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[TTHQ Staff]

Sy Harding

DIFFERENCES OF OPINIONS. May 27, 2005.

There seem to be some sharp differences of opinion on a number of important
issues.

For instance, is this a good time to be buying stocks or selling them?
Corporate insiders at the ten largest Nasdaq companies, which are Microsoft,
Qualcom, eBay, Intel, Cisco Systems, Nextel, Dell, Amgen, Apple Computer,
and Starbucks, seem to be coming down on the negative side. In his
Crosscurrents newsletter, my friend Alan Newman reports there are 31 times
as many insiders at those companies selling their stock as there are buying,
and the total number of those selling, 284, is the largest number he has
ever recorded.

Yet Alan reports that investors buying stocks on margin (50% down payments)
are so confident that now is the time to be buying, that margin debt on the
Nasdaq, which had plunged when the 2000-2002 bear market wiped out many of
those on margin, has soared again, to a level that is 17.7% higher than at
the Nasdaq’s peak in March 2000. Margin buying on the NYSE has risen 48%
over the last two years, and the combined margin debt on the NYSE and
Nasdaq, is approaching the $242 billion registered in December, 1999, as
Alan says, “a scant three months before the greatest stock market bubble of
all time burst.”

So the opinion of corporate insiders, especially in the hottest Nasdaq
stocks, seems to be that now is a time to be selling, while corporate
‘outsiders’ are of the opinion that now is not only a time to be buying, but
buying on margin.

In another area - whether or not inflation is a growing problem - equally
opposed opinions seem to be in place.

A little inflation is a good thing. It seems to help the economy soldier on
by providing consumers with an excuse to buy (there’s no sense waiting in
hope that the price will come down). And with consumers used to slowly
rising prices, it gives companies a little ‘pricing power’, the ability to
raise their prices to more profitable levels, without upsetting their
customers too much.

But too much inflation is harmful. It forces consumers to pay too much for
necessities, leaving little left over for discretionary purchases, hurting
producers of discretionary products and services. It raises the costs of all
companies, cutting into earnings. And it forces the Federal Reserve to raise
interest rates in an effort to slow the economy and so reduce the
inflationary pressures.

The Federal Reserve, which has now raised interest rates eight times in the
last twelve months, and several individual Fed Governors, have provided
their opinions that inflation is a threatening problem, but that the economy
is strong enough to withstand more rate hikes in an effort to prevent the
inflationary threat from spreading.

Then there are the opinions of others that the economy is already slowing
too much and the Fed needs to stop raising interest rates, or it will send
the economy into a recession. They cite the fact that the ‘Leading Economic
Indicators’ have been down four of the last five months, that retail sales
are down, that Consumer Confidence numbers have been dropping like rocks,
that high oil prices and the eight rate hikes already in the pipe line are
draining spending money from consumers pockets which would otherwise keep
the economy moving.

And then there are the opinions of those who say there is no threat from
inflation anyway. When handed scary inflation numbers like the Producer
Price Index, which rose at a 7.2% annualized rate in April, and the Consumer
Price Index, which rose at an annualized 6.0% rate, they simply subtract the
cost of food and energy from the numbers, and note that the resulting ‘core
rate’ is not all that bad.

So when news like this week’s Consumer Income & Spending report comes out,
the interpretations are all over the lot.

Consumer incomes rose a hefty 0.7% in April, led by increases in wages and
small-business profits. Great news according to some opinions. But most of
that extra income flowed right into higher interest rate payments and gas
tank. Adjusted for inflation, incomes rose only a sickly 0.1%. Meanwhile,
consumer spending rose 0.6%, and most of that also flowed straight into the
gas pump. Bad news according to others.

Meanwhile, the result was the lowest personal savings rate in April, since
October, 2001, and the second lowest savings rate since the Great
Depression.

Opinions regarding the price of crude oil have also taken wild swings. Oil
prices climbed to $57 a barrel several weeks ago (and had the stock market
at a five and half month low). That resulted in the consensus opinion that
oil was headed to $70 or $80 a barrel, with one prominent investment bank
predicting it would reach $105.

But instead, reports of higher than expected inventories of oil for several
weeks in a row caused oil prices to decline to under $50 a barrel, and as
low as $46. That raised hopes that inflation from that direction would go
away, and prompted predictions that oil was headed down to $40, perhaps
less, giving the stock market a big boost. But no. This week’s petroleum
report showed a decline in inventories, just as the heavy driving season is
beginning. As a result, oil prices spiked up to more than $50 again, closing
the week at almost $52.

So, it was another week with continuing questions and concerns, a wide range
of opinions, but no clear answers or necessarily sustainable trends.



Sy Harding is president of Asset Management Research Corp., DeLand, FL,
publisher of The Street Smart Report Online at www.streetsmartreport.com and
author of 1999’s Riding The Bear ­ How To Prosper In the Coming Bear Market

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