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December 20, 2005
Discounts Already, Iran and Europe, Look Out Google and Modest Returns
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Bloomberg reports: Macy's will keep its East Coast stores open until midnight starting tomorrow to lure shoppers. Sears, Roebuck & Co. is promoting ``The Big Finish'' sale with at least 50 percent off jewelry, cameras and video recorders. U.S. department stores are fighting to win sales in the final stretch of the holiday season. The companies have turned to price cuts and added incentives such as express gift wrapping to compete with Wal-Mart Stores Inc., which spurred sales in November by offering large discounts.
Is Macy’s competing with Wal-Mart? Sears, maybe, but not Macy’s. I don’t know how the logic flows. Wal-mart may have great prices, but the stores are a mess and I will not step foot in one during Christmas. However, I do think there is some merit in the big finish promotions. Early discounts point to disappointing sales. In addition, consumers will start seeing these discounts and wait for even more discounts. I think it is best to simply buy a gift card and let the bearer enjoy the post-Christmas sales!
The chart for the Retail HOLDRS (RTH) is still bullish. I am watching the blue trendline extending up from late October and December support at 96 for signs of trouble. The stock is meeting resistance near the August support break and a move below 96 would target a decline below 90. Ouch.
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CNNMoney reports: It's tempting to think of these different assets (bonds, stocks, commodities, real estate) as sitting on a seesaw, with one naturally rising as the other falls. But listen to bond market heavyweight Bill Gross and you might start to think of your investments as being spread across an air mattress as it's being inflated: Press down on one part and another pops up, but gradually everything gets higher and higher. Gross thinks this mattress is just about full, which could mean a long period, perhaps a decade, of low returns. "Almost all assets people can buy -- bonds, stocks or houses -- are back in the 4 percent to 6 percent mode," Gross says. "If people are expecting 10 percent-plus returns, they're in trouble."
After a sharp decline in 2002, the Dow put on a stellar performance in 2003. However, the Average has traded flat in 2004 and 2005. The Average has traded between 11000 and 9700 the last two years. The only way to milk a 10% return here would be to buy the bottom and sell the top. How likely is that? Not very. However, the Dow remains in an uptrend as long as the 2005 low holds. While returns might not be stellar with 11700 close at hand, a serious decline can be averted as long as 10000 holds.
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From Dr. Joe Duarte's Market Intelligence Report: As Iraq seems to be heading for some kind of stabilization, we now have a new crisis point in the Middle East, Iran. Iran is a bigger problem than Iraq, due to its higher level of political organization, and its increasingly tight relationship with Russia. Of course there is a North Korean connection, and Iran is also increasingly friendly with Venezuela and Cuba. What makes this situation more interesting, though, is that the Europeans, increasingly under siege by their own Muslim populations, as in France recently, suddenly have a major stake in how this works out. Furthermore, Europe's economies are flat, in the best of terms. Rising unemployment, questionable inflation, and a general feeling of "going nowhere," are pervasive in the E.U. In other words, Europe, which was against the U.S. invasion of Iraq, is not necessarily against taking serious action against Iran.
I agree with his assessment for the most part. However, I do not think Europe has the stomach for the military option. This was proven in the build up to Iraq. Had Europe and Russia joined American and the UK in the Iraq invasion, Iran would be having second thoughts about enriching uranium. Tough talk would hold water. However, the Iraq debacle proves that Iran has little to fear from Europe. The European diplomats can talk as tough as they want. Iran knows that when push comes to shove, Europe will not be doing the shoving, just the jaw-boning.
As you can see from the CAC 40 chart, the stock market in France is doing quite well and talk of a war with Iraq is not a factor. The index is challenging its 2002 highs and remains in a strong uptrend.
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David Kirkpatrick of FORTUNE reports: .....Yes, I love Google, but my first prediction is that a year from now we won't think that the search company is the invincible behemoth that we do now......One reason for this a new concept known as "community-powered search." Yahoo is forging an early lead over Google in this fast-evolving technology with its acquisition last week of del.icio.us for a rumored $35 million (the actual amount was undisclosed). Del.icio.us operates on principles similar to the popular MySpace. But whereas that social network site helps members find dates, form groups, and share music picks, del.icio.us helps members find hot information--websites that others have found useful. (News Corp. (Research) recently bought MySpace, for $580 million.)
How is this for a bullish chart? Yahoo! (YHOO) broke triangle resistance and the breakout is holding. As long as the stock holds above 39, the breakout must be considered bullish and higher prices are expected next year.
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Posted by Arthur B. Hill at December 20, 2005 07:36 AM