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Minyan Mailbag - Rusty's Nail



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column from Rusty Robinson with that very intent.

Economic Trade Winds

The overall stock market is gathering steam in a economic trade wind and remains flat for the year, while the U.S. Treasury market has made its coupon. Investors are poised for bad news, yet in spite of rising oil prices, corporate earnings are reflecting the growth in the overall economy and the prospect that the economy expands and not contracts during the second half of 2005.

Government spending in military and health care services have risen over the past three years exacerbating a budget deficit that is being financed by a vociferous Chinese and Japanese appetite for Treasury bonds. Supply siders will argue past tax cuts by President Bush are stimulating the economy and deficits will not be as large as current projections. Already tax increase talk is being bantered by the administration should Social Security reform fail.

Leadership in the stock market continues in the energy sector, with cyclicals strengthening of late. Utilities and transportation companies are surprising the market mavens as added fuel costs are being past on to the consumer. We are overweighted in energy stocks and have a decent weighting in industrial holdings and find our clients fairing reasonably well. When we wake up from this dream, we hope we are able to pull the trigger on positions we happily own.

The poor performance of the S&P 500 and the Dow are being weighed down by the huge weighting that stagnant technology stocks have had on the indices since 2000. The near 20% decline in the technology sector since 2000 has come with virtually no names being removed from the S&P 500. The 20% holding in finance stocks by the S&P 500 has limited the move in the index as financial companies prepare for lower profit levels.

The bond market could die a slow death over the coming months with no real catalyst. An advancing CRB index usually spells bad news for the bond world. Our point is that we do not know when nor exactly how, but bonds will weaken as commodities rise.

Finally, the fact that a corporate CEO could spend five months in a prison to have its common stock triple questions the logic of even having a corporate CEO.

Minyan Rusty Robinson


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