cant make a silk purse from a sows ear?

July 5th 2004

Hello,

First my sympathy and hope goes out to all Londoners. Interesting choice of a terror target, Londoners seem to have accumulated a lot of fortitude after years of fearing IRA attacks .I am not sure this Terrorist Attack in will have the negative impact that the terrorist would hope for. At this juncture it does not appear to be a precursor of a huge sell off ,particularly given that oil prices have declined at lest early rather significantly. The US markets seem to have factored in terrorism as a part of life like hurricanes. It remains to be seen if Europe is of the same mind set.

I was in the middle of writing this……..Yes it is hurricane season and with the storms comes the seasonal increase in the price of fuel. No mystery simply the geographic location of about 38% of refining and oil and natural gas drilling rigs for the US. Many oil stocks are trading significantly below their highs of earlier this year when oil prices were much lower. Oil stocks may not make new highs but there looks to be some room for an upward price move, barring a major geopolitical setback. I have said this before increasing fuel prices seem to be factored into the market. So far increasing fuel prices have acted to keep economic growth moderate allowing to FED to continue to raise rates incrementally. A huge jump in prices would cause an oil shock, but as I have said before what would constitute a huge spike I am not sure. My best guess would be in the $90 a barrel range.

It is also the summer slow down which means in the summer the economy slows down. The media every year will fill the airwaves with dire prediction, that the end is near and the world ended yesterday. If it sounds familiar it is because it is the story gets reused every year while the press is on summer vacation.

So now a bit of history from 1924-1929 the DOW made a parabolic move of over 300% going from 100 to 400 .The Crash in 1929 brought the DOW back down to 50 ,a drop of 88%. After bottoming in the middle of 1932, the DOW then rose 140% from 50 to 120 and settled into a trading range from about 80-120 till the middle of 1935 then breaking out 67% to 200 by 1937. Now let’s look at the NASDQ. The current NASDQ made the parabolic move from 1996 to 2000, rising over 400% from 1000 to 5100. Then the crash came and knocked the NASDQ from 5100 to 1100 by 2002, losing 78% of its value. In 2002 thru 2003 the NASDQ rallied 95% to 2100, and then traded sideways till the present from 1750 to 2190 till the present. Hummmmm….yes we could still make a new low … but to date this decade has underperformed the 1930’s, and folks this is not the great depression.


Be safe

James

Trading
Portfolio Management
Tax Free Bonds
Retirement Planning
Small Business Retirement Planning
Charitable Planning