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Mark?s Market Commentary ? February 24, 2003

 

Last night?s big Grammy winner was Norah Jones. Why did she win? Simple. She?s hot, she?s young, and she?s different. Sure, she has a high beta coefficient, and could flame out in 6 months. But never underestimate the Hollywood player?s passion for newer, younger, women who have the potential to be the next Britany Spears. Fear runs high in Hollywood. Fear of not being seen with the newest, latest, hottest, youngest celebrities as they emerge out of nowhere.

 

Fear has also dominated the bear market in stocks. In fact, fear has accelerated into terror. Fund managers are terrorized about the possibility of making the biggest mistake of their careers.

 

What mistake is that?

 

Failing to grab the ?bottom? in tech stocks and missing the next big bull move. Last year, the obession was confined to missing the next ?New Bull Market?. This time, there is widespread fear of missing a 20% bounce in the Nasdaq, even if it?s only temporary. Particularly when it emerges out of nowhere.

 

Can there be any other reason why fund managers remain fully invested in the big cap techs with the highest beta coefficients?

 

Note the constant parading of new fund managers in Barron?s. All these recommendations of buying this and accumulating that. Where does that money come from? Why are they always buying and never selling? Why don?t you ever hear of a fund manager bragging about how he is selling on rallies and raising cash as the market goes lower?

 

Because no real money has left the market.

 

It continues to astonish me how these ?no-name? funds out of nowhere are able to raise cash, always have funds to ?put to work.? Millions of dollars. It never stops. You never hear of managers scrambling around because money is leaving their fund. The size and scope of the Paper Pyramid is beyond comprehension. Round tripping of debt into money, securitized and Repo Blasted into the trading pits.

 

So many funds.

 

So many ?top picks?.

 

So facilitators like First Call, Briefing.com, and Multex, egging them on.

 

So many stocks in Investor?s Business Daily defying the bear market and breaking out to new highs, thousands of fund managers trying to chasing and riding the winners, hoping they will be the next ?leaders of the New Bull Market?.

 

Where do equities stand in the Paper Pyramid? If there is a liquidity reversal, what gets sold first? Bonds, mortgage backeds, or stocks? And if the bond and mortgage market cracks, will the money attempt to ?hide? in equities temporarily when the credit contraction starts?

 

Who knows.

 

The last page of this week?s Barron?s is an all time classic, written by Christopher Whalen. He mentions the constant gaming of earnings estimates and economic data by the Matrix. Sorry for those who already read it, but I find it worth repeating. I will quote from it, with some paraphrasing:

 

?The chief economist of XYZ Investment Bank puts out a bogus growth number for GDP next year. The chief investment strategist for that bank then imputes an inflated growth rate for a given industry, based on the phony GDP estimate. The stock anal cyst then takes these two bad numbers and comes up with double digit earnings growth for a given stock as far as they eye can see. The use of research anal cysts as stock touts is the rotten heart of Wall Street, used to stimulate trading activity.?

 

Mark?s Translation:

 

Investment bank dealmaking profits are history. The only way these firms can survive is to trade profitably by serving as bookmakers in the Wall Struck Casino. Spinning economic data and confusing the Arena Participants with a constant stream of lies, distortions, and misinformation about earnings estimates. The goal is to game the technical charts in order to keep the illusion that a rally is just around the corner to keep Joe Public fully invested. But within that context, game the action such that the HedgeHogs are constantly dazed and confused, so that the Gang of 22 is always extracting trading profits, short or long, by inflicting the highest amount of Brain Damage.

 

?Wall Street is addicted to earnings estimates. Corporate CEO?s always seem to have a penny in the cookie jar to help meet or beat the consensus view. Earnings estimates have acquired a life of their own and often generate more attention from the media and anal cysts than a company?s actual financial statements. C.N.B.C. and Bloomberg hawk company earnings estimates as though these conjectures were facts inscribed in stone. When a company actually reports its results, the TV journalists recount breathlessly that the company beat the carefully lawyered ?guidance? distributed by company afficials and their consultants.?

 

Mark?s Translation:

 

The entire Speculative Globe remains transfixed on the next New Bull Market. Therefore, the Participants have become obsessed with earnings estimates, looking for clues for the next ?big turn? in the market.

 

?Transmission of earnings estimates should be moved to the sports section ? next to the horse racing results. The SEC has created a market where speculation masquerades as research and insider-dealing thrives under the protection of self-regulation and ?Fair Disclosure.?

 

Mark?s Translation:

 

Insiders have joined in on the gaming action in order to push stock prices as high as possible, in order to offload shares. Nowhere else has such an opportunity presented itself, where the Participants have become so crazed and hysterical, that a slight amout of bending and distorting of pro-forma earnings results can create billions of instant, though temporary market capitalization. Capitalization into which insiders can quietly offload huge chunks.

 

And then there is Gene Epstein.

 

I?m convinced that this guy is on an acid trip. Claims that Americans have been ?saving? because they have not had to pay capital gains taxes on stock portfolios, and they have been ?investing heavily? in homes, furnishings, and autos.

 

Can you believe that?

 

How does Barron?s keeps this guy on the payroll?

 

??????..

 

And what happened in the market today? Looks like the end of day ramp failed. They better get this thing going into the end of month tape jamming ASAP. Volume remains light. What is everyone waiting for?

 

Investors are just plain scared. Tension is peaking. Fear is building. Now, more than ever. So close to the elusive ?bottom?.

 

Nobody dares to sell their shares with the war so close. Anyone long the market will hang on and wait for the 1991 blast off, even if they have to take some heat on the way down. And after the repeated beatings on the shorts, the shorts dare not enter positions in fear of a huge blastoff.

 

Who is the most scared? The nervous longs, fully borrowed on Bank of America?s Prime Brokerage lines? Or the short sellers? Those who have any money left?

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Local media (Dallas) had Nora's high school music teachers all over the tube last night. I didn't know she was the daughter of Ravi Shankar, stoned Indian polygymist that he is/was. Nora was pretty level-headed, according to her instructors at Booker T. High School (music magnet school, mostly jazz). Hollywood will change all that, post haste.

 

Closed a few SPX and QQQ put positions at the close; about 50/50 cash vs. puts at the moment. If we get a gap up, will short again; if Snot, will hold what I gotS. Simple technique and almost back to even from our last rally.

 

No one can be complacent in this market, least of all bulls. However, TA, albeit helpful on days when the market acts "au naturel", hasn't predicted our jams. It may be that we don't see one until the war starts, which would really be the smartest thing for the PPT to do.

 

I have no problem with a target of the October lows, or beyond. My plan is to assume that we'll have a very volatile market from here on in, and take advantage of downdays like today (close some puts) and up days like last week (reshort higher). EOM days loom. Like OEX week, it rarely fails to impress.

 

Looking to transfer most of my account to Rydex later this week; I've been putting in too much "screen time" and, as glad has aptly pointed out, this can adversely affect one's psyche. I don't like PruBear at the moment since they are not leveraged and, due to its gold exposure, has not done as well during the recent drop as a fund such as Rydex, which is a pure index leveraged long/short play.

 

Thanks for the summary today, Mark. Right on target, as usual.

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I'm gonna stick my head out here -- scalped a full position long on QQQ at the close with tight stop, just saw that they failed to take out Friday's intraday low by a tad, even though the closing low was taken out. With the low-volume decline, I was just not convinced that this bounce was over from last week. If it gaps down tomorrow, so be it -- gotta pay my dues to learn the lesson! Is GTN still long?

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Epstein was better in the 1995-1998 period, marching to the beat of a different drummer. He observed how workers were being shafted by CEO's, how the BLS was cooking numbers with their hedonic pricing models, etc. I think he is still the only writer who clearly exposed the economic rationale which underlies the concocted inflation, COLA, employment and productivity numbers which the US gov spews. He explained the ESF and IMF, and laid out how they coin money for US bondholders.

 

I think he is smarter than you give him credit for, but he must toe the party line at Dow Jones. There are only a few people like John Liscio (RIP) whio can be honest in the Barron's columns because they make money from an idependent newsletter.

 

I think he's an unfortunate casualty of the bear market, really. It is a shame, because the guy who should go down and be crushed into a sobbing paxil popping heap of shi*t is the editor of the WSJ's editorial page, Bartley. He's the uber apologist of theiving CEO's, CFO's, RICO defendants et al.

 

rr

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Hey, let's not pick on Norah Jones as being like Mark's usual talentless supermodels. Let's pick on her for something else.

 

She can actually sing, her CD had excellent recording quality and production values, and was marketed extremely cleverly outside the traditional channels.

 

Of course, there are a lot of talented young singers, but most of them don't have Ravi Shankar for a father. She was able to use her connections to achieve success --

 

so think of her as the JPM of singers. :lol:

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I agree Drano on Norah. Very talented.

 

Anyhoo, today proved yet again, don't bet against the bear, be patient, ignore the pops until a significant turn date comes due. Next one due ~March 13th.

 

Did my 5 mins of nightly market anal-ysis. Result: DOWN.

 

Wake me up when we get there. KISS.

 

Oh yeah, up 5.6% today (margin basis). Not too shabby. Rally, what rally?!

 

I'm telling ya, they're giving the money away. Pops are your friend, exploit them, do not run away from them.

 

Its like windsurfing, you gotta fall back and trust the sail will hold you up or else you'll get launched over the bow. :grin:

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mark, i think we may actually see some real fear here shortly. well, not here, but....you know.

 

in case anyone missed it in IDS:

 

the arcs on the weekly chart below have acted like magnets for SPX movement (it's unsettling that the on the way up, the market appears to have anticipated where it would retrace from later on, but that's another topic altogether). i'm pretty sure another set or two of retracement arcs would account for all the major support/resistance levels, but as i didn't have the good sense to use rings instead of filled circles, i had to leave off before the whole thing became an opaque mess.

 

the chart suggests that not only must we hold above the october lows next month, but after that we must continue to 'ride the arc' higher....or we'll drop through the last significant retracement arc of the entire secular bull market.

post-7-1046123759.gif

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Nora Jones is different than Britney Spears in that she can sing and has talent. That Ravi Shankar DNA puts her in a different class altogether.

 

Re: Barron's. Epstein's been off for years now, but Barron's publishes Alan A. and he's always bearish. Also, this week's fund manager was bearish, recommending shorts -- Raj Gupta, page 24 I think -- that is excellent reading.

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until we have a panic selloff like last July 02 or Sept 01, expect the following routine to develop:

 

Drip, drip, drip, drip, pop

drip, drip, drip, drip, pop

 

...all the way down the slope of hope (perhaps even on low volume, very bearish).

 

Short a pop and ride it downhill as long as you can. That's what I did last April until the panic July lows. It paid off nicely.

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