 million and Europe fell 40.6% to $184.5 million. Quarterly figures showed a 34.0% drop in equipment sales in the April-June period from a year earlier to $4.66 billion. Taiwan was the only region showing growth in the quarter, with a 10.7% rise to $1.05 billion. Japan posted the largest drop of 55.7% to $786.3 million.
Thomas Weisel issued a research report about inventory levels in the electronics supply chain this week. They conclude that semiconductor manufacturers hold the most inventory at 64% of the total which compares with 33% in the second quarter of 2001.  They are looking at a modest recovery in spending by non-PC chip segments. But are less optimistic that the PC chip business will participate to the same extent." He also expects DRAM manufacturers to invest at low levels. A picture is worth 10,000 words, I have an extensive data base of B-2-B data.... T-Waves Book to Bill Chart  http://www.twaves.com/T-waves%20Book%20to%20Bill%20Chart.htm

Ironically: Salomon Smith Barney today comes out and reduces their semi industry growth forecast for 2002 to +0.5% from +4% and for 2003 to 12% from 21%, and projects 17% for 2004; semi shipments in 1H02 had been running slightly above trend, but firm believes this was due to excess inventory builds being worked off; with the exception of wireless handsets, demand in most segments remains slow and a seasonal uptick in 2H02 may be weaker than normal. Top picks are ADI, TXN, MU, and INTC. Maybe they are reading T-Waves !!

Best of Luck
Steve

Shorted 800 SLM at $97.32 best trade today so far

Here are some thoughts on the Semi equipment B-2-B last night... here is a T-Waves chart depicting, the overall trends for the past 5+ years…I have an extensive Data base on the B-2-B Sometime a picture is very valuable

http://www.twaves.com/T-waves%20Book%20to%20Bill%20Chart.htm

Capital spending cuts by chip makers (INTC, TSM, USM, TXN, AMD) all took their toll last month on the makers of the equipment used to build and test chips, according to data released yesterday by the SEMI. North American makers of semiconductor equipment recorded $1.15 billion in new orders in July, a decline of 2%. Equipment billings, a measure of the value of equipment accepted by customers and booked as revenue, rose 7% in July to $995 million from $927 million in June. "The July bookings data likely reflects renewed questions about the robustness of the economic recovery and the prospects for the consumption of electronic goods," said Dan Tracy, director of industry research and statistics for SEMI. The monthly data shows a ratio of orders to billings known in the industry as the book-to-bill ratio of 1.16. A ratio higher than 1 means that orders for new equipment outpaced deliveries of equipment orders in previous months.

Lehman remains cautious on semi equipment Following last night's semi book-to-bill report for July Lehman remains cautious on the prospects for semi equipment shares due to the belief that end market dynamics remain weak, consensus expectations for CY03 are too high, and valuations could come under further pressure near-term.

Chip equipment maker Kulicke & Soffa (KLIC) warned yesterday morning during a mid-quarter update. The company makes tools to build and test microchips and said the last quarter has been a roller coaster ride. They said companies were deferring orders and recent capital expenditure cutbacks were hampering sales. They also said customers were unwilling to pay for higher performance products and were content to keep their current equipment until demand returns. They are now forecasting a steeper downturn than expected.

After the bell Newport Corporation a global supplier of high-precision test, measurement and automation systems and subsystems that enable manufacturers of fiber optic components, semiconductor capital equipment, high-precision products to automate manufacturing processes, enhance product performance, and improve manufacturing efficiencies and yields. WARNED...The company, citing the downturn in the fiber optics communications market and the current uncertainty in the semiconductor equipment area. They announced a cost reduction program and a reorganization of its business units geared toward achieving profitability during "this period of weak demand"; they expect these actions to result in annualized savings of $12.0-$14.0 million. "As a result of the potentially lower sales to semi customers and the removal of sales from our Minnesota facility, we believe that our Q3 sales may fall slightly below the $48.0 million we forecasted as the low end of the range in guidance provided in July 2002. We are, however, confident that we will show increased sales sequentially compared with the $44.0 million of sales recorded in Q2". They now expect to report a loss for Q3 as opposed to the prior expectation of $0.00-$0.02.

The chip equipment industry has been hit hard by a fresh wave of cuts in capital spending by chipmakers, and weakness in demand for chip-hungry hardware like personal computers. On Monday Banc Of America Securities reduced its semiconductor capital spending estimate for 2003, mainly because personal-computer chip makers are unlikely to increase spending next year and because memory chip makers will likely continue to invest in equipment at very low levels. Analyst Mark FitzGerald said Intel Corp. (INTC) one of the largest purchasers of chip equipment will scale back its capital-spending budget in 2003 to $4 billion from the $5 billion to $5.3 billion range in 2002. The analyst is now calling for total spending in 2003 to increase 7.1% year over year to $28.8 billion, which is lower than his previous estimate for 10% to 20% growth. "If we are correct," wrote the analyst, "then the recovery will be the most protracted and modest recovery in the industry's history."

Thomas Weisel analysts issued a research report about inventory levels in the electronics supply chain this week. The analysts conclude that semiconductor manufacturers hold the most inventory at 64% of the total which compares with 33% in the second quarter of 2001. Analyst Mark FitzGerald cut his estimates on Novellus and Lam Research. He also culled his industry projection for 2003 capital expenditures. "We are looking at a modest recovery in spending by non-PC chip segments. But we are less optimistic that the PC chip business will participate to the same extent." He also expects DRAM manufacturers to invest at low levels. A picture is worth 10,000 words, I have an extensive data base of B-2-B data.... T-Waves Book to Bill Chart Forbes did a great article called "A Double-Dip In Chips?" http://www.forbes.com/2002/08/20/0820chips.html?partner=yahoo&referrer= It was supposed to be in full recovery mode by now, but the bounce-back of the global semiconductor industry seems to be stalled for the foreseeable future . In fact, industry insiders are now expressing fears that a double-dip scenario may be in the works. Following last year's 33% drop in chip sales, this year is on course to show modest growth. But, as with the wider economy, some analysts are starting to talk about the possibility of a weaker 2003.



Best of Luck
Steve

TC2 your assessment is possibly right on target

I suggest my bullish friends read these thought, some may call them ramblings.

I am very disturbed by the continued out-flows of mutual funds...one of the keys that I use to gauge investor and consumer confidence is the money flows into/out of mutual funds and equities. U.S. tax-free money market funds saw $1.3 billion of outflows in the latest week, lowering total assets to $272.7 billion. TrimTabs.com reported that investors withdrew $3.5 billion from stock funds in the prior week, the week of the initial bounce from the recent reactionary lows, and those withdrawals accelerated this week to an additional $5.4 billion. AMG backs this up as they claim Stock Funds saw $4.6 Billion Outflow In Week Ended August 14th Investors withdrew a net $4.6 billion from equity funds in the week ended Wednesday, according to AMG Data Services. More than 65% of the net outflows came from domestic equity funds, which is down from record-high levels seen a few weeks ago. Real Estate, a sector of calm throughout the recent market turbulence, and healthcare/biotech funds reported inflows for the third consecutive week. Investors continue to flee the tech sector as technology funds reported the largest outflows since late May. Wall Street players are also bailing out of the rocky Japanese markets. Japan equity funds reported the largest outflows seen since late May of last year. Investors seem to be taking comfort in the bond sector, with taxable bond inflows totaling $1.2 billion. Government funds investing in mortgage-backed securities and investment grade corporate bonds are receiving a large influx of the incoming monies.

I have a couple of questions the BULLS should really sit back and ponder...If consumers were feeling that the bottom was definitely in then why were they taking even more money out of their funds this week? In retrospect if they are using this money to fund their current purchases then the so-called unstoppable consumer may just be about tapped out. When we reflect upon the recent surge in bankruptcies, we find a startling statistic. Americans have been filing for bankruptcy in record numbers during the difficult economic times of the past year, according to statistics released by the federal courts Wednesday. Courts around the United States recorded more than 1.5 million bankruptcy filings during the 12-month period ending June 30, the largest number ever recorded, according to the Administrative Office of the U.S. Courts.

Also, once the consumer is done spending for those deeply discounted big ticket items such as cars, trucks, home refurbishing, pools etc.... what's left is being spent on consumable items like clothes, food, housing, education, toys, etc. Once spent this money is GONE Forever!!

It is not and will not be available in the future for investing in the so-called great investment vehicle of the century the Stock Market…again. That money is lost to the market and while it is adding fuel to the current economic situation the resource is very limited, and is drying up, this will not bode well for the markets in the short term is also a limited resource. Just my humble opinion for what it is worth...an opinion that you will not find on CNBC, CNN, of the other hyping media groups tied into the Wall Street malaise.

Best of Luck
Steve

What may loom ahead in my opinion is a 85% chance we enter a double-dip recession

Trillions in stock-market losses and sagging consumer confidence threaten to repeat a pattern last seen in 1981. Wall Street's relentless slide, coupled with a loss of confidence by big business, is now threatening to create a rare phenomenon in United States history called the double-dip recession. While the economy is still at a very modest pace at the moment, a case can easily be made that the loss of trillions of dollars in stock value and a series of corporate scandals is creating such pessimism that it alone could push the US back into recession by the end of the year.

What concerns me is that that further monetary easing by Sir Alan and his band of merry men would most likely delay a necessary, yet painful, purging of excesses from the bubble years. Personal saving is still far too low, and corporate and household debt is at extreme levels. Excess capacity still needs to be culled from the corporate root cellars. Recessions are a natural course of economic cycles, that the drive this corrective effect. Yet even after the recent pro forma downward revisions to GDP, last year's recession was still one of the mildest on record too mild to do much about the excesses that are facing corporate America.

Here lies the dilemma. Lower interest rates may now be vital to lessen the deflationary risks, (even possible stagflation) including the risk that deflation would further increase the debt burden of households and companies. Yet easy money has encouraged people to borrow more and has thus delayed the inevitable adjustment in their households' balance sheets. The role of monetary policy is to ease such adjustments, not to postpone them. As a result, an overhang of debt could act as a drag on growth for several years to come.

The Federal Reserve is not yet convinced that America's economy is heading for a double-dip recession. At its recent policy meeting on August 13th, the central bank decided to keep its federal-funds rate unchanged, at a 40-year low of 1.75%. Still, it signaled a readiness to cut rates should the economy look like it was going to weaken significantly further. GDP growth in the second quarter slowed to only 1.1% at an annual rate. In July, the purchasing managers' indices of activity in both manufacturing and services fell sharply; total hours worked also declined. Retail sales rose by a robust 1.2% in July, yet this was due mainly to car firms offering interest-free loans. Not counting cars and petrol, retail sales were flat. And as we saw consumer confidence fell sharply. The slide in confidence partly reflects the slump in equities. Share prices have picked up a little from their late-July lows, yet the stock market is still worth about $7.8 trillion less than at its peak in early 2000. The loss has partly been offset by a rise in house prices, but the latest figures suggest that the housing market may now be cooling off, as we have seen two months of contractions. For the third year in a row, households are likely to see their net wealth shrink. Savings rates are still historically low, so unless share prices rebound, households will probably have to start saving more and spending less, something the American public is not generally accustomed too.

Another cause for concern is tighter conditions for corporate credit. Not only have banks tightened their lending standards; borrowing in the corporate-bond market has also got much tougher. Interest-rate spreads (the difference between the yield on corporate and Treasury bonds) have widened significantly and as a result, many firms face a higher cost of capital, despite the fall in the yields on government bonds. A crunch caused by firms finding it hard to refinance their debts would most likely result in another round of cost cutting.

These are all reasons to expect that Sir Greenspan and his band of merry followers will most likely reduce interest rates again, possibly at their next meeting on September 24th. Perhaps the strongest reason, though, is that if the economy does slip back into recession, it will be at a point of very low inflation. America's GDP deflator rose by just 1% in the year to the second quarter. Another slump in output would nudge the economy dangerously close to deflation.

Now the FED is also hoping that Plunging Interest Rates will impact and potentially save the economy!! By signaling that it was worried about the economy but felt interest rates were sufficiently low to keep the recovery on track, the Fed unleashed a rally in the U.S. Treasuries market that has sent benchmark yields plunging below 4.00% at one point levels not seen since 1963. Consumers, businesses and state governments are all benefiting from the super-low yields that have sparked a big wave of home refinancings and slashed baseline borrowing costs freeing up cash for a struggling economy in need of a shot of adrenaline.

Sir Greenspan and his band of merry band of followers are delighted to see this course. The 1.4% point drop in 10-year Treasury yields during the past five months has an even larger impact on consumers through lower mortgage rates than a cut in the official federal funds rate ever could. Currently nearly 72% of the $8.8 trillion in debt households have is in the form of mortgages.

With the historically low market rates dragging down mortgage rates to levels not seen in decades, Americans have lined up in record numbers to take out mortgages for home purchases or refinance. Now if the American populace was prudent this allows expensive credit card debt to be paid off, fattens checkbooks and, as a result, helps boost consumer spending. With home values rising roughly 15-17% in the past year, homeowners have been able to tap into a growing source of wealth.

Among the forces that have helped to drive the 10-year Treasury note's yield down to historic lows below 4% was the long-awaited arrival of a huge wave of hedging activity from mortgage market participants. Heavy buying from mortgage investors seeking to hedge against negative convexity risks in their portfolio was seen in both Treasury and agency markets. The buying took place a day after the Federal Reserve decided to keep short- term target rate at 1.75% while acknowledging that the downside risks to the economy are outweighing its potential upside. That stance was interpreted by some as a signal to unwind so-called "curve steepening" trades in the Treasurys market, moving out of short-dated Treasuries into longer-dated maturities thus driving their yields lower. The benchmark 10-year Treasury notes has seen a 39-year low, as it moved to a new low of 3.96% last week.

Thirty-year mortgage rates are expected to slide to a new record low this week after falling to 6.13% last week, opening up the opportunity to refinance for millions of Americans with old mortgages at rates as high as 7.5% who haven't done so yet. Last year a record 7 million homeowners refinanced their mortgages, cashing in on about $110 billion of equity wealth in the process. With the sharp drop in rates likely to mean even more refinancings this year. The powerful support from consumers cashing in on their rising home equity values and taking advantage of falling mortgage rates to buy homes is a new twist compared with prior periods of recession and recovery. This is what the Fed is banking on to power the continued consumer spending.

Companies will also reap the rewards of historically low market yields by borrowing more cheaply. And after roughly two months when the stock market's sharp slide nearly shut down capital markets and jacked up borrowing costs, new debt issues are beginning to emerge. Even if credit spreads widen somewhat, the fact that it's off a lower number still gives corporations some absolute rate relief. State and local governments have also seized on the drop in yields to issue billions in long-term debt that has saved them money by replacing expensive, older debt and going into deficit borrowing at low rates. The state and local borrowing has also come to fund new projects such as bridges and courthouses, maintaining spending that helps the economy even as budgets are pinched by falling revenue. Long-term municipal debt issuance is up 17% so far this year to $200 billion and is expected to reach a record that surpasses the $292 billion sold in 1993.

Sir Greenspan may be backed into a corner. Just some food for thought


Best of Luck
Steve
http://twaves.com

Shorted MMM 700 @ $127.88

SHORT PG 800 @ $92.60

Hello Folks

So far today I have bought ISIL @ $15.78 1,200

I bought 1,500 of RETK @ $5.55 this morning

Best of Luck
Steve

Very Astute point Arieg

My CSCO Thoughts

However the talking heads will talk up the pro forma EPS numbers, and the idiot anal-heads that have been stumped again (those predicting that CSCO would miss and guide lower)...will of course jump right in. The Cisco news and related spin will be critical to the open on today. I think it will be seen a a great hurdle and a positive in a market that was expecting the worst. It is too early to predict the end result but the lack of a smoking accounting scandal gun or a dumping of balance sheet items should be positive for a market that was expecting just that. All to often investors do not read balance sheet nor listen to conference calls...the rely on the CNBC Diva Maria and her bumbling fools for the news, or the read headlines only.

Cisco Systems EPS estimates are raised by several anal-heads today: Cautious revenue guidance for the Oct quarter is leading most analysts to trim revenue estimates for Cisco this morning, but better than expected gross margins are leading most firms to up their EPS estimates for Cisco's October quarter and new fiscal year; prior consensus estimates of $0.12 and $0.52 appear likely to go to about $0.13-0.14 and $0.58-0.59.
Now as Paul Harvey is fond of saying...for the rest of the story.

CSCO posted Net sales for the Q4 of fiscal 2002 were $4.8 billion, compared to $4.3 billion for the fourth quarter of fiscal 2001, an increase of 12%, and compared to $4.8 billion for the third quarter of fiscal 2002. (So net sales were flat quarter/quarter) CSCO attributed much of their gains to cost cutting not sales increases. this is the key folks. They said major customers remained cautious but steady...however the telecommunications market remained "challenged". They admitted being hit by a slowdown in their enterprise customer base but said the serious problems in telecommunications only impacted 20% of their income.

John Chambers said in an interview that he was more cautious about the future outlook than he had been in the past. Visibility was tightening and sales in other countries were slipping. He said it was a strong quarter for Cisco and they had done everything possible for this quarter but could not control the economy. (hinting of potential problems ahead) He said book-to-bill numbers for next quarter could fall below 1.0, and another hint that things are getting worse...this means fewer new orders than orders shipped folks.
Net income for the fourth quarter of fiscal 2002 on a generally accepted accounting principle (GAAP) basis, was $772 million or $0.10 per share, compared with net income of $7 million or $0.00 per share for the fourth quarter of fiscal 2001, and $729 million or $0.10 per share for the third quarter of fiscal 2002. (So EPS was flat quarter/quarter)

CSCO’s net sales were down $3.378 Billion or 15.15% year over year, is this something to brag about I do not think so, help me out here please. According to CSCO GAAP net income for fiscal 2002 was $1.9 billion or $0.25 per share with a current price of $13.00 that equates to a P/E of 52 astonishing for a no growth company. And this doesn’t account for the stock options that CSCO refuses to itemize, according to my calculations CSCO’s stock options would drop the GAAP EPS down to $0.08 hence CSCO would have a P/E of 162.50

Cisco also today announced that its board of directors has increased the company's stock repurchase program to a total of up to $8 billion through September 12, 2003. This represents an increase of $5 billion from the original $3 billion authorized in September 2001. Of the $8 billion total, approximately $2 billion has been repurchased to date. (Now CSCO only has Cash and cash equivalents $9.484 Billion and they expect us to believe they are going to use 64% of their reserves to buy back stock?)

Hello Jeff... You are almost as cheap as I am...LOL I'm waiting on 21.18-21.22

Steve

I am long ELX at $20.96 1,000 shares