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Stockscom Report for Sunday Sept 12 2004

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

 

 

Market Synopsis

 

In the academic field of economics a division between two large factions is developing; one which studies the economy using statistics to derive a logical conclusion and the other that studies the commentary of Federal Reserve Chairman Alan Greenspan attempting as much as humanly possible to process the message through an Enigma-like machine in order to learn the broad message being telegraphed while interpreting the subtle nuances so common to his performances. This past Wednesday, we were offered another opportunity to study the “enigmatic” Greenspan in his testimony to the House Budget Committee where one could have learned that, “… early readings on retail sales in August have been mixed” and “job gains were smaller than those of last spring.” But his schizophrenic commentary is balanced by such gems as, “Consumer spending and housing starts bounced back in July after weak performances in June” and the oft-reported, the economic expansion has “…regained some traction.”

 

What does all this tell us? It says that he reads the newspapers like everyone else. In his commentary, he offered no further insight or additional proof that the economy is regaining strength except to use the most common examples that anyone could have read in virtually any newspaper. And this man is in charge of the Federal Reserve, the central bank of the US.

 

Fortunately there was more to his testimony than just these tidbits and notably he emphasized the nature and size of the debt in pointing out that demography is not on the side of the government. Persistent budget deficits are threatening the viability of both the Medicare program and the Social Security benefits that so many anticipate receiving upon reaching the age of 65. And with Baby Boomers aging rapidly, the average age of this giant population bubble is quickly approaching retirement.

 

Inasmuch as he concentrated on this message and it was given so much highlight, one might surmise that he’s changing election strategy. Not his election of course, but the Presidential election, which has been bereft of solid economic issues. Usually unwilling to step into an election fray, the lion’s den of a civil servant, he has become rather uncharacteristically vocal on these issues despite the possibility that harm might come to his beloved Republican Party.

 

In reality, this performance appears to be one element of a strategy shift towards greater transparency that occurred inside the Federal Reserve. Following the comments of Alan Greenspan, we heard from the likes of St. Louis Fed President Poole, Dallas Fed President McTeer and Cleveland Fed President Pianalto all of whom are lined up on the side favoring a continuation to the interest rate hikes in order to normalize rates. On this Sunday evening, one Fed Governor Susan Bies, though offered to qualify this attitude with a comment that there’s “…no urgency…” to raise rates. Still this paled in comparison to the comments by San Francisco Fed President Janet Yellen on Thursday who warned that the current account deficit would rise unless the US dollar weakens.

 

 

Technically speaking

 

Returning from summer vacations, investors had uncharacteristic eagerness to snap up shares that had been sold recently especially the semiconductors, which as a group had been essentially in a steep dive the past few weeks. If we judge simply by the ambiguity of the economic indicators, we must say that there is no certainty of a rebounding economy as yet and the market indexes are willing to agree with that assessment.

 

New Buy Recommendations:

 

None.

 

New Short Sales 

 

None.

 

Stock Positions to Sell/Exit:

 

None.

 

Portfolio Comments:

 

Transcanada (TRP) and Southern Company (SO) – These energy firms are high yielding stocks, which have experienced very good capital gains of late. Though marked as add-to’s, these should only be added to on price weakness

 

GSS – Gold stocks should benefit from a renewed look at shorting the US dollar as encouraged by the Fed President Yellen. With inflation as measured by the PPI effectively non-existent, the dollar advances will be contained and a favorable environment for precious metal stocks should take its place.

 

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

26.78

 

H

08/23/04

AES

AES

10.23

10.15

 

H

04/08/04

Golden Star Res.

GSS #

6.88

4.49

 

H

06/28/04

Microsoft

MSFT

28.60

27.49

 

H

08/09/04

Pan Amer Silver

PAAS #

13.40

14.52

 

H

08/09/04

Southern Co.

SO

29.83

30.35

 

B

08/16/04

Suncor

SU #

28.50

28.51

 

H

03/08/04

Transcanada Corp

TRP #

21.34

21.61

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

43.50

43.50

BOUGHT

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price