Frankenstein Economy Revisited

October’s reputation as one of the year’s scariest months appears well deserved this year. The frights began piling up weeks in advance of Halloween: Record oil prices, weak corporate guidance, disappointing pre-announcements, the Insurance bid-rigging scandal and a spate of mostly mixed economic reports have been pressuring the indices. This has driven the Dow down to the lowest point of the year.

But this low has set the markets up for the seasonal rally. We have observed that November to January each year tends to be amongst the strongest 3-month periods, while the 6 months from Halloween until May Day has a solid bullish bias. For the intermediate term, we advise investors to think about starting to deploy capital on the long side.

When considering the longer-term, however, we are quite mindful of the Presidential Cycle (mentioned previously). This 4-year cycle tends to see market’s bottom in the 2nd year of a Presidential term, and peak in the 4th year. That proved true for the present 4-year cycle, with lows in October ‘02 and peaks in January ’04. Were that to replay itself out, as we expect it will, 2005 will be the precursor to a significant correction. That is likely to start sometime in the second half of ‘05, and reach its denouement in 2006.

How will that likely come about? A year ago this week, we discussed our fears of the “Frankenstein Economy.” The lifeless, post-bubble financial system was reanimated through massive doses of stimulus. Historical levels of tax cuts, interest rate cuts, increased monetary supply, devalued currency, and deficit spending jolted the economy back to life – at least temporarily.

We may be witnessing the nightmare scenario we feared most last year coming to pass. Colossal though the stimulus was, it could not defeat the immutable business cycle. Recent data points to an expansion that is slowing, mostly due to the lack of both job creation and capital spending. With the stimulus behind us, we continue to see its effects waning. The LEI has dropped for 3 consecutive months, and that bodes poorly for the mid-2005.

Without some significant change in the economic climate, we expect recent trends to continue: a feeble economic expansion with high oil prices ($40-50), modest job creation, and anemic Capital Expenditures.

The 2002-04 stimulus has been extraordinary; Yet the economy remains recalcitrant. What unknown harm awaits when the failed reanimation – Frankenstein’s body, now deceased again – slumps back onto the slab?

Category: Economy

Chart of the Week: Dow Industrials (Feb – Oct 2004)

Category: Finance

Cavuto on Business: (10/26/04)

Category: Media

Carnival of the Capitalists – October 25 2004


Hello and welcome to this week’s Carnival of the Capitalists! We have an exciting and wide ranging line up, which I have tried to categorize (a mostly futile exercise, I might add) for your reading pleasure.

So with no further adieu, I present this week’s entrants:
If I missed your trackback, email it to thebigpicture -at- optonline -dot- net.


Russell Buckley of wonders what the next 10 years on the internet might hold in store:
Sorry I missed your Birthday

“October 17th was the day that the web was officially born just 10 years ago. That day a company called Spry (later CompuServe then AOL) introduced a product called “Internet in a Box.” For the first time, you could trot down to a store, buy a software package, take it home and have everything you needed to connect to the Internet and the World Wide Web . . .”

Giselle A. Tesoro of OSCommerce Experts ponders the “Well-Formed Web Forms” and advises

“How to get your customers to fill you in – with the information you need in forms to be filled up. Let them form a good impression of you and your store – give them forms with function”

Wayne Hurlbert of Blog Business World thinking along similar lines, advises on Converting Visitors into Customers

“The frustration for Johnny was obvious. His website had strong visitor traffic numbers, he thought. Johnny’s site offered a complete line of very good, and highly reputable products. He thought he had set up an acceptable way to buy them online.

There were plenty of visitors arriving daily to make any online business a major success. The problem for Johnny was, despite the large number of people visiting his site, not many of them bought his products.”

Last of the internet series is Lipsticking‘s Yvonne DiVita’s entry: Jane Encourages Small Businesses

Blogs are becoming the “topic” of the day, all over the web, it seems. Jane
cannot open any newsletter, magazine, ezine, or even regular email, without
a question or comment on blogging present in the content.

We are delighted to see our favorite form of communication getting the
attention it deserves, but… the true purpose of web-logging is getting
lost in the rhetoric bouncing around the net.

Incidentally Yvonne gets a bonus mention for “Dickless Marketing: Smart Marketing to Women Online,” — I can’t comment on how effective that title may be — but it sure got my attention.

Alan Greenspan & the Federal Reserve

In my own entry (The Big Picture) to CotC this week, I advise investors to Ignore the Cheerleader-in-Chief

Rawdon Adams of Capital Chronicle discusses Mr. Greenspan’s Oil Choice

Read More

Category: Economy, Finance, Web/Tech, Weblogs

Half a Million Hits!

Category: Weblogs

LEI softens 4th straight month

Category: Finance

Spitzer goes after the Music Industry

Category: Finance, Music

Wal-Mart Wants $10 CDs

Category: Finance, Music

It’s not a community that any party has a lock on,” says Ismael Ahmed, the executive director of Access, the biggest Arab-American social services agency in the country, which is based in Dearborn. “Especially a community like this one where 60% weren’t born here. We’re not really committed to either party.”

“We were motivated when we backed Bush and we are motivated now,” says Osama Sablini, Aapac’s chairman and publisher of the Arab American newspaper, who backed Mr Bush four years ago. “The Bush administration has been a major disappointment to this community and we cannot afford four more years of this.”
-Under siege since 9/11, Arab voters shift to Kerry

When the dust settles on this election, a significant shift will have taken place in several key demographics. Due to a random twist of fate, this will be especially true in the swing states.

The resulting shift in traditional party affiliations could very well throw the election to the challenger.

Since early this year, we’ve been watching a number of key voting blocs “flip flop” (sorry) away from their prior voting patterns. The demographic ethnic groups with the greatest potential to impact the 2004 Presdiential election are both Cubans and Hispanics in Florida, and the Arabs-Americans in the Midwest.

On numerous occasions this year, we have noted, Cuban American voters in Florida continues to be a potential problem for President Bush in the upcoming election. Further, we similarly observed that the President’s support amongst Arab American’s have tumbled, and significantly for this election, in the swing states.

Whether this is a permanent change of party affiliation, or just a reaction to the present regime, is unknown. But it is clear that major changes are taking place. So says The Guardian:

Read More

Category: Politics

Of Black Helicopters & Such

Category: Finance