NOVEMBER 2000 -
TALKING
POINTS
COMMENTARY
We
are looking for good news; but, unfortunately, it is hard to come by.
Therefore, we thought we would mention several “Talking Points” (not
necessarily in order of importance) that are currently affecting the
stock and bond markets.
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The momentum of the American economy
is beginning to slow.
Its age is beginning to show.
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As a result there is little reason at
this time for the Federal Reserve
to increase interest rates. The economy’s expected “soft” landing
may not be so soft, and any Fed action toward raising rates
would be counterproductive.
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The price of oil continues to be very
high with the result that corporate
profits around the world are being affected. We are enjoying
autumn’s
beautiful days with the warnings that heating oil and natural gas
prices
will escalate significantly from these levels with the advent of
cold weather.
Here in the northeast the warnings go beyond the cost of these fuels
to
include the likelihood of severe shortages --- especially if we were
to
experience a cold winter as opposed to the mild temperatures of
the last two winters.
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There will be no peace pact between
the Israelis and the Palestinians.
The true reason that will not be reported by the media or the
governments
involved is the fact that neither side wants peace. The degree to
which the
U.S. alignment with Israel will affect Arab oil production cannot be
predicted
except that under no circumstance will it be a positive for
additional oil supplies
from the region.
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The Euro continues to trade at record
lows against the dollar and the yen.
The European Central Bank along with the Americans and Japanese
intervened
several weeks ago. The reaction was a jump in the Euro that has
subsequently
disappeared. Recent unilateral interventions by the European Central
Bank
continue to be unsuccessful as the Euro returns to its lows.
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Recently interest rates in Euroland
have been raised in the face of its slowing
economies. We believe this will prove to be counterproductive for
one of the
world’s two largest economies – the same as if the Fed were to raise
rates in the
U. S. at this time.
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Please note our comments in our
Quarterly Reports, Mailings and Commentaries
that appear on our Web site:
www.hamiltonadvisors.com
concerning what we
perceive to be a stock market “Bubble” that has developed in recent
years. It
appears that the “Bubble” at long last has finally burst. For
example, Priceline.com
is now trading at 3 versus its high of 104. VA Linux, once a star
performer, is now
trading around 17. At its debut last December it jumped more than
700% on the
first day of trading. Its high for the year was 320. There is a
multitude of similar examples.
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The speculative boom in technology and
dot-com stocks has been fueled by
investors having stars (huge profits) in their eyes. Now that many
of the dot-coms
have gone out of business and others not earning profits are getting
close to burning
the remainder of their cash, the enthusiasm in many instances for
refinancing these
companies has vanished. Many of these are going out of business at
an accelerating rate.
How will these companies refinance their debt and access additional
capital for
continuing their business models?
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For the week of October 6th
to 12th Mutual fund outflows amounted to a five-day
cash redemption record of $12.1 billion according to Trimtabs.com.
Also stated in
the October 13th CNBC.com article: “During that period,
the net asset value
of equity mutual funds fell 9 percent.”
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Adding to the risk in the stock
markets is margin debt - $250.8 Billion as of
September 30th. This does not include money borrowed
against credit cards,
home equity loans and second mortgages where the proceeds have been
used
to buy stocks. We understand that the Chairman of WorldCom had a $70
million
margin call recently that caused him to consider selling 3,000,000
shares of that stock.
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There is considerable concern about
the creditworthiness of corporate debt.
Nobody knows how much American and European banks have loaned to
speculative telecom companies and Internet start-ups. And these are
only two
areas of lending to untested new companies by banks, institutions,
venture capital
firms and corporations. Somewhere during the chase some folks
apparently forgot
that those loans would have to be repaid. The question now is how
they
will be repaid - if at all.
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Funds are flowing into Treasury and U.
S. Agency bonds, which are providing
attractive yields while being “safe havens.”
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It is at times such
as these that the wisdom of prudent investing can be understood and
appreciated.
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John, W. Hamilton
November 7th, 2000
JWH: mm
jwh@hamiltonadvisors.com
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Market value information (including
prices, accrued income, and currency exchange rates)
furnished in these reports may be based on data obtained
from one or more vendors. Although this information
comes from sources considered reliable, neither Hamilton
Advisors, Inc. nor any of its vendors makes any
representations or warranties, express or implied,
concerning the accuracy, completeness or timeliness of
such information. Republication without Hamilton
Advisors Inc. prior written consent is prohibited.
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