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November 10, 2005
Blame game, investing in France, rise of the $US, inflation and selected stocks
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I have seen a few reports suggesting that the Jordan hotel blast rattled the bulls. Sorry, but I don't buy that. Violence in the Middle East is the norm, not the exception. It is already priced in to the market. In addition, another terrorist attack in the US or Europe is also likely priced into the market. Remember the London subway bombing? The market tanked on the open and rallied by the close. Unfortunately, terrorism is not new and it is here to stay.
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The politicians are jumping on the anti-oil bandwagon. Where were these politicians in 1998-1999 when oil was trading below $20 and profits were slim? The oil industry is just like any other. There are good times and bad. This just happens to be a good time for energy and the politicians should let the market forces work this one out. Time would be better spent promoting conservation and alternative fuels.
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A rising US Dollar concerns the chairman and CEO of Altria. This concern most likely extends past Altria and to other US multinationals. MMM is the first that comes to mind as a rising US Dollar will eat into profits. First, a strong US Dollar makes US produced good more expensive on the world market. Second, a rising US Dollar makes foreign goods cheaper for US importers. Third, profits earnings in foreign currencies become less as the value of the US Dollar rising. These can be hedged though. The combination of the first two points spurs imports and hinders exports. This acts as a break on the economy. When combined with rising interest rates, it is little wonder economist expect a slow down in 2006.
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The Arab Street Erupts: Why Paris and Why Now? By Louis-Vincent Gave. Here is an excerpt: France already has a 'minister for social cohesion' (Jean-Louis Borloo, one of the government's supposedly heavy-weights) and a 'minister for the equality of chance'. Which other country in the World sports two ministries whose entire task is to listen, and pander, to the grievances of a disaffected youth? Here is a link to the whole article: . http://www.rossputin.com/blog/index.php?blog=2 Just the fact that France has these two posts in the government shows that there is a problem
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This is from John Mauldin: France, and the other European countries with deteriorating demographic pictures, are not as safe a place for capital as they were in the past. And this is still not reflected in risk premiums.
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The earnings game remains the same. Companies are reporting good numbers, but guidance is weak. This was the case for Cisco (CSCO). Dell reports after the close today.
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Jon Markman of MSN (click here) reports that inflation is better than earnings for predicting stock market returns. Here is an excerpt: There do seem to be some better clues as to future market direction. Consumer-price inflation may be at the top of the list. (Ned) Davis researchers report that in the 49% of the years when inflation has been clocked at greater than 3.5%, stock-market returns have been sub-par, at 3.9% per year. When inflation has been less than 3.5%, returns have bulled forward at a 9.8% annual pace. The article is a great read and here is a link:
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Here are a few selections from my scans today:
Bullish tickers: cl, bmhc, jblu, ssri, stm, wdc, komg, azpn, ikn,
Bearish tickers: phtn, intv, yum, ryl
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Posted by Arthur B. Hill at November 10, 2005 07:22 AM