Special Report

December 6, 2011 by Phillip Gottelf / Tags: / 0 Comments

What about the Bad News?

The Wall Street Journal front page carries the story, “Layoffs Deepen Gloom,” and the DOW Jones Industrial Average continued zooming upward this morning on prospects of a debt ceiling compromise. The apparent disconnect between the faltering economy and investor enthusiasm raises an important parallel between the current stall and the devastating 1932/33 market plunge into the abyss. Like the 2009/10 rally, equities moved impressively higher from 1929 into 1930, regaining approximately 60% of the loss within about eight months.

As credit continued to be unavailable to small businesses and consumers, and unemployment mounted, the economy simply imploded from 1931 to summer 1932. There was a sharp summer rally in 1932 that was presumed to mark the bottom, but the economy was unable to regain footing until late 1933. Consider the current DOW weekly continuation chart.

We see that the average has recovered 80% from the 2009 bottom, however, there is a catch. The DOW in 2007 was substantially different from the reconfigured index. Companies that lost their listings were replaced, and the index has been noticeably altered. Using the prior component stocks, the DOW remains in miserable shape.

Using the broader S&P 500, the recovery from bottom to current is 76%. The bright spot would be the Russell 2000 which has fully recovered. While performance should be encouraging, the lack of progress in employment and housing signifies a lack of consumerism… the driving force behind the U.S. economy and other economies that rely upon the U.S. consumer for their livelihoods. Thus, even the sizzling economies of China and India could be adversely affected by the lack of U.S consumerism through 2011.

Corporate Carnage Continues

January 24, 2002 by Phillip Gottelf / Tags: , , , / 0 Comments

I am not inclined to dwell on the subject since I have already covered the economic situation in previous REPORTS.  However, in advance of potential FED inaction the January 24th Wall Street Journal “What’s News” column reads like a corporate earnings obituary.

“Boeing earnings sank almost 80%… Merrill Lynch reported a $1.26 billion quarterly loss…  Corning posted a loss of $655 million… Bethlehem Steel recorded a wider quarterly loss… Caterpillar posted a 37% drop in earnings… Dynegy’s net slid 27%…”

There were some positives for General Dynamic, Halliburton, Pfizer, and DuPont that can be attributed to the “new environment.”  The question is whether the selective survival of some bottom lines will be enough to offset the general economic decline.  After being castigated for a perceived downbeat State of the Economy speech, FED Chairman Greenspan is trying to talk up prospects for a recovery.  Read between his lines and take notice of his body language.  Greenspan is not particularly encouraged about pulling out of a nosedive.

As I have consistently warned, the stock market is far from a recovery.  Each time the DOW Industrials pops above 10,000, it experiences a setback.  Economists are beginning to agree that equities are in a “trading range” between 9700 and 10,300, for the moment.  This being the consensus, investors have returned to U.S. debt as a holding pattern.  This explains the reluctance for longer-term issues to plunge in response to discouraging FED rumblings and the latest jobless data that showed a decrease in filed.

Markets Gripped by Terror

September 13, 2001 by Phillip Gottelf / Tags: , , , , / 0 Comments

Markets Gripped By Terror

This cannot be a usual SPECIAL REPORT. An act as dramatic and unthinkable as Pearl Harbor has brought us to the brink of another world war. Global structure has changed and the political landscape is far different from sixty years ago. Yet, the potential for world conflict is every bit as potent… if not more so.

Terrorism is not a new tactic. It is simply more visible and identifiable. Perhaps the quintessential form of terrorism was exercised by the United States when the Pacific conflict was ended with two atomic bombs. Trust me… the world was terrified! Of course, we were clearly at war back then. The destruction of the World Trade Center has taken place during a presumed peace and represents a catalyst. All we need are the volatile materials to engage us in a global conflict.

As usual, this conflict is a clashing of ideologies. The enemy is radical Islamic Fundamentalism. America is shocked. We have presumed that the focus of hostility is Israel and America’s support for the Jewish state. Suddenly, the predominantly Christian West is the target and we are all perplexed.

What has the Christian world done to deserve this?  Here is where the apparent ignorance of the media and “experts” amazes me and boggles the rational mind.

Undoubtedly, the struggle between Israel and Palestinians has taken center stage in the Middle East. But, this is not the source of the terrorist attack upon the United States. Western Europe and we have been targeted because Islamic fundamentalists begrudge Christians for the crusades against Muslims and Islam. Their memories of the white Russian military’s invasion of Afghanistan are vivid. Christians committed the most recent Muslim genocide in the Balkans under Milosovich. It is not Israel that holds the ultimate threat against Islamic fundamentalism. It is Western Christianity. When our citizens were held captive by Iran it was because we tried to impose our Western concepts. The hostages had nothing to do with the Arab/Israeli conflict.

Interestingly, President Bush doesn’t get this message. In his second speech after the attack, Bush alludes to the need to adhere to our standards of morality. These standards are primarily Western Christian morays that are viewed as another Christian crusade.

Thus, Israel has simply been a convenient diversion… a distraction while the master plan against the Christian West was being designed and implemented. To the newest anti-American breed of terrorist, even Arafat is a joke.

The attack on the World Trade Center is designed to disrupt our economic system. It is not a coincidence. Islamic spokespeople have flatly stated that The New York Mercantile Exchange cannot dominate world oil prices. Downtown Manhattan cannot be allowed to dictate world equity, debt, and currency values. The United States must be put out of business! This is their mandate.

So far, the attack is estimated to cost more than $100 billion. More than $30 billion represents direct property damage and salvage operations. Another $10 billion covers surrounding infrastructure. $30 billion has been lost in revenues. Another $10 billion represents loss of life claims. Approximately $20 billion will be required for immediate security measures. There goes any anticipated surplus.

Consumer confidence has been stunned. Radical Islamic leaders understand that 33% of U.S. Gross Domestic Product (GDP) comes from consumer spending.  Approximately one third of that spending is condensed into the “retail season” from Thanksgiving until Christmas. Another 10% is made up in post season bargain purchasing and special events like white sales and spring clearances.

This is why the first attack was timed for the second week following Labor Day. They were looking for maximum damage and maximum exposure. Unfortunately, the job is not finished. All indications point to selected terrorist incidents to keep the fear at a crescendo. It is virtually impossible to protect against random violent acts. We live in a diverse population where the alleged enemy is not identifiable. Thus, Americans have already expressed reluctance to visit shopping malls and even movie theaters. Every gathering place entails risk. Subways, bridges, tunnels… all are vulnerable.

Market Impact

The immediate reaction was expected. Equities and interest rate vehicles dropped. Oil soared and gold jerked upward. Astoundingly, market participants did not panic. Once again, our modern information delivery system held the lid on investor emotion.

This proves my theory that the Information Age has structurally altered financial markets. Our ability to receive information and analysis “live” on television, radio, and through the Internet has alleviated our former propensity to panic. Confidence in the “system” has never been better. U.S. citizens are inclined to trust government action. This is the good news.

Unfortunately, other aspects of investment markets have not changed. Those companies located in downtown Manhattan are going to face extreme hardship. Although the government may step in to protect the financial footings, lost business cannot be easily recaptured. Not only are the businesses in the Trade Center impacted, but all those who conducted business with them, too. The ripple effect is significant.

Out On A Limb

It is not wise to prognosticate with so many uncertainties. However, that is what market letters are about. I will go out on a limb and make some predictions that I hope will be helpful during the trying months ahead.


As anyone can imagine, Arab OPEC members are scared. Not even in their wildest imagination did rational heads of state believe such an attack would be successful against U.S. citizens. OPEC is in serious trouble. After holding industrialized nations hostage to spiraling energy costs, they have suddenly turned against us with unacceptable hostility. Fearful of severe retribution, OPEC will try to ameliorate Western perceptions by increasing quotas and lowing energy prices.

Assuming any military action avoids Middle East oil fields, we should expect lower rather than higher crude prices. The problem may come from refining and distribution. I have already seen reports concerning the lack of security at our gasoline and heating oil terminals. If we beef up security, there is likely to be considerable downtime for trucking, tanking, and other deliveries.

Refineries will be on alert and new security measures can slow production. The reverse crack spreads are favored under these circumstances. Crude oil could pile up while refineries back up. This is why it is critically important not to jump into energy markets until we see definitive trends. Unquestionably, military action in oil producing regions will spike prices. However, we do not know where any actual conflicts will develop.


For the second time this year, gold has hope for a rally. Any movement into gold will be as a safe haven rather than an inflation hedge. Simply put, investors could become wary of government monetary policy if we see too much “printing of the money” to overcome the mounting liquidity crisis. In usual fashion, gold spiked as the Towers crumbled. Then, prices retreated. If gold is to regain footing, it must be steady. Investors must perceive gold as “safer” by virtue of low volatility relative to currencies and other paper assets.

Understand that gold’s advantage in a deflationary period is stability. Based upon consumption from 1929 through 1935, it appears gold experienced its highest purchasing parity despite the Great Depression. While the argument is that “gold was money” during the gold standard, this is precisely the point. Gold was chosen as money because of its perceived intrinsic value.

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