The Almanac Investor 6/29/6

Almanac Investor Alert - 6/29/2006
*** Germany Is Running Out Of Beer: The World Cup Effect ***

Weekly Changes

DOW 11190.80 171.69 1.56%
S&P500 1272.87 27.27 2.19%
NASDAQ 2174.38 51.40 2.42%


According to widely disseminated articles that splatter newspapers and websites every March, the NCAA championship basketball tournament causes hundreds of millions to billions of dollars in lost productivity every year. The rationalizations are huge leaps of logic and the exactitude of the numbers is laughable. But the point is obvious, when a lot of people are watching sports during the day, things don’t get done. The question must be asked, “How much productivity is lost during the World Cup?”

The scope of the World Cup makes March Madness look like a sewing bee. Countries literally shut down when their national team is playing. Banks don’t open and stores are closed. Everyone is watching the football match.

Super Bowl XL earned a 62% TV market share. Germany garnered a 76% share for one of their non-elimination group matches. England had 84% of their country watching a non knock-out game and the same holds true for most of the world. During the Ghana/Brazil knock-out game, the network showed a Ghanaian village watching the game on a 13” black and white TV hooked up to a car battery. Even when their national teams aren’t playing the matches are closely followed. Last week’s Argentina v Mexico contest got better ratings than the US Open golf tournament on opposite of it and did better than the NHL Stanley Cup clincher game—in the U.S. of A. Heck, it almost beat last week’s NASCAR race.

During the Australia/Italy match, the one that ended when the Italian striker took a dive that would make Greg Louganis proud, the network cut to a shot of tens of thousands of supporters of the Socceroos (the name of the Australian National Team) partying in the streets as the game was shown on giant video screens. The match was on the Monday the 26th about 5PM in Germany. That’s 1AM in Australia. Surely everyone was bright-eyed and bushy-tailed the next morning after drowning that lousy call in Foster’s.

The World Cup is far from a church-oriented activity. Fans of Football around the world are passionate about the sport to say the least, and the partying is on a massive scale. The breweries in Germany are actually running out of beer. Not to mention the staggering amount of money wagered on individual games and in pools. And it lasts for an entire month! March Madness is only 15 days. There are billions of people watching the Cup. How many hundreds of billions of hours are lost? How much are investors paying attention to the markets? Is anyone doing anything?

The effect is hard to quantify. But consider this, foreign equity markets were in freefall in May from Sao Paulo to Bombay. The ETF Lab page from last months Almanac Investor tells the sad story. The iShares Emerging Market Income (EEM) was down a staggering 11.1%. Seven of the top 10 losers for the month were foreign concerns. The iShares Brazil (EWZ) is still the top 2- and 3-year performer, but it was crushed last month, off 16.5%. But since the start of the World Cup on June 9 things have stabilized. Coincidence, or are emerging markets on hold until after the tournament ends on July 9?

It isn’t just emerging markets either. The volume on the CAC 40, the FTSE 100 and the DAX has been anemic. As the World Cup draws to a close watch out for renewed global weakness as the party ends and people go back to work. Comparisons are hard to make and conclusions are hard to draw, but the World Cup always ends in the summer of a midterm election year. After four of the last five tournaments, with 1994 being the exception, US stock markets have tanked.


Fed Rate Decision

A quick observation on the market action after the fed decision: When the market rallies because the Fed says the economy is weakening you are in trouble. The Street now thinks it knows Bernanke’s intentions all of a sudden. This rally smacks of end-of-quarter window dressing. Today is also day one of NASDAQ’s 12-Day Mid-Year Rally (2006 Almanac, page 68). It has been a wretched quarter for funds. Don’t buy this rally; the pros are trying to beef up their mid-year performance numbers. Many fund managers get paid according to quarterly performance. 20% of nothing makes paying for the summer house in the Hampton’s tough. This is a great rally to sell into and an opportune time to buy puts or add to your current bearish positions.


STANDARD TRADING GUIDELINES!


BUY LIMITS ARE GOOD TILL CANCELLED.
ALL STOPS EFFECTIVE ONLY WHEN THE STOCK CLOSES BELOW THE STOP PRICE.
ALWAYS SELL HALF ON A DOUBLE.

Please trade carefully.
Those who study market history are bound to profit from it.

Sincerely,

Jeffrey A. Hirsch, Editor & Publisher
J. Taylor Brown, Vice President & Director of Research