I left the comment of a possible stock market correction on the website for a little over a month. From a fundamental and technical analysis perspective, the stock market showed a growth in strength with only a faint sense of weakness. From a money flow perspective, however, the stock market had become weaker over the past several months. I left the warning as is since nothing changed in October to cause me to change my mind about a potential stock market correction.
The Federal Open Market Committee (FOMC) Chairman, Alan Greenspan, provided Fed watchers something to ponder when he left Federal Reserve policy on hold with a final comment that indicated the Fed was still concerned with the future prospects for disinflation. Greenspan said, "that on balance, the risk of inflation becoming undesirably low remains the predominant concern for the foreseeable future."
Remarks by the FOMC chairman helped buoy the stock market. Investors and analysts viewed these comments as indicating that the Fed would keep interest rates at current levels for at least several more months. The stock market moved higher based on the perception there was nothing to fear until the early months of 2004, and perhaps, not even then. If you had followed Federal Reserve monetary policy for a couple of decades like I have, you would have noted the Fed's ability to force the dollar higher, slowing profits, and, thus, the economy without raising interest rates.
The Fed simply encourages the money supply to dry up to a point where it reaches near zero or slightly below. This puts pressure on future profits and sustains dollar value. As of October 29 2003, Money to Zero Maturity (MZM) was right at a zero growth level on an annual basis.
Gold has plummeted after once again coming close to its $390.00 level of resistance. The dollar moved higher versus the Euro and the Swiss franc. This is exactly what you would expect when our nation's liquidity is drying up.
The past couple of months were a time of both good and bad circumstances for the Investment Tracker newsletter. Although we welcomed aboard a large number of new subscribers, many of them were loaded for bear. They wanted to put their money into stocks "muy pronto". In all honesty, I was reluctant to encourage a go-for-broke strategy. I delayed as much as possible, hoping the correction would either rear its ugly head or run off with its tail between its legs. So far the correction is staying in the wings, lurking in the market's shadow.
There has been a growing decline in the earnings of certain stocks in recent weeks. More recently, the S&P 500 gapped to the upside. This gap and subsequent upward move are coming on declining volume, which is a sign of a tired market. Most of the good news responsible for taking the market higher came from data that, for the most part, came to fruition before tight money began to become a factor for future economic growth.
I believe the Fed is buying time. It wants the Bush Administration to get a few policy guarantees before it welcomes a less valued dollar. One of these guarantees the Fed is seeking may be allowing China's currency to gain value and the other may be to encourage Russia to stay with the dollar rather than move to the Euro.
It has been a while since I have provided a stock tip, so here is one for you. Buy Sirius Satellite Radio (SIRI/NASDAQ). It is delivering the very best in commercial free music and premium broadcast entertainment to cars and homes across the country. Daimler Chrysler announced that its all new 2004 Dodge Durango will feature the Sirius satellite radio as a factory-installed option starting this month. The stock price of SIRI's competitor, XM Satellite Radio, is around $20. SIRI's price at the close of market on November 5, 2003, was $2.26.
Until recently, SIRI had cash flow problems. Now, there is no reason SIRI's stock could not double, even triple, over the next eighteen months. I currently own a very small amount of this stock. I will wait until after November 19 before I buy more. This prevents me from front-running your potential purchases.
