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Stockscom Report for Monday Sept 6 2004

Publisher: Colin Alexander     Editor: Ken Wilson

Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)

 

 

 

Market Synopsis

 

Just when the Republican National convention was becoming a little tedious, along came Arnie, Governor Arnold Schwarzenegger to the fine people of California, to rectify matters with a quip that is quickly being recognized as his trademark. He referred to those non-believers of the resilience of the American economy, those obvious Democrats who were witless when faced with the strong evidence of a rebounding economy, as “economic girlie-men”.

 

Now we understand the humor in such a statement and perhaps the strategy on the surface was meant for a national issue but there’s no escaping the idea that this was simply a provocation from Arnold to those howlers of protest back home. More importantly, this was the stage of a national party convention and by reducing the economic issues to a comedic one-liner, he succeeded in muting necessary debate by portraying it as worthless fluff. Moreover, inasmuch as President Bush offered no new indications of economic policy, this strategy to downplay the economy might be considered a success.

 

But for the individual who resides in the White House after Nov 2, difficult issues will need to be addressed relating to fiscal policy. Until now, the current resident has been fortunate to have the Federal Reserve cultivate a favorable environment utilizing negative real interest rates in collaboration with willing Asian partners that has resulted in falling interest payments even as government borrowing has increased exponentially. Now however, that Borrowed Garden of Eden is undergoing some abrupt changes.

 

With the Federal Reserve engaged on a path of normalizing interest rates, currency traders that previously shunned the US dollar will now be persuaded to buy it based on the premise that their deposits will earn higher interest than if funds are kept in other currencies. By keeping the dollar at current levels or higher, exports will cease to grow as the price advantage disappears. Consumer spending has already begun slowing if we are to believe the latest data, which means a cap on imports, and accordingly the Chinese and Japanese whose economies are decelerating, will not be as interested to buy treasuries owing to their lack of expendable American cash. In order to entice buyers of treasuries, to close the budget gap of approximately $2 billion per day, the interest rate offered on the treasuries would naturally be increased. With current savings rates less than 1%, it appears unlikely that American purchases of said treasuries would dominate and this would in effect, exacerbate the current account deficit because of the effect of interest payments, which would be exported from the country to the holders of the treasuries. Worse still is that rising interest rates will cause more hardship to consumers as the vast amount of revolving credit is subjected to higher rates in addition to those once-loved adjustable rate mortgages. Thus pressure to reduce consumer spending will continue unabated.

 

 

Technically speaking

 

While the US dollar jumped on Friday in anticipation of a rising interest rate, the mediocre jobs report was competing with the latest earnings warning from Intel and the two combined to sink the indexes. Technically, these stock indexes were due for a sell off as clearly, several days of buying had rendered them in overbought territory. That powerful bullish rally of the past several days is unlikely to dissipate immediately, however one should be prepared for a move to the downside. The DJ has reached the upper boundary of its downward moving channel and this is undoubtedly the one to watch.

 

As for tech issues, the ND would have tremendous difficulty reaching even to 1900 especially given the widespread selling of the Philadelphia Semiconductor index, often considered to be a barometer of future moves for the entire index.

 

New Buy Recommendations:

 

None.

 

New Short Sales 

 

None.

 

Stock Positions to Sell/Exit:

 

None.

 

Portfolio Comments:

 

Transcanada (TRP) – This energy firm is appearing much stronger and we would consider this as a possible add-to and this in spite of a current price below the original price of purchase. A move closing the gap left on Apr 13 at $21.18 would be a conclusive sign to add to this position.

 

Gold stocks – IAG announced a merger with the international assets of Gold Fields (GFI) and this has finally put to rest the uncertainty of GSS (and to some extent WHT). Gold is still trending higher and the US$ is under immense pressure after the unexpectedly larger trade deficit of $55 billion. This data coupled with the weak inflation data and the employment report is likely to contain the US$.

 

New stops have been added to the list while others have been modified. Those that have blanks, are being carried unstopped for now. Please see our complete list of stops in the table below.

 

List of Current Stock Recommendations:

Action Ratings. The following is the legend for designating immediate action
for our stock recommendations. The first is B, meaning the stock is timely
to buy but the case for doing so right here is not overwhelming. Either the
stock may have gotten ahead of itself and may be vulnerable to a retracement or
else the stock has been performing disappointingly but may simply be
regrouping. B+ and B++ indicate stocks for which there is a technical case
to buy now, with plusses adding weight according to how many there are, up
to a maximum of two. Stocks rated H are ones to hold, awaiting confirmation
to buy more or to sell. SELL, of course, means what it says. It seldom pays
to override this designation. In the case of stocks held short, the rating is S where positions should be retained. S+ and S++ indicate stocks for which there is a technical case to add to the positions with plusses adding weight similar to long positions. The maximum number of plus signs is 2.

Stocks marked # are eligible as Canadian content in Canadian RSP funds. Otherwise there is a 30 percent restriction on foreign stocks held in these accounts.




Date of Entry

Name

Symbol

Entry Price

Current Price

Stop

Action Rating

06/28/04

Accenture

ACN

27.41

25.90

 

H

08/23/04

AES

AES

10.23

9.94

 

H

04/08/04

Golden Star Res.

GSS #

6.88

4.51

 

H

06/28/04

Microsoft

MSFT

28.60

27.11

 

H

08/09/04

Pan Amer Silver

PAAS #

13.40

14.64

 

H

08/09/04

Southern Co.

SO

29.83

30.48

 

B

08/16/04

Suncor

SU #

28.50

28.95

 

H

03/08/04

Transcanada Corp

TRP #

21.34

21.24

19.00

B

 

Short sales

 

Date of Entry

Name

Symbol

Entry Price

Current Price

Stop

Action Rating

05/17/04

General Motors

GM

43.55

42.53

43.50

H

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price