Being a Neeley from Ulster (25 percent Irish), I had to join the fun at the Fitzpatrick house party where the entertainers are regular performers at popular Toronto Irish pubs. Come to think of it, I would have gone anyway even if I was 100 percent Italian.

It's amazing that something that usually takes four to five hours to complete " and is a lot of fun " today took over eight hours and wasn't a lot of fun. Still, I think Diageo (NYSE: DEO) made a little money this week from their Guinness brand, and I contributed my share.

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2005-03-19 Report

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Bill's Portfolio:

This morning I received the following mail from Europe: "I note that you refer to your list of Top Global 100 stocks and also 1500 stocks but am not sure where the link is on the site."

I will, over time, be introducing the Cara Global Best 100, which span the globe and all sectors of the equity market.

For any company to make my list, I have to believe they deserve a core position in my portfolio -- or yours. I make that determination on the basis of a number of fundamental metrics like Management Performance/Profitability (ROE, ROA), Solvency (e.g., Altman's Z-ratio), and Valuation (Dividend Yield, PE, Price to Net Free Cash Flow).

I arrive at my conclusions mostly by quantitative comparisons of the financial summaries of these companies to the world's leading companies across peer groups within sectors. Then I try to follow the news reports and discussion of these companies.

From the Cara Global Best 100 list, it's basically a trend and cycles study of price data across multiple time frames, as taught to me by Ian Notley. I presently do this by pulling up the same charts that I present here and reviewing technical indicators as I have described them in these pages.

This is painstaking work, which I do as I write this blog. Sometimes I get too busy at doing real work, and have no time for writing. And when you see me writing a lot, that usually means I am, in fact, avoiding work.

In a couple months, I will automate the database as well as much of the data administration, which will have two implications.

Firstly, I will have a list of about 1500 (or more) securities that include the S&P Global 1200 plus about 300 ETFs and individual (largecap) stocks from the emerging markets that will be modelled against major aspects of the equity markets and all the other capital markets. The model is basically a recommendation engine to buy-hold-or-sell for dynamic trading, and I'll make the results available to the public for a small cost.

Secondly, using output from the recommendation engine, I'll focus more of my blog writing on the Global Best 100 list, which will continue to be freely available to anybody with Internet access. You'll find increasingly less rhetoric concerning my displeasure about how capital markets have been held hostage to the financial services industry and the regulatory process that industry needs for maintaining the status quo. Que sera sera.

When our personal life allows it, my wife and I will emigrate to a Caribbean lifestyle. But I intend to continue trading and writing on this website as long as I have the physical and mental capacity, because I enjoy it so much.

In my website I often refer to the S&P Global 1200. This happens to be Standard & Poor's investable global indices, which include six regional components: the S&P 500 for the U.S., the S&P Europe 350, the S&P/TOPIX 150 for Japan, the S&P/TSE 60 for Canada, the S&P Asia Pacific 100 and the S&P Latin America 40. The individual stock components are listed by (the ten) industry sectors on the top banner of this website.

If I refer to the S&P 1500, I am referring to the S&P SuperComposite 1500, which combines the S&P LargeCap 500, S&P MidCap 400, and S&P SmallCap 600 Indices.

For U.S. stocks, I focus on the S&P 500 as it makes up about 89.5 percent of the total value of the S&P 1500. In dollar terms, the S&P 400 amounts to about $31 billion and the S&P 600, just 12 billion. By comparison, the largest single component of the S&P 500, which is XOM, is valued today at $400 billion.

If the recommendation engine I am building works out as planned, I will create software that manufactures portfolios for paying clients, from among candidate lists they submit, with my model doing the specific stock selection and timing (or timing recommendations) of trades.

By legal necessity, I will have to register as an advisor in some jurisdiction (probably Bahamas or Cayman), and deal strictly with the exempt market. I may take this step in any event, regardless of the dynamic trading model, because I have been in discussions to participate with a small private group that does mostly corporate finance deals out of the jurisdictions that interest me.

At the appropriate time I will announce something, but, again, none of these plans will divert my personal agenda of doing what I am doing today.

By the way, I have given the Cara Trader of the Month Award to MSO ex-Chairman Jeffrey Ubben who, as TV cameras were being set up at a West Virginia women's prison, was busy entering orders to dump his remaining pile of MSO. Yes, Ubben sold 1.24 million MSO shares @ $34.50 (average) for a cool $42.7 million, thereby sticking gullible Martha Stewart fans with a really, really cool three-week loss of $14.6 million on those shares, and $750 million across the board.

Now maybe Ubben, a San Francisco-based former Fidelity fund manager, and manager of ValueAct Capital, can afford a little time to mentor those who lost that money so that they don't make the same mistake again? And, maybe he can show people how to turn $68 million into many fewer millions; then wait for white knights like Trump and Burnett to arrive on the scene to help them get off their nut.

The following chart of MSO clearly shows the bursting of a stock bubble. There has been a 38.8 percent loss in the two weeks and a day since Martha left prison. But at least the short-sellers made a bundle.

With all the litigation going on over the years regarding MSO, I'm surprised traders like to get involved with these "story" stocks. To me, based on my experiences on the sell-side, it's a recipe for capital destruction and emotional pain.

Now on the buy-side, I won't waste my time listening to stories " because there is always more to the story than you hear. Always.

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ETF:

The widespread destruction to capital wealth in the equity markets continued this week across all sectors except energy, which recovered from a bad day March 9.

The following ETF charts are for sectors 10 (energy: IYE), 15 (basic materials: IYM), 20 (industrial: IYJ), 25 (consumer discretionary: XLY), 30 (consumer staples: XLP), 35 (healthcare: IYH), 40 (financial: IYG), 45 (technology: IGM, IGV and IGW), 50 (telecom: IYZ) and 55 (utilities: IDU).

The hourly data ETF charts in the following interactive links are for the 10 industry sectors. I have taken a screen shot of some of them.

10 (energy: IYE, XLE, VDE, and IXC)

Following a sharp sell-off on Wednesday March 9, this week there was a Wed-Fri rally in the oils, but this is a "no-win" fight. Unless crude oil prices go higher, which is unlikely should the Fed raise the bank rate by a further 25 basis points at Tuesday's FOMC meeting, then the oils will come off, and the oils are the only sector holding the broad equity market from a free-fall collapse.

But, if the Fed fails to raise rates, then the Oils and Basic Materials will move higher (especially the Materials, including gold), but the rest of the equity market will quickly cave in due to disappointed bond investors selling off bonds.

So the Fed is in a difficult spot here. I think they will try to support the falling dollar by making some lame excuse like, "It would appear that government leaders have seen the errors of their ways and just maybe they can get the spending/debt issues under control, and (ahem) the economy looks like it's showing signs of coming out of the doledrums (yada yada).."

But they sure don't have much ammunition left, so I suggest everybody keep their powder dry. Don't chase the oils, if they start to run. The risk is clearly to the downside.

15 (basic materials: IYM, XLB, and VAW)

It's been a tough two weeks for the Basic Materials sector. Even gold stocks pulled back.

20 (industrial: IYJ, XLI, VIS, and IYT)

It's also been a tough two weeks for the Industrial Goods sector. What can be said that wasn't said two weeks ago?

Meanwhile some of the Dow 30 components in this sector have been pushed higher as the bulls are trying desperately to hold the line in this important sector. But, the economy seems to be waving a red flag. Sorry Jim and Larry.

25 (consumer discretionary: XLY and VCR)

Even with the rally on the 14th, which the bulls crocked up by sending their best TH's to CNBC to tell us how great consumer discretionary sales have been. Sadly untrue. The rest of the week was a downer.

30 (consumer staples: XLP and VDC)

Boy, nothing going on with the Consumer Staples. Even Cramer can't make this one seem positive. Straight down.

35 (healthcare: IYH, XLV, VHT, IXJ, and IBB)

Cramer told us to step into some of the healthcare leaders at the open Friday. Maybe he was selling along with the rest of Wall Street? Nothing going on here. Straight down.

40 (financial: IYG, IYF, XLF, VFH, IXG, VNQ, RWR, IYR, and ICF)

Wall Street loves the Financial sector. For the life of me, I can't understand why? These companies have got us totally insured, totally invested, totally in hock, going to Vegas or buying lottery tickets to try to win it back, totally into class action lawsuits to try to recover damages, and that's just half the story.

During the 20-year disinflation cycle of the 80s and 90s, where Mom & Pop jumped headlong into financial assets, causing the biggest bull market ever, even the good guys at Humungous Bank & Broker (and there are a few) thought they were creating real wealth by buying and selling x's and o's on their computer screens. Not!

Enron played the same game. Buy from Jimmy at 2 and sell to Joe for 3; buy from Mary at 5 and sell to Jane at 6. And on and on, until California turned the lights out.

When do reasonably intelligent people start to get it?

I mean, how many Enrons does the world have to endure before people understand that trading paper from this guy to that guy is a game of musical chairs? At some point, the music stops.

Where's the beef?

But Wall Street knows that you know that to start a rally, Humungous Bank & Broker stock has to be among the leaders. So the TH's tried to kick start something on Monday the 14th, but you and I obviously didn't fall for the crapola because Tuesday through Friday saw acceleration to the downside in this sector. End of the day. Turn out the lights. Elevator down.

45 (technology: IGM, IGV, IGW, XLK, VGT, IYW, IGN, IXN, and MTK)

The bulls didn't even make an effort to win this piece of the board. Software. Hardware. Networks. Chips. Next. There ain't no light at the end of this tunnel.

It's been a tough two weeks for bottom feeders in tech " those traders who try to buy low " because each new day seems to bring a newer low.

And, until the yield spread gets back to a normally sloping 300 basis points, it'll be none but the brave who venture into tech.

50 (telecom: IYZ, VOX and IXP)

It was a bad week all around the globe for telecommunication services. Which is a surprise to me when mobility is all the rage in the emerging economies.

Yes, even the washed out telco sector is showing no signs of an early recovery.

55 (utilities: IDU, XLU, and VPU)

The Utility sector seems to be trying to hold up, looking for a glimmer of light that long-term interest rates are not headed north. But, alas, we are fortunate to have enough sunlight to pack our suitcase for the trip south. Expecting to leave any day now.

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Bonds:

There was a pause this week in the bond markets, as the yield curve flattened a little to 215 bp from 221 bp, and bond money seemed to flow into the mid-term 5-year and 10-year treasuries.

Everybody is awaiting the Fed move on Tuesday. Don't these six-week intervals seem to race by? Can't wait to hear Kudlow's spin.

From the U.S. Fixed Income (Bonds) Yield Table at Yahoo Finance, the 30-year T-Bond is now yielding 4.81 percent, while the 3-month T-bills moved up a little on the week, to 2.65 pct.

With yields on the 30-year U.S. Treasury Bonds at 4.81 percent, do I hear 5? 5, anybody?

Funny (sad actually), but when it's 57 oil, I'm hearing TH's ask about 80. But, when do you hear these Wall Streeters talk about 5 or 5.5 percent yields on the long bonds?

The answer is never, and you wanna know why? Because collapsing bond prices take down utility stocks; they take down real estate, they take down banks " yes the same employers of those TH's you see parading to CNBC because they look "sooo good" on camera.

Yet interest rates are rising. Mom & Pop are having a tough time carrying the margin debt just like they are having a tough time paying the credit card interest, and the home mortgage ARM. But, Wall Street doesn't want to talk about it.

As and when commodity prices are in a rising trend, you have to expect that interest rates are also in a rising trend (as central banks are tightening) and that's bad for bonds. But, hey, haven't we been through this before?

Investors are afraid that interest rates are going to really accelerate on the upside, which is the primary driver for declining equity prices. Rising interest rates and rising yields in the bond market could have a broad impact on PE multiples, as well as a direct negative impact on interest-sensitive equities.

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Commodities:

Yes, commodity prices are still flying, and they set a new record high this week on the CRB index at 323.33, up from the prior week's record high of 318.82. This is truly monotonous, and we'll soon see the results in the CPI.

But there was a glimmer of hope that commodity prices might be weakening because the CRB index actually closed down 0.61 percent on the week, to 319.20.

I continue to wait for softening oil prices, but actions speak louder than the words of Saudi oil Princes.

In my database of the energy sector (GICS 10), I have 59 oil & gas stocks broken into six sub-industry groups. As the oil market is shifting gears, I will continue to post these charts in the Week In Review until oil becomes less of a market driver:

10101010 Oil & Gas Drilling Drilling contractors or owners of drilling rigs that contract their services for drilling wells.

10101020 Oil & Gas Equipment & Services Equipment manufacturers, including drilling rigs and equipment, and providers of supplies and services to companies that drill, evaluate and complete oil & gas wells.

10102010 Integrated Oil & Gas Integrated oil companies engaged in the exploration & production of oil and gas, as well as at least one other significant activity in either refining, marketing and transportation, or chemicals.

10102010 additional list.

10102020 Oil & Gas Exploration & Production Companies engaged in the exploration and production of oil and gas not classified elsewhere.

10102020 additional list.

10102030 Oil & Gas Refining & Marketing Companies engaged in the refining and marketing of oil, gas and/or refined products not classified in the Integrated Oil & Gas or Independent Power Producers & Energy Traders Sub-Industries.

10102040 Oil & Gas Storage & Transport Companies in storage and/or transportation of oil, gas and/or refined products. Includes diversified midstream natural gas companies facing competitive markets, oil and refined product pipelines, coal slurry pipelines and oil & gas shipping companies.

The longer these crude oil prices stay at record high levels, the stronger the balance sheets of the main producers are becoming. Exxon Mobil (NYSE: XOM) for example has found the goose that laid the black gold egg. The company could just sit on this cash for a couple years and then after the commodity price blow-off could step in and buy up proven oil reserves at much less cost than exploring and drilling for them.

So with these oil companies, I think it pays to look at the net free cash flow, and not the stock prices, which in some cases (e.g., the explorers and drillers?) could be here today and gone missing tomorrow. It appears to me that Exxon Mobil and a couple others just have to say when.

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Gold:

For a forecast on gold prices, I wrote that it would be two steps forward and one back. This was a week for the "one back".

The Philly Gold & Silver stock index had a disappointing week, down 1.32 percent to close Friday at 100.55. But the good news is that Friday's loss was 1.03 pct, so the rest of the week fared fairly well, as gold bullion dipped on USD strength.

For that appraisal, you'll have to look to the gold bullion and the USD forex markets.

The Gold Bullion index closed at $439.35, down 1.36 pct on the week, but up 0.14 pct on Friday.

The Toronto Exchange-listed goldminer ETF remains attractive, with more room on the upside, and not yet at the point of being technically over-bought. This is the iUnits S&P/TSX Capped Gold Index Fund, which trades under the ticker symbol TSE:XGD.

Careful observation of the long-term monthly data chart indicates that the gold stocks are absolutely neutral from a technical perspective. My interpretation is that gold has been trading strictly relative to the USD for several years now, and needs an inflation cycle to kick into high gear. Then gold stock prices are really going to break out.

Actually I think that gold bullion has one more run into a trading range of $475 to $550, at which point the inflation cycle may or may not get into gear. At this point, regardless of the stories you hear, I don't believe anybody knows.

So much is dependent on the continued growth of the emerging economies. The faster these economies advance, the faster commodity prices will rise, which will serve to lower the USD, and the Euro, leading to inflation in the mature economies of Europe and the U.S.

Another factor is economic growth rates in the economically leading nations. Faster growth will lead to labor and materials shortages there, which will elevate prices.

My take is that, if I could see the hidden cards in the deck, I'd know better. But, I can count the cards that have been played to date, and I say the odds are that more rapid economic growth, and inflation, together with higher interest rates are on the way.

Moreover, I don't see the U.S. government getting a handle on its spending/debt issues, which will lead to the printing of more paper there. The wild card, however, is the potential for a real estate collapse in the U.S., which would severely hurt jobs, spending and consumption, and so forth, which then leads to economic slowdown.

I really don't have a clue as to how this will play out.

I know some of you pay for an advisory service called Bank Credit Analyst. BCA has been very good over the years at forecasting business and economic cycles. That's a different matter to forecasting stock cycles, but important nonetheless.

Here are the interactive charts of the leading goldminers. As I said a week ago, "The fundamentals are lagging the prices at this point, so there are risks. If you see a distinct change in the USD forex market you may wish to step aside, which you can do by writing calls on the gold stocks you want to continue to hold for the long-term, and to sell the rest. Active traders enjoy these markets, but I can certainly appreciate the nervousness of the average investor .

In any event, you do have to watch the USD closely and try not to get faked out.

List #1

List #2

List #3

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Forex:

The U.S. Dollar had a small recovery on the week of 0.80 percent, but there was a move up Friday by 0.38 pct, so the rest of the week was benign. The USD closed the week up to 82.12 from 81.47. It is still down from two weeks ago where it closed at 82.65.

I think Friday's minor rally in the USD was a bit of a head fake prior to Tuesday's upcoming Fed FOMC meeting and policy decision where little change is expected (i.e., a raise of 25 basis points and some yada yada about the need to do this or that, which just serves to feed grist to Kudlow's unstoppable mill).

The big play here will be in a few months when the Chinese government decides to revalue the yuan as a result of a switch to a trade-weighted currency peg.

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International Equities:

Yesterday, in looking at The Big Picture (including monthly charts of key international markets like U.K. Germany and Japan), it was apparent that the equity price pull-back suffered in the U.S. is widespread.

Let's have a look at the hourly data charts:

(Japan, Taiwan, Hong Kong, Singapore)
(U.K., Germany, France, Italy)
(Canada, Mexico, Brazil, Australia).

The Far East markets all rallied from Wednesday through Friday, whereas the U.S. market continued south along with U.K. and Germany. Interestingly, France and Italy rallied nicely, probably because those markets are not as closely linked to U.S. stocks as the U.K. and German markets.

Mexico had a terrible week, and so did Brazil except for a pop up on Thursday, which as soon as it happen I noted the CNBC personalities were shouting the news.

Canada and Australia each had a minor move to the upside.

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U.S. Equities:

Two weeks ago, I wrote: "There would need to be a convergence of very positive key developments to provide the catalyst needed to take the broad equity market higher by say four percent in the next six to nine months (say from Dow 10,940 to 11.380). Rather, I believe that rising commodity prices (which are costs to the majority of corporations and to the consumer), rising interest rates (which are going to be reflected in higher credit card and mortgage rates), economic slowdown across the globe (which will slow down retail and industrial consumption), and so forth, are the likely catalysts to move this equity market in the opposite direction for a while. In fact, I really believe that the risks of a move down are significantly greater than a move up. I see a twelve pct move down (from Dow 10,940 to 9,630) as being more likely than a four percent move up. That's not a good risk/reward ratio. The equity market losses have started and I suspect they will continue next week, across the board, in recognition that interest rates are rising, which is causing a readjustment of price-to-earnings multiples in the marketplace."

Now, after two weeks, the Dow 30 average is down from 10,940 to 10.630, which is a 310-point loss or "2.83 percent. My blog readership must have tripled judging by the number of letters I received, including from bankers, brokers and financial writers. :-)

Anyway, I did warn you that, "When you're in the tunnel watching a rapidly approaching light, you ought to suspect there is trouble on the way."

Here is the 60-minute data chart of the Dow, S&P 500, Nasdaq Composite, and Russell 2000 (small cap) indexes.

A week ago, I noted: "Bank of America Securities' excellent chief investment strategist Tom McManus, who seems to be the most down-to-earth guy on Wall Street these days, was missing from the entertainment screens of CNBC this past few days."

Well CNBC invited Cool Tom to return this week whereupon he made a reasonable forecast that (and I paraphrase): "The S&P 500, which is now at 1190, will likely finish the year at the same level." Tom is presently bearish for the near-term, as I hear him.

As you know, I look at the weekly performance for the individual Dow 30 stocks and try to see where the big money is moving. This week, which was a bad one for most stocks, there were actually eight Dow 30 components that gained on the week.

XOM was up 2.62 pct (but still lost ground over two weeks as did the others except for UTX). UTX was up 2.36 pct; AA was up 2.19 pct; DIS up 1.81 pct; and PG up 1.69 pct.

But 22 Dow stocks were down on the week, including the Big Loser GM, down 16.66 pct, AIG down 7.65 pct; INTC down 3.26 pct and MSFT down 3.11 pct. Ouch!

You can do this table yourself by copying the following list of the Dow 30 stocks and entering them in the window for "Summaries" at Investertech.com.

AA AIG AXP BA C CAT DD DIS GE GM HD HON HPQ IBM INTC JNJ JPM KO MCD MMM MO MRK MSFT PFE PG SBC UTX VZ WMT XOM

After you bring up the list, click on the Performance tab. To sort for the relative price performance for any recent period, you just need to click on the column header of the period that interests you.

You can also sort the Dow 30 by PE multiples, where you will note that some of them have ambitions far exceeding their reach.

The six at the top of the PE list are: DD (29.5); MSFT (26.4); HON (26.0); BA (25.5); DIS (24.6); and MMM (23.0). If you think these are normal, swing over to www.valueline.com and to the free Dow reports, and compare them to normal values.

Here are the Dow charts from Investertech.com that I broke into groups of ten, which you can add technical indicators for as well. (list one) (list two) (list three)

For each of the individual Dow 30 component issues, using Investertech.com, you can look at the different time frames from intra-day to monthly data charts, and see the technical indicators at the points where trends and cycles reverse.

AA AA

AIG AIG

AXP AXP

BA BA

C C

CAT CAT

DD DD

DIS DIS

GE GE

GM GM

HD HD

HON HON

HPQ HPQ

IBM IBM

INTC INTC

JNJ JNJ

JPM JPM

KO KO

MCD MCD

MMM MMM

MO MO

MRK MRK

MSFT MSFT

PFE PFE

PG PG

SBC SBC

UTX UTX

VZ VZ

WMT WMT

XOM XOM Here is yesterday's report on XOM from Value Line!

I'm not going to comment further on individual Dow 30 component price charts or technical indicators. It's now taken me nine hours to do something I did last week (better) in just five hours, including 30 minutes double edit time. Frankly, at this point, I don't have the patience to even re-read this blog, so I'm sure it holds a few more errors than usual.

And it doesn't get better because next week is Easter, and I'm going Polish.

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Enjoy your weekend.

BCara@BillCara.com