Alert #34, May-22 2001
STOCKS:

Monday's rally took the QQQ shares into our target area in the low-50s, so
we will take profits immediately on the two QQQ positions purchased in
late-March/early-April. All of our short-term goals for the stock market
have now been achieved, although we still think there will be more upside
over the next 2 weeks with the NASDAQ leading the charge as noted in last
week's Interim Update. We are retaining exposure to further upside in the
tech sector via our optical component/networking stocks, which are just
now beginning to show signs of life. The S&P500 will encounter some
serious resistance in the 1320-1340 range (the 200-day moving average is
currently at 1335), so that range is a reasonable place for the current
rally to end. By the way, here is a link to an article that highlights the
mass psychology usually seen near important bottoms:
http://www.thestreet.com/funds/fundjunkie/1435589.html  It seems that the
Janus funds were part of the February-March capitulation, dumping their
large-cap tech holdings near the lows.

DOLLAR:

All significant turns in the Dollar since last October have occurred
during either the last week of the month or the first week of the month,
so on that basis a likely time for the Dollar to peak and reverse lower
would be either next week or the week after. Momentum indicators also
suggest Dollar strength into at least next week. We certainly wouldn't be
going 'long' the Dollar at this time and are confident that the next big
move will be down, but the odds are beginning to favour a re-test of the
October 2000 peak before the down-move gets underway.

GOLD:

To be blunt, we have no idea what gold will do over the coming few days. A
drop to the previous breakout area around 275 wouldn't be a surprise, and
neither would a sudden $20-$30 surge. However, the trend is UP and the
longer the herd remains skeptical, the better.

OIL:

Some tentative signs are emerging that the oil price is topping. Fear of
tech stocks has helped make oil stocks the primary focus of investment for
some time, but this trend may now be changing with the NASDAQ beginning to
out-perform. We are not especially bearish on oil stocks, but do think
that gold stocks will dramatically out-perform oil stocks over the next
few months.

Alert #33, May-16 2001
Just a few quick comments on Tuesday's rate cut by the Fed.

The Fed has chosen to ignore the bond market for now, which is bullish for
gold and bearish for the Dollar (and, of course, for bonds). The Fed sees
little risk of inflation, stating that:

"With pressures on labour and product markets easing, inflation is
expected to remain contained."

Obviously we just don't get it or maybe we are just looking at the wrong
data, because what we see is that:
a) The annual rate of growth in unit labour costs went from -0.2% in the
second quarter of 2000 to +5.2% in the first quarter of this year.
b) The median CPI is increasing at an annual rate of over 4%, the fastest
pace in more than 5 years.

A more honest statement by the Fed would have been:

"Although there are obvious upward pressures on prices, economic growth is
expected to remain contained. We have therefore decided to ignore the
inflationary consequences of our actions in the hope of prolonging the
credit expansion and, in doing so, preventing the real estate market from
crashing. Oh yeah, we also think the Dollar is too strong and we are
trying to do something about it."

Bond yields reacted to the Fed's announcement by rising to new highs for
the year, but yields at the short-end of the curve fell. Although we
expect the US economy to be well on the road to recovery by the final
quarter of this year, Tuesday's drop in the T-Bill yield indicates that
the economy is not yet out of the woods.

We are expecting an upward reversal in the stock market this week. There
is a possibility of this upward reversal occurring on Wednesday,
particularly if there is an attempted sell-off during the morning.

Alert #32, Apr-20 2001
In yesterday's Interim Update we noted that a daily close below 115.80 in
the June Dollar Index would confirm Wednesday's reversal, and allowed that
it could take up to 2 weeks to happen. As it turned out the Dollar didn't
keep us waiting and closed at 115.17 on Thursday. A daily close below
114.51 is still required in order to confirm a more important trend
reversal. The 2 inter-meeting Fed rate cuts are starting to look like
bookends at either side of the Dollar's Jan-Apr rally.

Both the A$ and the C$ have broken out to the upside. If the Yen closes
the week near current levels (June futures are at 82.58 as we write), we
will be confident that an intermediate-term bottom is in place for this
currency. The euro and the SF have been the strongest of the major
currencies over the past few months (they have lost the least amount of
ground against the Dollar). Daily closes above 0.91 (euro-dollar) and 0.60
(SF-dollar) would confirm that their consolidations are complete. For the
first time since the Dollar hit its major peak in October of last year it
looks like we will soon see a concurrent rally in all the major currencies
versus the Dollar.

June gold achieved a mini-breakout on Thursday by closing above its Apr-16
intra-day high of $265, but the bounce was not confirmed by the gold
stocks. Things should get very interesting in the gold market if the SF
can move above $0.60.

We expect a pullback in the stock market to commence either today or
Monday. A pullback in the near future is not only highly likely, it is the
most bullish thing the market could do at this time. Short-term sentiment
indicators are beginning to reveal a bit too much optimism so a pullback
is necessary to reinforce the underlying worries and set the stage for the
next up-move. We doubt that the coming pullback will take the S&P500
futures below 1195 (they closed at 1259 on Thursday).

After the close of trading on Thursday, lousy results from Sun
Microsystems and Nortel were offset by a solid report from Microsoft.
On-line auction house EBay also reported, beating estimates and raising
its revenue targets. The growing market in pre-loved Cisco routers and Sun
servers must be a boon for this company.

Alert #31, Apr-09 2001
In the current WMU we included a chart of the yield on 13-week T-Bills.
This chart shows that short-term market interest rates have, over the past
few weeks, been tracing out a path that resembles the trajectory of a
water melon that has been tossed off a cliff. With market interest rates
now so far below official interest rates, the Fed will almost certainly
cut official interest rates in the near future. The cut could occur today
or it might not happen for another couple of weeks. When it does occur the
stock market will no doubt rally sharply and, as noted in the WMU, any low
that is in place at the time of the cut (the current intra-day low for the
S&P500 is 1081 and the closing low is 1109) would most likely turn out to
be THE bottom. However, we would NOT be buying in the immediate aftermath
of any Fed rate cut because the initial rally will almost certainly be
sold. Our view is that the time to buy will be after the Fed's rate cut is
perceived to have, once again, failed to bring about a sustainable
up-move.

The Daily XAU Chart, kindly provided to us by the team at
www.dingdingding.com, has been updated:
http://www.speculative-investor.com/xau_daily.jpeg

Gold still has some work to do to confirm that a low is in place and that
an up-trend has commenced. Gold stocks, however, have been trending higher
since last November. When the gold price finally picks itself up off the
mat the rally in gold stocks will be explosive.

Alert #30, Apr-06 2001
For the past couple of weeks we've suggested the time was right, for the
first time in years, for longer-term investors to begin accumulating stocks
on weakness on the basis that THE bottom is likely to occur by early-May.
The important point to note here is that the buying should be done during
periods of significant weakness, not during the type of buying panic we saw
on Thursday. As noted previously, picking the actual bottom will be more a
matter of luck than anything else, so just average-in during the panic
sell-offs (such as occurred earlier in the week) and stand aside during the
buying binges (such as occurred yesterday).

Thursday's rally was impressive, particularly the 25-to-1 ratio of up-volume
to down-volume on the NASDAQ, but we do not think it represented the start
of a multi-month up-trend. When the market begins to rally 'for real' we
should see an upward spike in interest rates, something that did not occur
on Thursday (short-term rates actually slid marginally lower on Thursday).
We will deal with this topic in the next WMU.

As noted in yesterday's IU, gold needs a daily close ABOVE 261.50 (basis
June) to confirm that a LOW is in place.

The Dollar Index (basis June) needs a daily close BELOW 114.92 to confirm
that a HIGH is in place. The dollar is being helped by news out of Japan
earlier today. The Japanese Govt has just announced that banks will be given
2 years to write-off their existing bad loans and that a government fund
will be set up for the express purpose of buying shares held by the banks.
Another small bandage has hence been placed on a large gangrenous wound. The
market has naturally reacted by dumping the Yen.

Friday's Employment Report will potentially be a big market-mover. A
weaker-than-expected report should result in a continuation of Thursday's
stock market rally. It would also give bonds a boost and help to put some
downward pressure on the Dollar. A stronger-than-expected report would
likely set the cat amongst the stock and bond market pigeons and boost the
Dollar.

$66B was added to the total money supply (M3) during the latest week! This
means that M3 has increased by $318B since the beginning of December, an
annualised growth rate of 13.5%. Over the same period the Fed has expanded
Reserve Bank credit by a measly $4B. In other words, those who continue to
harp-on about the Fed's money-printing are missing the point - the Fed is
doing very little while the US financial sector is presently creating new
money at one of the fastest rates in decades. The analysts who continue to
worry out loud about deflation should wake up and smell the money.

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