The Daily Reckoning
Weekend Edition
February 12-13, 2005
Baltimore, Maryland
By Addison Wiggin and Tom Dyson
MARKET REVIEW: FALLING ON DEAF EARS
There's something wrong with our left ear. It hurts, and we
can't hear anything through it. Yesterday we tried to ride
a bicycle. It was nearly impossible - our sense of balance
had been completely impaired.
Today we try to write the weekend edition. It is nearly
impossible – our concentration has been completely
impaired. Today's edition will be brief as a consequence...
We witnessed an interesting divergence in the stock market
last week...the Dow and the S&P both rose, while the Nasdaq
fell. Dell and Cisco can take the blame. These two tech
heavy weights represent 6.3% of the Nasdaq100 and, early in
the week, disappointed the market with their earning
reports.
Of greater interest is the fact that the Dow made a new 52-
week high last week, spiking up to 10,865 and surpassing
the previous high set late in December 2004. The Nasdaq did
not.
The Speculative-investor.com, one of our favorite macro-
digests, thinks this divergence may signal a market
peak...this was written on Jan 31, 2005:
"An intermediate-term trend reversal in the NDX/Dow ratio
(from up to down) has been confirmed, which strongly
suggests that a major peak is either already in place or
will be put in place within the next few months. Also,
during recent weeks we've said to look for a lower low in
the NASDAQ Composite Index combined with a higher low for
the NASDAQ McClellan Oscillator (MO) to indicate that a
short-term bottom was in place in the U.S. stock
market...this situation occurred last week. In other words,
we have evidence that an important peak is close-at-hand as
well as evidence that some sort of rebound is going to
occur in the near-term."
"As far as we are concerned, what would now make the most
sense would be for the market to rebound over the next 2-4
weeks with the Dow Industrials Index perhaps making a new
52-week high while the NASDAQ Indices make lower highs.
Therefore, a reasonable approach for those interested in
betting against the U.S. stock market might be to take an
initial bearish position if the market rallies over the
next few days and to then add to this position if the
rebound continues into early March."
In other markets, the dollar's rally continues. Against the
pound and the euro, the dollar has rallied 2.6% and 5.1%
respectively this year. Yen was the laggard, but last week,
it caught up, falling 1.64 to 105.7 for a 3.1% decline
year-to-date. The euro and the pound only fell marginally
last week.
Commodities had a good week too. Gold rose $6 to $420,
silver was up 51 cents to $7.18 and oil up 68 cents a
barrel to $47.16.
Finally, like a cyclist with an ear infection, bonds
wobbled...30-year Treasury yields declined a basis point to
4.47% while 10-year yields rose a basis point to 4.09%.
Regards,
Tom Dyson
The Daily Reckoning
P.S. You may have been following the debate between James
Boric and Dan Denning in the Daily Reckoning last week. Dan
says U.S. equities are over-valued as a whole and should be
avoided. James disagrees. He still finds plenty of value in
the small cap market. Here's the opinion of Dan Ferris,
another highly respected stock analyst, and editor of
Extreme Value.
"Anyone who's done the work will tell you there's nothing
to debate: There's plenty of value out there in small-cap
land.
"I've got 50 names on a watch list for my own money. I own
five of them right now. A typical stock I like sells for
$8.50 and has $22 a share in cash and government bonds, no
debt, is profitable every quarter, owns its whole market.
Another one has $71 per share in cash and securities and a
consistently profitable business, and it's going for about
$47 a share today. Another owns $20 million in real estate,
holds no debt, plus is a business easily worth $30 million,
the whole thing selling for about $35 million, and pays a
regular dividend, too. One has $10 a share in cash, no
debt, real estate worth probably $50 a share and a
profitable engineering business. The whole thing goes for
$24 a share.
"There are a couple dozen others similar to that. You'll
never, ever find them above $250-$300 million in market
cap. Because they're often closely held, there's usually no
option overhang, either.
"Not only is there value in small caps, but there's more
value there than anywhere else, and probably always will
be."
James has designed a new strategy to harvest profits from
the small cap arena. Here's the meat and bones...
Penny Stock Fortunes
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------------------------
THIS WEEK in THE DAILY RECKONING
GREENSPAN'S WHOPPER 02/11/05
by Bill Bonner
"People take money out of their homes. With this source of
spending power available to them, they see no reason to
save. Instead, they spend - often on foreign-made goods.
With no savings available domestically, America must look
overseas for credit."
http://www.dailyreckoning.com/Issues/2005/021105.html
The Specialization Of Insects 02/10/05
By: James Boric
"...knows? My buddy Dan thinks I'd be a bumblebee that only
looks for nectar in one kind of flower. Fair enough. But I
assure you, I would not be a fly. I'd much rather hunt
other bugs or even plants than fly around all day looking
for piles of manure..."
http://www.dailyreckoning.com/Issues/2005/specializationisforinsects.html
The Big Loser 02/09/05
By: Marc Faber
"...In 2004, U.S. dollar holders may, however, have found
solace in the fact that against the Zimbabwean dollar, the
Greenback appreciated by 85%, and is up by 99% since
2000..."
http://www.dailyreckoning.com/Issues/2005/020905.html
No Trespassing 02/08/05
By Doug Horning
"...The Mystery of Capital, Peruvian economist Hernando De
Soto tackles the vexing question posed by his subtitle: Why
Capitalism Triumphs in the West and Fails Everywhere
Else..."
http://www.dailyreckoning.com/Issues/2005/notresspasing.html
Stocks bite The Big One 02/07/05
By: The Mogambo Guru
"...I know what you are thinking: "Wow! The Mogambo was
right! When adjusted for inflation, stocks bite the big one
(BTBO) from time to time, like all the other investments
BTBO from time to time...!"
http://www.dailyreckoning.com/Issues/2005/020705.html
HEADLINE, NEWS And INSIGHT:
Bureaucratic Gambling
"Contrary to what nearly everyone believes, you don't make
money buying an investment when it 'looks good' and
everybody knows it. It's ALREADY gone up."
http://www.dailyreckoning.com/Featured/BureaucraticGambling.html
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