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11/01/2005
The All-Seeing Eye

This is the kind of day, the kind of month that only a writer with an all-seeing eye could do justice to. For a third month in a row, a rally of a few percentage points in the final three days moved stocks from the depths of despair to hoped-for glory. This is guaranteed to happen most months, most years, but it is apparently even more guaranteed when the mutual funds are closing out their fiscal years as was the case over the last few days.

It was nice to see the universal law of gravitation upheld, with four separate swings from a daily S&P 500 futures close of 1200 or above to a daily close below 1200 and then above. This makes the ninth such excursion back and forth in the last year. And it's getting to the point where I'm beginning to believe that even though retrospection can find any number of prices that are in the middle of a range for a year that is about unchanged, that have many swings above and below, this one seems a bit non-random.

Also seemingly non-random was the beautiful consilience of so many markets. Oil closed just below $60 a barrel at $59.76, the Euro was worth just under $1.20 at 1.198 and corn closed just below $2 at $1.96 a bushel. I hear from a Texas pilot fish that gasoline in Texas is retailing at $2.26 a gallon and I wonder, considering that taxes take up, how that compares to the $5.00 a gallon we pay for a reasonably clean bottle of water.

The Goldman Sachs commodity index fell 10% in October, from its Sept. 30 close of 469.6 to its close of 422.9 on Oct. 31, one of the biggest drops ever. This is a low since the beginning of August. But isn't this guaranteed to happen in conjunction with the Federal Reserve's staged program of speeches stating they're near the breaking point with their tolerance for inflation? Did it ever occur to these officials that the competitive situation around the world and within the US, the increased production unleashed with the breakdown of collectivist thoughts except at certain NGOs and certain Centrals, the innovative ways we have of producing, the dissemination of information on pricing, are such that inflation can't get going?

Of course, someone's going to attribute the decline to the debacle at Refco. But it had as much to do with them as the S&L crisis had to do with the fake doctor, soon to retire, who wrote a letter of recommendation for Charles Keating back in 1985.

The last hour of trading in the month is always a time for great trepidation. In the glory days for the bears, the always chronically bearish hedge funds were rumored to knock the stuffings out of the market in the last half-hour of trading. And indeed, as of a few months ago, the average decline during that period over the previous 4 1/2 years was a nice -0.2%. But it hasn't worked the last few times. Today's decline of 1% in the last half hour of trading will make up for that. Once again, an earnings warning from one company, Dell, was sufficient to trigger the weakness. When will the public learn that one sparrow doesn't make a spring? Especially when the average earnings increase this quarter has been 18%.

Like most speculators, I like to buy near the end of the month, and with the egregious declines that occurred during the corresponding periods last month, I could not refrain from wading into the breach.

The Minister of Non-Predictive Studies here at Daily Speculations is incredibly busy these days as he has access to a million data files with which to generate random results. One that he presented to me showed that with bullish GDP numbers, the market and certain key retailers tend to go up sharply in the weeks subsequent to the report. The t-score of 3 that he showed me for one typical study with a 2% or 3% expectation one month later got me shaking my hands in a lament, "This isn't non-predictive, Minister," until I realized that there were at least 25 indicators that similar studies could be focused around, either up or down, and he was exonerated at once.

George Zachar Notes:

In 1985, Charles Keating hired Alan Greenspan as an economic consultant, in an effort to convince an oversight agency to exempt Lincoln Savings from certain regulations. Greenspan delivered a favorable report, writing that Lincoln Savings was "a financially strong institution that presents no foreseeable risk to depositors or the government."

 

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