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The Blue Money Report
"The knowledge of an effect depends on and involves the knowledge of a cause."
~ Spinoza

Welcome to the Blue Money Report

Today's Commentary: 07.04.03
Happy July Fourth
In a time when unemployment has affected 9.4 million folks; in a time when local communities are struggling with the day to day realities of underfunding; in a time when Washington no longer seems to have the well-being of the general citizenry in mind; we celebrate a nation whose core principles will survive anything that befalls us.

The BlueMoney Report would like to wish all of you a safe and enjoyable holiday. This column will return on July 7th.

Today's Commentary: 07.01.03
Earning a Rally
From the out of the shadows come those dark souls, the very ones often called bears, to point out the upcoming three months as a sort of retribution of the quarter past. As you may know by know, the quarter ended with all the indices up. But they were bought up from a bottom that was both too rich and too deep. Whomever these investors were, they seemed enthused as they partcipted in what could only be called a nostalgic rally of ill-timed proportions.

Can you blame them. Most of the country was involved in some sort of convoluted weather pattern where spring slipped through without notice. From winter we abruptly segued into the sultry days of summer. But weather is something I find no solace in complaining about no matter how bad or good.

But the markets are different. Much like bad weather, down markets can ruin a perfectly good day, week, month or quarter. Markets involved in what appears to be a broad rally much like the one we experienced last quarter can add sunshine to the attitude of anyone who has a few bucks at work for them. But forecasters bear the burden of warning about the possibility of a change either good or bad.

According to AAII or the American Association of Individual Investors, folks are down right bullish voicing strong sentiment and outnumbering the poor nay sayers in the process. The 70% plus result of their survey is approaching the same levels that were recorded in the moments prior to the financial rug that was pulled from beneath our feet back in early 2000. Stocks weren't cheap then and they are not cheap now.

But wait, there are still other signs of the growing clouds of disaster on the horizon. When Alan Greenspan and co. decided that the ghost of deflation was worth only a quarter point reduction and when the market refused to take the bait, the warning sirens should have sounded in earnest. Ignoring this and the fact that those investors who work at high levels for the companies that populate many of our portfolios aren't seeing anything worth holding onto. Insider selling has moved up in recent months as investors plowed their hard earned money into the very stock that the CEO just sold.

These sellers are the same ones who have been force feeding analyst info about the operations of their companies and suggesting that the valuations are still too high. This bodes poorly for two reasons. One, if it is true that the expectations of Wall Street are too high, then this could be a miserable earnings season. If these folks lower their expectations and companies do spectacularly by comparison, the season will carry an empty caveat.

Add in the continued state of unemployment, not seen as getting worse, the unknown but assuredly ill-effects of the Jobs Growth and Tax Reconciliation Act of 2003 and you will find little in the way of a much needed enthusiastic recovery. Numbers are already being guessed at but most see the GDP at 2.6%.

All of this doesn't mean that companies won't do well in the upcoming quarter. They will have earnings. They will be based on very little investment and a super trimmed labor force but they will earn more than in the same quarter the year prior. The real proof in the earnings will be how they are accounted. The S&P generally employs GAAP while companies prefer and often use as a result operating earnings.

So how will the market move in the upcoming quarter? If the real activity in this last quarter came from those skittish folks in the hedge fund industry and not from individual investors, you could see a successful side step of the reality of the situation. Seems that compared to those heady days of early '00, only half as many people find any reason at all to trust their money in the stock market.