Is the war in Iraq over? The marketsseem to think so, especiallywhen you consider the way theiraverages have rallied over the pastfew months. While the official warmay have ended in April, the news ofdaily battles between loyal Saddamtroops and US forces make you wonder.To add to this concern, the peaceprocess in Israel may be in jeopardy.What are both Iranand Korea up to nowadays?
While news on the geopoliticalfront may yet dampen excitementfor investors, for the most part,these worries are going unnoticed.Investors have turned their attentionto the improving economicfundamentals and lower interestrates. When you combine these factorswith President Bush's new taxprogram, which benefits dividend paying stocks, the recipe for higherstock prices is complete.
Investors have another reason tocheer—the indictments and jailterms for corporate fraudsters.Among those who have faced thewrath of federal prosecutors thisquarter include Scott Sullivan ofWorldCom, former executives atRite-Aid, Sam Waksal of Imclone,Martha Stewart, and investmentbanker Frank Quattrone. While thejury's still out on Martha, theimplementation of a zero-tolerancecorporate malfeasance policy hasincreased investors' faith in publishedearnings reports.
Despite the crackdown on corporatecrime, federal prosecutors recentlyopened another criminalprobe, this time into the number-2home mortgage financier, FreddieMac (FRE). The federal probe followsseveral firings of corporate executives,including the company's president,David Glenn. The companyfired Glenn and asked for the resignationof the chairman and CEO,Leland Brendsel, after accountingirregularities were disclosed. TheOffice of Federal Housing EnterpriseOversight stated that the removal ofFreddie Mac's 3 top executives "onlygoes part of the way toward correctingserious problems."
This news from Freddie Mac hasspooked some Wall Street analystsinto commenting that the housingsector may face a serious meltdown,as Congress starts to look into theadvantages that quasi-governmentalmortgage agencies like Freddie Macand Fannie Mae enjoy. Adding insultto injury, Fannie Mae's chairmanand CEO, Franklin Raines, received$11.6 million in compensation andanother $6.7 million in stock options.Last month, Freddie Mac'sLeland Brendsel was shown thedoor, and yet he managed to exitwith a $24-million golden parachute.
An interesting piece of insideinformation has citizens concerned.Both Freddie Mac and Fannie Maecontributed over $4.2 million topolitical candidates in 2002—another reason we should be bangingon the doors of our elected officials. Where's the outrage from ourpolitical leaders, Democrats andRepublicans alike?
HIGHS ACROSS THE BOARD
The Yearly New High list grew asthe markets geared up for the expirationof options and futures onJune 19 and 20. For the week endingJune 13, 919 new highs wererecorded on the New York StockExchange (NYSE), a number thiswriter hasn't seen in a very longtime. Similarly, the American StockExchange reported 192 new highs,and the Nasdaq reported 519.
Looking at the averages, we haveto marvel at some incredible numbers.As of mid-June, the Nasdaqwas up 46% since October 2002and 23% for 2003. Biotech stockswere up 57% since October, and43% for the year. The Internetstocks were up an astounding 111%since October, and a very impressive61% for 2003. Even the Dowwas up over 15% for 2003.
All these gains have bearssquirming for answers and predictingthat the mistakes of the late1990s are being repeated. Ned Davis of Ned DavisResearch was interviewed by last week and reported, "Therally is just a phase of a long-termdown market." He went on to say, "Ido think that there is a mortgage-debtbubble now. People say it's nota problem because rates are low andhousing prices are going up. That isall true. But still, the debt has got tobe paid. If housing stalls or interestrates go up, the mortgage-debt bubblebecomes a really big problem."
MOVERS AND SHAKERS
has an interesting graphin its June 16 issue on dividend-payingstocks. Listed are companies withsolid yields and solid growth outlooks,including: NYSE stocks,General Electric (GE), Pfizer (PFE),ExxonMobil (XOM), and Merck(MRK), all of which have dividendyields of approximately 2%.
McDonald's (MCD) reportedimprovements in its May sales, up6.3%, stating that the increase camebecause of its new salads, which featurePaul Newman's salad dressings.MCD stock was near $30 per share ayear ago, and hit a bottom of roughly$12 back in March. Home Depot(HD) has seen its stock turn aroundnicely in the past couple of months,as sales have increased and interesthas grown for its oversold shares. HDstock was around $37 last summer,fell to around $20 in March, and isnow braced to move above $35.
Oracle (ORCL) may have primedthe pump by announcing the firsthostile bid for a company this year inits attempt to buy out PeopleSoft(PSFT). PSFT itself has offered tobuy out another software company,JDEdwards (JDEC).
Brokerage stocks have fared nicelywith the recent upward moves.MerrillLynch (MER) is up from alow last March of $30 to a recenthigh of $48. Discount brokersAmeritrade (AMTD) and E-Trade(ET) have seen gains of 100% to200% since the lows of last summer.In the second-chance department,K-Mart (KMRT) came out of bankruptcy,with new shares trading onthe Nasdaq. Its old stock, which isdeemed worthless, was canceled.However, its new shares, the majorityof which are held by its officers,have seen significant recent gains.
Ernest Caponegro is a New
Jersey-based registered representative
affiliated with First
Montauk Securities, member
NASD/SIPC. He welcomes
questions or comments at
888-786-9507. Any opinions expressed are
the author's and do not necessarily reflect
the opinions of First Montauk Securities or
those of its officers, directors, or affiliated