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While the Cat’s Away, the Realists Will Play…
*** Highjacked Column!
*** The Crazy North Koreans and Inside Today’s Boiler Room
Dear American Capitalist Reader,
While the cat’s away, the realists will play. My name is Adam Lass and I’m the founder and senior analyst of the WaveStrength Group.
Your usual correspondent, Mr. Schoenberger, is away at the big commodities shindig in Las Vegas, so I am taking advantage of his absence to highjack his column.
Lately, all anyone wants to talk about is the Dow’s new high. What I’d like to ask is why we should care in the first place?
What the heck IS the Dow Jones Industrial Average, and why do so many folks have their knickers in such a knot about it?
I am, of course, being a bit facetious here, but it is an issue that bears some examination.
Back in 1884 (before even I was born), Charles Dow published a list of 11 stocks, mostly railroads, because they were big and had tangible assets. His thought was that if an investor watched these guys, he just might have a clue as to where the market as a whole was headed.
It didn’t really work too well as a leading indicator, though, as even this list tended to rise and fall with the market as a whole. So he kept messing with the concept, and by 1896, he had segregated the list into industrial and transport stocks. The idea was that if a rise in the former was confirmed by a rise in the latter, a broad-based boom was underway.
Just to be clear, Dow did not intend this list to be a freestanding indicator, but rather the first clue in a chain of logical thought.
I have my doubts as to whether a spike in railroads and steamships (or even airlines and package shippers) really brings all that much new info to the table anymore. But there are certainly other confirmation signals that could function as the tail to Dow’s dog.
The problem is, none of them (not even the Transports) are putting in new highs right now.
Those Transports? Peaked once in May and once in June, but getting no love now.
Russell 2000 small caps? Peaked back in May, and can’t quite seem to recover.
Nasdaq tech stocks? Still about 3,000 points away from a new high.
So what would Mr. Dow think about an Industrials signal with no confirmation? He would call it a short-term flight to quality in a very nervous market.
He might even call it a sell signal.
Best Regards,
Adam Lass
Senior Analyst, WaveStrength Group
Over to Ian Cooper with more…
Koreans Are Playing the Nuclear Trump Card
Deparate, isolated, living in nothing more than the squalor of a crippled economy, the North Koreans are playing the nuclear trump card. But they may soon find out that the hole it’s digging may be inescapable as the United States, Japan, China and South Korea could respond with extreme force.
Kim Jong-il’s regime has made threats in the past with no follow-through. But the testing of seven failed ballistic missiles in July has many fearing a very real nuclear threat shortly. It’s not as if the U.S. policies of preventing North Korea from becoming a nuclear state were over in the last 10 or so years, despite U.S.-imposed financial sanctions that have had a tough impact on the South Koreans.
Despite that, the North Koreans may finally be ready to take that next step seeing U.S. actions as an act of war. While there is no proof of nuclear capability yet, the North Koreans do claim to have weaponized 8,000 rods from a nuclear reactor, which according to estimates could yield fissile material for about 10 nuclear devices at most. That, according to The Financial Times, “would probably give North Korea the freedom to test one without worrying about significantly diminishing its arsenal.”
Don’t expect the United States to sit idly by with threats of a nuclear North Korea. The United States has already sent warnings to North Korea and has made it abundantly clear that it’s still prepared to sit down and discuss the issue. But the North has made it clear that it will conduct a test and will not return to six-party talks, a decision that could bring about a “Chapter 7 resolution, which includes the threat of ‘action by air, sea or land forces as may be necessary to restore international peace and security.”
Outside of the U.S. policy, China has warned that North Korea will face “serious consequences.” Russia is holding talks with North Korean leaders to prevent tests, and to convey that any test would make the situation worse.
As for possible test dates… According to Fox News, “October 8, for example, marks the anniversary of Kim’s ascension as head of the Workers’ Party of Korea in 1997. It also would coincide with the likely approval of South Korean Foreign Minister Ban Ki-moon to become secretary general of the United Nations.”
Inside the Boiler Room…
As we predicted on Sept. 28, 2006, the alliance between General Motors and Renault-Nissan failed to work out. General Motors wanted compensation for participation, so Renault and Nissan cut off all discussions.
The reasons for the breakup are twofold, according to reports. “GM wanted payment because it believed it would have benefited from the alliance far less than Renault and Nissan would have...” and “an alliance would have prevented GM from teaming up with other companies, and the automaker felt it should be compensated for giving up these potential opportunities.”
While it’s bad news for GM shareholders, just imagine how irked Kerkorian has to be. Here’s a multi-billionaire who holds a 9.9% stake in the company and promoted the alliance only to watch it fall apart. As a result, investor attention has now been shifted to Ford Motor Company as the new beneficiary of an alliance with Renault-Nissan, which is now free to look for other partnerships. While Ford had no comment on alliance speculation, we strongly believe Ford will be ushered in with open arms.
Top 5 Stocks
1. Mamma.Com Inc
(33.09%)
2. Dynavax Technologies
(32.46%)
3. Pressure Bioscience
(35.47%)
4. Arizona Land
(22.22%)
5. Dobson Comm CP
(12.76%)
Top 5 World Markets
1. Russian Fed/RTS Composite
(2.42%)
2. Japan/Nikkei 225
(2.28%)
3. Korea/KSE Composite
(2.20%)
4. Taiwan Weighted
(1.78%)
5. India/Bombay 200
(1.54%)
Earnings Announcements
Acuity Brands Inc, Constellation Brands Inc, Helen of Troy Ltd, International Speedway, Marriott International, Micron Technology, Rocky Mountain Chocolate Factory, Saba Software Inc, Team Inc, and Vail Resorts Inc are releasing earnings.
Brought to you by your FREE American Capitalist www.americancapitalist.com
Unlock Dates for October 2006
Wendy’s will distribute its remaining 82.75% stake in Tim Hortons Inc on September 29, 2006. When these shares flood the market, look for THI to drop. THI has a PE of 19 as compared to a company like McDonald’s, which trades with a PE of 16, is much cheaper, and has more growth.
10/3/06 – Visicu Inc is unlocking 6 million shares.
10/3/06 – Castle Brands Inc is unlocking 3.5 million shares.
10/4/06 – Sealy Corporation is unlocking 28 million shares.
10/23/06 – Corel Corporation is unlocking 6.5 million shares.
10/31/06 – Delek US Holdings is unlocking 10 million shares.
Brought to you by www.vixtrader.com
Upgrades and Downgrades
Global Payment upgraded by JP Morgan from Neutral to Overweight.
MDS Inc upgraded by UBS from Neutral to Buy.
Mercury General upgraded by Credit Suisse from Neutral to Outperform.
Red Hat upgraded by Rochdale Securities from Hold to Buy.
Avon Products downgraded by Bear Stearns from Outperform to Peer Perform.
BB&T Corporation downgraded by Friedman Billings from Outperform to Market Perform.
Johnson & Johnson downgraded by Hilliard Lyons from Buy to Long-term Buy.
M-Systems downgraded by CE Unterburg Towbin from Buy to Hold.
Tractor Supply downgraded by Matrix Research from Hold to Sell.
Tween Brands downgraded by Matrix Research from Hold to Sell.
Brought to you by www.gressor.com
