Let the market tell you what is going to happen; donít try to tell the market.
-- J Wesley Savage--

Market Musings... 

6-27-2004 10:00 PM 

Last week DJ Transportation Index (now up over  5 % on the year )  gained over 3% reaching  the highest level since August 1999. The all-time high was reached May Ď99 at 3,797.05. The Dow needs to reach 10,753.64 to confirm a Dow Theory bull market... ..The Nasdaq 100 had it's best close since April of This Year.. 
As of Friday the Dow Jones Industrial Avg is lower on the year by .79 % .While the Nasdaq is up 1.6 % .and the SP500 is up 2 %... 

The success of transportation stocks gives credence to the power and flexibility of the US economy . Given he fact that current high oil prices are easily absorbed without disruption... .

As we approach the mid year mark. It is interesting to note. that everyone's 'Hot money'  favorites are not doing as well from year end as many expected. This is not a surprise to us.. 

 In the Forex markets the  Dollar index is up over 2 % ,  the Euro, Aussie,  Canadian  all down on the year. Cable is higher , while the Swiss and Yen are exactly at year end levels.. .In Precious metals ..Gold.. after the recent sharp rally is also still down a bit on the Year while silver is barely higher. Copper is still up 15 cents on the year.  Crude Oil,  while up 5 bucks on the year  is now as far from it's high as it is from year end close.  

Friday's poor 1st Qtr GDP revision down to 3.9% from the 4.4 % expected rate initially left the market mixed  at first as traders figured the Fed might be more relaxed in their rate hike initiative, but as the day progressed realization began to set in that there are problems in the recovery. Global trade provided a drag as 8% export gain compared to a 10% rise in imports.  Final sales (GDP less inventories) rose 3.2% as inventory rebuilding was smaller than expected. Government spending rose 3% after nearly flat Q4 growth.  To make the report worse in many traders minds was the Implicit Price Deflator, which  rose from +2.6% to 2.9% indicating more inflation and  weaker economy... if one wants to call 3.9 % growth weak ---   I call it doing ok !   

The negative trade balance does retard economic progress. The US needs to  find export products OR better buyers for our products. We need to push China a bit more,  get a Free Iraq  and get  the third world  in General to open up and buy Quality American goods and services ..  In addition some parts of the Global Economy need a bit of a  push, lower rates In the EU would help. However they are not coming, as the ECB's  hands are tied by policy, even with a stubborn 8 % or higher unemployment.   In absence of lower rates a lower slightly lower Euro would definitely help. The Central bankers know this, as increased trade in general  would result in higher Job growth possibly  launching a newly invigorated Europe ( especially the old Bloc countries which would increasingly buy American products and services) .and aid our classic trading partners to implement and sustain reforms in regions that have been laggard in Pro Growth policy.  Regions  where governments have  high tax rates and unsustainable government commitments set in place  years ago  to fund quasi-socialistic economies.  These are issues which central bankers discuss when meeting while telling the press very little.  

Finally,  Inflation should not be the worry everyone makes it out to be, productivity and increases in production will take care of shortages over time.  Yes raise rates, remove the overzealous  accommodation and get money moving back into capital appreciation assets rather than into hard assets as safety. 

The US economy can handle a move back to the norm as it moves into a period of sustained growth accompanied by  better living standards, Innovation and increased employment during the years ahead..

The path has been laid ...the map has been drawn....One only has to see Clearly Beyond All the Noise to see what is really going on...      

Happy Trading !
Bill
June 27th , 2004
11:10 PM