April 2008

Looks like Apple has blown its cover as a 'nice' company. An upstart named Psystar tried to sell Mac knock-offs for $399, but Steve Jobs & Co. lost no time coming after them with a meat-axe. Psystar returned to the market hours later with a slightly revised business model and a sales pitch even more coy than the first, but we'd need 10-to-1 odds to bet they'll survive Apple's next legal barrage. We've come to expect such hardball tactics from Microsoft, which seems never to have met a competitor that it did not target for extinction. But this kind of behavior seems less becoming of Apple, which has always tried to project a friendlier image than that of its co-founder, Steve Jobs, whose nasty side is legendary in Silicon Valley. Because Apple does not license its operating software to outside vendors, the idea of a box-maker selling computers that are compatible with Mac's Leopard operating system would appear to be baiting Apple's lawyers. But mightn't Jobs be willing to bend a little, considering that Mac has been unable to pick up market share, even against PCs that are now running the widely reviled Vista operating system? If ever there were a time for Mac to open its system architecture to licensees, this is it. Granted, Apple would initially cede substantial revenues to companies able to sell Mac clones for less than half the price of the real thing. But the Cupertino company could also conceivably double or triple its market share over the next few years if it gives up some exclusivity. Moreover, Apple would be in perfect position to kick Microsoft's butt when the Redmond firm releases its next operating system, supposedly around 2010. If that product accelerates Microsoft's descent into the lowermost imaginable depths of mediocrity, as we

Guns, Guts and God made America great! is a bumper sticker that wouldn't raise eyebrows in Western Pennsylvania, but let a politician suggest that those are sentiments held most fervently by life's losers, and all hell breaks lose. On the stump in San Francisco last week, Obama said workers in Pennsylvania's Rust Belt, embittered by unrelieved decades of economic hard times, "cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations." Hillary was quick to pounce on this statement, calling it 'elitist and divisive,' which it was -- so much so, in fact, that your editor, a Western Pennsylvania native and son of two Pittsburghers, would strongly suggest that Obama lay a wreath at the grave of Roberto Clemente sometime before the Pennsylvania primary. Seizing the initiative, Hillary told steelworkers on Monday exactly what they wanted to hear ' namely, that Pennsylvania deserves its fair share of the subsidies that Congress has been lavishing on other, ostensibly less-deserving, businesses. 'I want to take away the subsidies from the oil industry, from the drug companies, from the insurance companies, from Wall Street,' she said 'Let's put those subsidies to work for a change here in Pennsylvania putting hard-working Pennsylvanians to work.' Schenectady Blues How better to boost the sagging spirits, if not necessarily the efficiency, of Rust Belt workers than to increase the size of the handouts they receive from the Federal Government? Perhaps with some judicious pruning and re-allocating of pork, Hillary could help transform Sharon, PA, into the Hartford of the Alleghenies. A success there might even inspire her to take a look in her own back yard ' at Schenectady, for one. The town has been in decline ever since GE pulled

We've dissed the news media at every opportunity because they failed so miserably to report on the problems that have caused the economy to implode. Newspapers like The Wall Street Journal and The New York Times should have known better all along, but instead they served up the kind of drivel that reads like rewritten press releases from the Government and the Federal Reserve. Even now, reporters seem to be having trouble choking out the R-word, since the severe slowdown that has all but asphyxiated the economy is still not 'official.' 'The ill-informed tout the liars,' is how Gary North characterizes this benighted relationship between politicians and the news media. Thus do we read, on the front page of the Journal last week, the results of a softball interview with the former Fed chairman in which he calls his critics 'unfair.' We have inferred that it is mainstream critics that he was referring to, but if he were to browse the archives of the subterranean newsletter world, his feelings would really be hurt. An Embarrassment We don't think much of Mr. Greenspan ourselves, since it seems almost beyond dispute that the banking system's dire troubles are largely attributable to the wantonly reckless monetary policies he pursued, and to his apparently egregious misunderstanding of basic economics. Will history see it that way? There is that chance, since, with regard to the severity of this economic downturn, even if the mainstream media don't yet 'get it,' their not-yet-ready-for-prime-time counterparts in the newsletter business were gimlet-eyed all along. And while Mr. Greenspan's serious professional shortcomings may not be searchable in the fawning coverage he received in New York Times et al., they are voluminously documented on the World Wide Web by legions of observers who saw it all coming. As a result, far

Considering how steeply the dollar has fall in recent months, we might have expected more of a bounce when the selling finally let up. Instead, since mid-March, we've gotten a rebound so feeble that, on the daily chart (see below), the Dollar Index has yet to exceed even a single peak recorded on the way down. To put this weakness in perspective, and based on our Hidden Pivot rules, it would take an unpaused surge surpassing at least two 'external' prior peaks to even hint of an important trend change. That would imply a print at 73.96 in this instance ' roughly 2.5 percent above yesterday's settlement price. That might not seem like much, but considering how sluggish the rallies have been lately, it might as well be the Matterhorn. We should also note that on recent days when the dollar has fallen, it has tended to reach or even slightly exceed the targets of minor-cycle declines. If it were about to turn around, we should have expected these declines to fall short of their targets, and for rallies to exceed theirs. Is the dollar's flatulence indicative of more weakness to come ' or is it simply taking its time to build a solid base for a powerful and long-lasting rally? We incline toward the first explanation and expect the dollar to resume its decline in earnest by no later than mid-May. But we'd have to concede that this hunch is based mainly on our inability to imagine any fundamental change in the forces that have been weighing on the dollar for so long. The Good Old Days In the good old days, prolonged weakness in the dollar made American exports more attractive, bolstering global demand for the dollars needed to buy them. That is still true, but to a

Gold continued to claw its way higher yesterday, making steady progress since April 1 against punitive losses that had occurred, effectively, in mere hours. Look at the chart below and you'll see the nasty downdraft that took bullion from an all-time high near $1036 in mid-March to a recent low of $876. That's a 15% decline, and most of it could be accounted for by just a relative handful of price bars that have been marked in red. Add them up and you could say that it took only about ten hours for most of the damage to occur. We'd like to say the worst is behind us, but encouraging as the April rally has been, it has only recouped about 40% of the losses sustained from mid-March into early April. Still, yesterday's bold move against the corrective tide was encouraging, since it slightly surpassed a 939.10 benchmark we'd disseminated the night before. We didn't think the June futures to get there before late today, but the fact that they reached, then minutely exceeded, the target as quickly as they did suggests that still higher prices are imminent. If so, it would take a minimum 948.30 today to reassure us that buyers have plenty of power in reserve. That's a Hidden Pivot target that comes from the hourly chart, and if it is reached ' or better yet exceeded -- it would create a robust new impulse leg on the lesser charts. Creating the next bull leg after that will be even more challenging, since it the rally would need to surpass a 1001.30 peak made a few weeks ago, marking the moment when gold fell off a cliff. Yesterday's rally in gold got a psychological boost from a surge in oil, which has been on a rampage lately. The

We spent about 20 hours over the last few days trying to resolve a few 'minor' computer glitches whose persistence could serve to explain why Microsoft is doomed. Go ahead and argue if you like. Our PC-savvy friend Cyrus says the firm's hold on the O/S market is so entrenched that the company doesn't have to even remotely care what customers think of the product. He says the Microsoft could sell the worst crap imaginable 'which, probably tens of millions of PC users are ready to attest, they already do ' and that neither PC users nor computer manufacturers would have much choice but to suffer along with whatever ill-conceived version of Windows the company comes out with next. Fair enough. But we didn't say Microsoft was going to die overnight. More like eight to ten years, but possibly as few as five if some company ' Google comes to mind -- is able to exploit the software giant's innumerable weaknesses with a comprehensive, Web-based solution. Meanwhile, more and more PC users are bound to discover what is becoming more and more obvious ' i.e., that resolving even the most seemingly minor PC problem can eat up hours or even days of one's time; and that, moreover, some of these minor problems are ultimately insoluble, even by tech wizards. Up Till 4 The three glitches that had us laboring till 4 a.m. last night, on top of ten hours spent earlier on them, seemed innocuous at first: 1) Outlook could send e-mails via Comcast but not receive them; 2) a laptop screensaver would not work; and 3) when accessing a POP mail server at G-Mail, Outlook would not save a password for which it prompted repeatedly. Concerning that last item, if you Google the phrase 'Enter Network Password problem,' you'll

Sometimes the new media have a way of making even savvy guys sound dumb. That may have been the case yesterday in a Wall Street Journal story that attempted to explain why a 120-point rally in the Dow completely evaporated by the final bell. The smart guy quoted by the Journal was Ed Yardeni, and here are the words attributed to him: 'No speculators want to be extremely long ahead of the earnings season, because of the realization that the earnings might be worse than expected.' In the first place, we wonder why he has ascribed caution only to speculators? Aren't there many others ' you, me and nearly everybody we collectively know, for starters ' who wouldn't touch shares with a ten-foot pole right now? Why would anyone, given that the economy appears to be sinking into it worst funk since the quasi-depression of 1973-74? We've said it a dozen times, but we'll say it once again for the benefit of those who still evidently cannot make sense of the stock market's erratic behavior: Rallies are being driven almost entirely by one frenetic source of buying ' namely, short-covering. This is something you will never hear on the evening news, but it is true nonetheless. In fact, no bull, not even Kudlow, harbors the kind of conviction that might serve to push stocks sharply higher on a given day. No, it is only panicky bears facing margin calls who can muster that kind of enthusiasm, if you can call it that, and they are induced to panic regularly by specialists adroit at constricting the supply of shares for short stretches of time. Joke Unintended Returning to the quote from Yardeni, we note that he has pulled his punch, to unintended comic effect, by saying investors do no want to

We expect home prices to fall by at least 70 percent before the 'subprime mess' has run its course in perhaps 7-8 years, so Wall Street's recent show of exuberance would appear to be premature. Case-Shiller estimates that home values have fallen 11 percent in the last 12 months, but that would imply prices have only barely begun their slide. For the Dow Industrials, the bottom may lie even further below, since, like Bob Prechter, we believe the blue chip average eventually will trade for under 1000. That would represent an approximately 90% fall from current levels ' not quite as bad as the most extreme cases witnessed during the dot-com crash, but with much broader consequences nonetheless, since ownership of the 30 Dow stocks is far more widely distributed than tech shares were. Concerning payroll numbers, we think the loss of a mere 80,000 jobs in March will come to be regarded with nostalgia at some point and that the economy will shed another two million jobs before the end of next year. The 80,000 figure was of course significantly worse than the 50,000 that had been predicted, but we were puzzled that the predicted number should have been viewed with such dread. If our much darker forecast is correct, monthly job losses should soon start ratcheting up into the 120,000-140,000 range. Considering the above, last week's rally on Wall Street might be viewed as a flight from reality. The celebratory mood will surely pass, and probably soon, but until that happens, we should expect the mainstream press to continue force-feeding the theme that the Fed's heroic and unprecedented measures have saved the day. The catalyst for this latest outbreak of good feelings was of course the Bear Stearns deal. From a public relations standpoint, it has succeeded thus

The Street has been bracing all week for horrendous payroll news this morning, so the numbers would have to be grim indeed to shock investors into a headline selloff. We expect the opposite, actually ' a short-squeeze rally in stocks amd the dollar ' if the news is anything less than ghastly. A decline of 60,000 non-farm jobs is expected, but that doesn't sound too bad to us considering the size of the layoffs that have been occurring in recent weeks. Motorola, for one, announced that it would axe an additional 2,600 workers on top of the 7,200 it has laid off already, and Dell plans to cut 8,000. Two airlines went out of business in just the last few days, eliminating who-knows-how-many positions. Even the pharmaceutical companies are hurting. Wyeth said this week that it would lay off 1,200 reps, and Schering-Plough quickly topped them with an announcement that 10% of its 55,000 workers will soon be pink-slipped. We don't know how the pundits and professional expecters came up with the 60,000 figure, but it seems incredibly low to us. Did they perhaps fabricate one of those bold seasonal adjustments that have helped keep inflation so low in this country? Not-Quite-Unemployed The payroll numbers would be a whole lot scarier if they attempted to reckon the partial loss of jobs that occurs when service-sector employees go from good times to bad. None of the realtors we know in the Denver area is exactly knocking 'em dead, and a few of them have told us that business has never been worse. But not a single one considers himself unemployed, and we can't imagine what it would take for any of them to go on the dole. The same goes for our consultant friends. Business will probably never be so bad