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[TTHQ Staff]

Gene Inger's Daily Briefing. . . . for Friday, September 10, 2004:

Good Evening;

Complacency bred from years . . . of stability in the tropics led to an unprecedented and (possibly excessively) eerie sense of vulnerability that is now creeping into much of the underlying psychology of Florida residents. That is mostly understandable from the elderly among (otherwise young) retirees, of course, as they can't deal with stress from almost constant evacuations and renewed 'alerts'. Few people can; as overbuilt areas buckle and threaten to succumb to reality of too many demands on the system.

Is that going to trigger sluggish demand for property; a building boom or a desolation of interest in the State? (Assessed in the current commentary). Experts increasingly (we've talked about this for some time) believe that a 'lull in storms' of the last decade since Andrew (which was a major hurricane, but missed Miami) was the exception to patterns, and what we are seeing now is closer to the 'norm' for the current era. They really don’t' know; though Hurricane experts said this was coming for some time, and the 'global warming' of currents (not just el Nino) contributed to some of this also. We suspect the 'trapped' Bermuda high has as much to do with this year's pattern as any longer-term change, and that this does not imply a 'decades long' shift. (discussions on the implications of this for South Florida continue for ingerletter.com readers).

However, the State will be resilient and comeback (discussions of legislative fights). Inlanders (those living west of US 1, typically the evacuation and flood demarcation point) will exercise political clout against shouldering insurance subsidy costs (or the perception of that anyway, though it really never floods near the beach, as that's the ocean, so no amount of rain affects high tide levels, but surges do as related directly to a storm), and that not only creates political and economic battles, but likely means intracoastal or canal-front homes become more expensive and thus suitable primarily for those to whom a couple thousand one way or the other in annual insurance costs is less relevant. Property taxes are unlikely to be impacted, because the citizens can't take the burden (already high relatively); but there might be pressure for special sales taxes to help fund certain needs (proclaimed to be) related to recovery strategies.

(More.) A good example may be Palm Beach County (really messed-up), as Scripps Clinic's project will be a beacon of light for both citizens and medical establishments. It might be noted a friend at Ft. Lauderdale MB mentioned a Mercedes dealership in West Palm was almost destroyed and that the damages are worse (in terms of being widespread) than generally reported. If anyone doesn't grasp what can happen after such storms, another friend's brand new Toyota Sequoia (SUV) stopped wiper blades and had clogged AC, because vermin got trapped in the AC ducts (requiring trading the car incidentally; guess one needs to be careful buying slightly used Florida cars).

There has not been a sufficient 'time window' from Frances to prepare for Ivan; local store shelves being re-stocked, and with power only now coming back online in many areas; a real challenge with Ivan crippling Granada, bearing down on Jamaica; then Cuba and Florida. (More ingerletter.com discussion for our regular readers follows.)

Daily action . . . speaking of that, notes that al Qaeda released a threatening tape as you may have heard, which NBC suggests the CIA thinks could be a message to the barbarians lurking amongst us to launch some sort of attack. Time for alertness once again, so as to monitor more than the hurricanes or other normal domestic concerns.

As for the stock market, it has been very cooperative; and looks to breakout (more). This consolidation has helped, and is viewed as a favorable one. It's not necessarily over, but downside risks may be comparatively minimal here. Of course we'll keep an eye on Oil prices and Oil stocks (XOI), depending on storms and terror threats, both of which were suggested to possibly trigger a rebound in crude of a temporary type.

MarketCasts (intraday audio-emails) did pretty well again Thursday, via intentional reversals from short-to-long right around the 1114 area of September S&P's during a comment at that hour (held until a late exodus on the dip from 1121). We're going to roll to the December S&P effective with all future guidelines, starting as of now.

At this point the 1120 area appears as nominal resistance (more), with support fairly substantial just above the 1100 area, so we'd not anticipate any significant decline barring a catastrophic or other attack on the Nation, which we will not consider the Hurricane to be in itself. In fact, it remains part of why, accompanied by lower interest rates we've addressed, a reason for economic optimism, beyond obvious stresses or short-term suffering. The Dollar and T-Bonds stabilized, a little after the prior day's run-up on Greenspeak concerns (tending to limit enthusiasm for new Fed rate hikes).

Yesterday mentioned we suspect the tech 'soft spots' actually enhance probabilities later on this year (and next), though there is no urgency to chase rebounds of late; at the same time as some further consolidation (of a gradual nature) after the sharp rally of late August or early September was to be expected as we worked into September.

The Semiconductor Index (SOX), as an example, remains near this year's lows (comments reserved), and probably completes that pattern of adjustment (over time). Though momentum and other factors (frustration) are taking a few stocks towards the lows of that era, the business and earnings prospects are a lot better than even some of the exec's in the firms thought then, suggesting a fairly volatile time of 'sag' and subsequent rebound, that could become snappy later. That's why TI jumped today.

In terms of the Nasdaq 100 (NDX), the pattern's been stronger, because of (more). (As to SOX, you had a failure under 400; an entrenched oversold weekly condition).

At the same time there are our thoughts about the implications of 'tropical madness' as is not only continuing, but could (regardless of everyone's weariness or expenses related to evacuations and unplanned relocations due to the absence of food and the many necessities of modern life) worsen if Ivan strikes into the heart of Florida (again nobody wants to see that occur, but patterns continue to be as they are, like it or not).

Since this is an important subject as relates (discussed last night) to energy prices as well as the forthcoming building boom, and effects so many of us directly, we'll focus on it as necessary in days ahead. In a nutshell; here again is the problem with Ivan:

Ivan can be 'sucked up' basically in the vortex left from Frances; as the 'blocking high' over the Atlantic, and another out west, have really not budged. That creates what is a 'weakness' between systems, more on less on a trailing tail of Frances, and is likely to pull the storm (path of least resistance) into areas approaching the U.S. at least a bit west of metro Miami, well east of the New Orleans area, as it appears at this early time. Friday this becomes clearer, but there's a difference this time; almost nowhere to evacuate too. Yes, while the East Coast of Florida will in a sense be safer than the West Coast, based on early estimates), and Orlando in the State's center still better (away from water); but these are areas ravaged by the recently-departed Frances, and they are in many cases not equipped for evacuees all over again.

Alarmist? Nope. When was the last time you had a hurricane threaten Venezuela and Columbia, then turn around to assault Jamaica, Cuba, Florida and in the long run the Gulf Coast? Never is the answer.. simply never happened. Do we think this implies a reversion of interest in Florida to seasonal visitations only? (More discussion). But property on 'ridges' or slight elevations already are commanding a premium, and we know for a fact that local real estate agents are seeing increased interest by pending shoppers of a mindset to consider only homes with impact glass and post-Andrew codes; in a couple of cases we're aware of, folks who just a week ago were shopping for 'price' rather than modern and superior construction code compliance (shifted).

The storm may not become a 'Gulf' (hence oil issue); time will still tell. In Iraq matters are continuing to deteriorate; thus USAF attacks on Fallujah bunkers of the enemy. Militant Islam is squirreled at its HQ in Iran, and there's nuclear risk if that is allowed to continue. That's why even the EU made known their view of a limit to negotiating time (November), after which some action will be required so as to deny acquisition of functional nuclear weaponry to the Iranians; which would be a grave world threat.

So, as we noted in comments over the past four weeks; suggesting a move-up from the September S&P 1060s to prices right around current levels, we had reasonable projections for the attainment of these patterns, and even greater gains on a short-term basis, which the market's been particularly accommodative for, but which we'd thought stretched the daily basis activity, pending a consolidation, as noted.

Barring new catastrophes (or Ivan), the overall underpinnings will remain favorable, and though there will of course be pullbacks from time-to-time, this at least enhances the prospects that contractions will be within harmony of the overall game-plan here, and that basically was the idea of buying the late July-early August purges, and while not chasing the surges, not having to worry about it by virtue of the accumulation (or re-positioning as the case may be) during the market selling squalls of that season.

While we can’t go so far as to say that the market is out-of-the-woods for months or for longer (though the macro inclination has been to believe that and suggest thusly), there has been every encouragement to be a buyer, not a seller, during the duress of the summer just past, and to be sufficiently confident so as to distance oneself from a torrent of borderline hysteria, that not only occasionally gripped the financial pundits, but to our surprise, even some normally balanced technicians who failed to heed the glowing indicators of unanimity of negativity, that we thought dominated early August.

Those included the ‘bullish divergences’ that by themselves don’t create a rally, but tend to reinforce the prospects of an upward move’s overall success, once it finally gets underway, and if not subsequently impeded by some catastrophic event. There was no negative fiasco, no attack during the Republican Convention (unless one will call the Russian attack one, and as a diversion, which it may have been intended as, by the barbarians), and subsequently, as we all lament the hurricane’s (and/or future storms, of which Ivan is not likely a South Florida affair by consensus so far, though we realize two of the computer models still point it towards Havana and Miami over a few days) impact, we correctly assessed the economic results as rather favorable for denying any return to recession, and if anything promoting boom times in Florida. Of course it's a heck of a road to prosperity, and few want to hear that, but the history of such matters does tend to affirm that as the most likely outcome of such disasters.

Bits & Bytes… mentions Texas Instruments (TXN), Microsoft (MSFT), Motorola (MOT), Cisco (CSCO), Intel (INTC) and Ionatron (IOTN) plus little Corvis (CORV).

In summary . . events continue reminding us of risks Allied fighting forces face, given continued attacks on free peoples, by elements including assorted terrorist groups. A world awakening to terror threats grows, as domestic concerns increasingly absorb us. Economic numbers are acceptable at least. Though few yet concur, our view is a slowing but persistent growth that's not really negative, as it allows protracted gradual growth without ancillary interest rate pressures. It has political implications, however.

McClellan Oscillator finds the NY 'Mac' easier at +110 and NASDAQ up to +42, as both are stable. Overall, a turn-up grudgingly from down-to-up consolidates, starting over four weeks ago as forecast, and into resistance, and led by rebounds in energy sensitive sectors. In normal non-wartime settings the conditions this structure may create potential for eventual new recovery highs ahead; important highs in the very long run. We suspect that may occur, though there are numerous variables to contemplate, most explicitly terror threats or infiltration that this Country forgets about, and requires constant reminding to keep politicians focus on the issue.

As to flies in the bullish alternative continuing, in our view, it's realization terror wars continues expanding, such as the awful blackmailing kidnapping in Russia, with very difficult challenges ahead, and as attacks and threat levels show again. The ongoing California temblors; stable for the moment in frequency, while activity remains fairly high, relatively are to be kept in mind. S&P futures off a point or so at mid-evening.
Have a pleasant evening,

Gene

Gene Inger,
Publisher




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