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Wednesday, January 30, 2008

Monthly Chart & Fed Fund Rate Cut Suggests The Bottom Is In

This monthly chart suggests the bottom is in or at least close to being in.

Click chart courtesy of stockcharts.com to see it full sized.


With today's Fed action to cut the Fed Funds Rate another 0.50% to 3.0%, the bears are runniong out of ammunition.



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Tuesday, January 29, 2008

DJIA Monthly Chart Getting More Bullish

Click chart courtesy of stockcharts.com to see full sized

This chart shows the DJIA pulled back to the 61.8% Fibonacci level which was ALSO the old 2004 to 2006 resistance level.

In bull markets, breakouts of resistance levels that become support are healthy. When they correspond to a Fibonacci retrace, all the better.

IF the month can finish near where it started, then we will also have a very bullish “Dragon Fly Doji.” From Stockcharts.com:
Dragon fly doji form when the open, high and close are equal and the low creates a long lower shadow. The resulting candlestick looks like a "T" with a long lower shadow and no upper shadow. Dragon fly doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.

The reversal implications of a dragon fly doji depend on previous price action and future confirmation. The long lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers still loom. After a long downtrend, long black candlestick, or at
support, a dragon fly doji could signal a potential bullish reversal or bottom. After a long uptrend, long white candlestick or at resistance, the long lower shadow could foreshadow a potential bearish reversal or top. Bearish or bullish confirmation is required for both situations.

If we can get five or six hundred points in rally before the month closes, we could get a nice looking dragon fly doji. Rally a bit more for an up month and the famed “January Indicator” would also be bullish.

Can we do it in the next three days? Stay tuned…..

Saturday, January 26, 2008

Sunpower, First Solar and Apple Computer: Top Picks from Hilary Kramer

Thursday night on NBR, Hilary Kramer, Market Strategist & Author of "Ahead of the Curve: Nine Simple Ways to Create Wealth by Spotting Stock Trends" said she thought the bottom was in (DJIA closed at 12,270.17) and she saw value in the tech group where she recommended Sunpower (SPWR=74.25), First Solar (FSLR=164.74) and Apple Computer (AAPL=139.07).
KRAMER: Yes, Paul. I believe we have seen the bottom and we are going to now see a bull come back into Wall Street. We have formed a bottom and the reason we know that is that we finally had real buyers come in today. But we know it even more so because of what I saw this morning and yesterday, which is real fear. Fear took over and it over powered greed. Greed for so long was fueling the market, including as it was going down people buying into it.

KANGAS: Huh-uh.

KRAMER: But once that pessimism, a rational pessimism took over and the last of us capitulated because that's what Wall Street waits for. They wait for the very very last person who's holding onto their stock to give up and to sell and that's when the Street turns around and surprises you.

KANGAS: OK so a bottom we have seen. We might test it a couple of times, wouldn't you agree?

KRAMER: Absolutely. We may be testing and we'll be testing certain sectors.
To Paul Kangas's question "Where do you see value among the tech group?"


KRAMER: That's a great question, Paul. What I have been looking at are the solar technology companies. In particular there's a company called Sunpower. The ticker symbol is SPWR and it is off 50 percent from its high which was only a few weeks ago. Now Sunpower is reporting before the bell tomorrow and we could see Sunpower have some great guidance. If they say that there's a lot of demand out there for their solar modules and if that's the case, the whole solar sector may rise.



KANGAS: What else shines in your mind?

KRAMER: OK another solar stock, a different one called First Solar (FSLR) and it's a different technology, thin film technology, very efficient form of solar. And First Solar is also off 45 percent since December. It's unbelievable what has happened to these stocks because of momentum buyers became momentum sellers and shorters. So if Sunpower goes up, we will see First Solar go up.


KANGAS: Very briefly one more. We have less than a minute.

KRAMER: I would like to talk about Apple (AAPL). This is very important, because as we know, Apple was $202 just recently and it closed today at $139 and it tested $126. I may go back into Apple. But what happened there is Steve Jobs is very conservative in giving guidance. But the key is, they are going to make inroads into the PCs because they can convert iPod users into desk top users and lap top users.
KANGAS: OK. Hilary, do you own any of the stocks mentioned?
KRAMER: Yes, I own First Solar. And Sunpower I do intend to buy tomorrow morning if the earnings come out strong.

Summary & quotes from Yahoo! Finance

Point and Figure Targets for

  • FSLR: Bearish Price Objective of $164 met.
  • SPWR: Bearish Price Objective of $92 met and it continues to plunge lower to next support level indicated on my graph above.
  • AAPL: Bearish Price Objective of $142 met.


Click charts for more info:





Disclaimer: I have no position in any of these stocks and have no plans to buy them at these valuations. (PE for AAPL=29, SPWR=370 & FSLR=125) I have been buying different tech stocks with PEs under 15.

Discuss this article at "Value and Growth Investing" in our facebook group called "Investing for the long term."

Friday, January 25, 2008

ECRI Says There Is A Window of Opportunity for the US Economy

A WINDOW OF OPPORTUNITY: A Special Report

By ECONOMIC CYCLE RESEARCH INSTITUTE
Founded by Geoffrey H. Moore
January 25, 2008

The U.S. economy is now in a clear window of vulnerability, given the plunge in ECRI’s Weekly Leading Index (WLI) since last spring. Yet there is a brief window of opportunity within that window of vulnerability to avert a recession. That is why ECRI has not yet forecast a recession.

WLI growth accelerated to a three-year high last June, anticipating the quickening in GDP growth to a four-year high in the third quarter of 2007. The economy’s resilience surprised most economists, given the earlier Fed rate hikes and oil price spikes – a combination that had helped trigger earlier recessions. But the strength in the WLI underscored the economy’s buoyancy, correctly ruling out a recession.

WLI growth then turned down sharply, and, by year-end, had plunged to its worst reading since the 2001 recession. This indicated an economy seriously vulnerable to recessionary shocks.

As a result, a self-reinforcing downturn has already begun. If allowed to continue, it will amount to the vicious cycle known as a business cycle recession. During such vicious cycles, pullbacks in spending lead to production cutbacks, which lead to employee layoffs and declines in income, which in turn feed back to lower spending and production and so on. Still, this does not mean a recession is already baked in the cake.

Imagine a large Roman column that has just started to topple. At that moment, a modest push back near the top would be enough to right it again. But if its fall gains momentum, it would be virtually impossible to stop it from crashing down. Today, the column that is the expansion has just begun to tip.

At this juncture, prompt stimulus to boost consumer spending can avert a recession. But time is truly of the essence – the stimulus is needed in a matter of weeks, not months.

In averting recessions, the timing of policy is often the key. In September 2000, for example, we warned: “Never in this expansion have the leading indicators been so close to forecasting a recession. Luckily, underlying inflationary pressures have already turned down.”

But it was not until three months later that the Federal Reserve shifted from a tightening bias directly to an easing bias before beginning an aggressive rate cut cycle a few weeks later, in early January 2001. It was not enough to avoid a recession.

In the lead up to the 2001 recession, misplaced inflation concerns inhibited Fed rate cuts for much too long. In the current cycle, once again, inflation concerns held the Fed back from large rate cuts until recently. Yet in both cases, ECRI’s Future Inflation Gauge, a forward-looking measure of underlying inflation pressures, has been in an unambiguous cyclical downswing, giving the green light to rate cuts months before they materialized.

Yet all is not lost. How can that be, given the weakness of the WLI?

Self-Fulfilling or Self-Negating?

If we have a recession this year, it will be the best advertised in history. Recently, several Wall Street houses joined the 70% of Americans who have been expecting a recession for the last few months. A number of other prominent economists boosted their estimates of the probability of a recession above 50%.

Yet such probability estimates imply that a recession is a matter of chance, whereas it is still a matter of choice. This is why, having correctly predicted the last two recessions in real time without crying wolf in between, we are not forecasting one yet.

If we have a recession this year, it would turn out to be the most widely anticipated recession in history. Clearly, the pessimism of consumers and business managers could cause them to cut spending, creating a self- fulfilling recession prophecy. But there is another side to the story.

The biggest negative impetus in any recession comes from the manufacturing sector, driven mostly by the inventory cycle. Unaware of an approaching recession, businesses typically produce goods in anticipation of rising demand. When, to their surprise, demand for their products starts falling, inventories mount rapidly, forcing sharp production and job cutbacks, thus reducing income and spending power. The spending cuts force further production cutbacks to work off the excess inventory.

This time, prolonged pessimism about the economy, along with a surprise acceleration in growth through last summer, has resulted in a sharp drop in business inventories, taking the inventory/sales ratio to a record low. Thus, there is very little inventory left to whittle down in response to slackening demand.


Therefore, the inventory cycle downturn responsible for most of the downward impetus in a recession is likely to be less powerful this time. Also, if timely stimulus results in a quick burst of consumer spending, it will force manufacturers to boost production instead of reducing inventories. That is why prompt stimulus could be unusually potent in this cycle.

Global pessimism about the U.S. economy has resulted in a major decline in the dollar, making U.S. exports much more competitive. Therefore, U.S. export growth will strengthen further, boosting production. In fact, the latest industrial production data overshot consensus expectations because of the strength of exports.

The unusual decline in inventories and the boost to exports in this cycle have been the paradoxical results of widespread pessimism. Especially if stimulus is prompt enough, this may result in a self-negating prophecy of a recession.

The Need for Speed

At ECRI, we do not take positions on the content of policy. What we are emphatically pointing out today is the extreme importance of the timing of stimulus.

At turning points, a few months’ lag in policy action can be immensely costly. If it spells the difference between a recession and a soft landing, a couple of months’ delay can end up costing a couple of million jobs and couple of hundred extra basis points in rate cuts – and still not have the same effect. What a stitch in time can accomplish early in a down cycle cannot be achieved, even with far more aggressive action, a few months down the road. At best, forceful but delayed action can mitigate the severity of a recession.

The danger is that fiscal policy makers, who can still shore up the “stone column” of the economy that has begun to tip, may waste time designing a safety net to catch the falling column, instead of trying to stabilize it quickly in order to avert a recession. But the outcome is not pre-ordained, and the WLI will promptly let us know whether policy action, in conjunction with the forces pushing toward a self-negating recession, can successfully abort the self-reinforcing downturn.

© 2008 Kirk Lindstrom with permission from Economic Cycle Research Institute 212.557.7788 420 Lexington Avenue, Suite 1626, New York, NY 10170

Come ask questions of ECRI Managing Director Lakshman Achuthan in our Investing for the long term facebook discussion forum called "ECRI Data (Economic Cycle Research Institute)"

If you have trouble joining, then email a Request for an Invitation to our FREE facebook discussion group "Investing for the Long Term."

ECRI's Book "Beating the Business Cycle: How to Predict & Profit from Turning Points in the Economy"

More Recommended Articles:

Wednesday, January 23, 2008

Rick Santelli Takes Down Jim Cramer

I was glad to see CNBC let some of the others call Jim Cramer out for being as wrong as anyone about the market. Watch this amazing video



What I find amazing that Cramer LIES about what he has been saying on his show.

Key Timepoints on the video and Jim Cramer Quotes of note:

1:35: January 22, 2008:

"You outta watch my show. I've been calling a bear market and saying things are incredibly dangerous."
1:30: Oct 31, 2007:

"You should be buying things and accept that they are over valued and accept that they will keep going higher. "
4:09: S&P500 = 1546.97 & 4:22: DJIA 14,095:

"I upgraded. Everyone else is doing a summer downgrade. I will not upgrade my targets until they are taken out... One thing bears hate to hear.... this is a REMARKABLE TIME."
4:09: 9/19/07
  • "We are not done going higher."
  • "We are on the road to DOW 14,500"
  • "Now the Fed is on the team. They are with the good guys."
    "You know I have liked the market all year."
  • "The time to be worried has come and gone."
  • "Ladies and gentleman, the bull is back."
Is Jim Cramer too lost in his own spin to remember the internet has You Tube videos of his shows?

Tuesday, January 22, 2008

Ben Bernanke's FOMC Cuts Rates 0.75% to 3.50%

Bob Brinker, Jim Cramer and many other "noisy pundits" will say Ben Bernanke's Federal Reserve Open Market Committee (FOMC) finally "listened" to their advice. Saner minds will conclude the economic data the FOMC watches has quickly deteoriated and they needed to take quick action to avoid a recession. Whatever the reason, the Federal Reserve cut the Fed Funds Rate a week before their next scheduled meeting this morning.

NEWS ALERT from The Wall Street Journal: Jan. 22, 2008
The Federal Reserve, confronted with increased fears of a recession, cut the federal-funds rate by three-quarters of a percentage point on Tuesday. Policy makers cited a weakening economic outlook, and downside risks to growth. The move came amid a global stock-market selloff. On the news, U.S. stock futures quickly reclaimed some early losses but remained volatile.
Everyone is so negative. I wonder if the rate cut will help or do we continue to sell-off.

MARKET ALERT from The Wall Street Journal.
Jan. 22, 2007

The global market selloff accelerated as shares came under pressure for the second straight session. In Asia, Hong Kong plunged 8.7%, Australia lost more than 7% and Japan ended 5.7% lower. Trading in India was halted for an hour after shares sank 10% as markets opened. In Europe, markets began sharply lower, but recovered somewhat, with London briefly pushing into positive territory.

In currencies, the dollar gained against the euro and the pound, rising to $1.4386 versus the euro and $1.9353 to the pound, but it weakened slightly against the yen, trading at 106.76 yen.
Discuss the market in our facebook forum "Investing for the Long Term."

I woud sure like to see some of the CEOs at the cash rich companies I cover in "Kirk's Investment Newsletter" step up and buy back their shares here aggressively.

Click Here For The Wall Street Journal

Monday, January 21, 2008

International Stock Markets At A Glance

Charts of foreign stock markets at a glance all in one, easy to view place.

The fear that the US is headed towards a recession over its subprime meltdown mess caused the stock markets in Asia to plummet today. The US Stock markets are closed today to celebrate Dr. Martin Luther King's birthday, but the S&P futures market was open and it continued to plunge to enter into official bear market territors, down 21% from the peak, earlier today.

Charts at a Glance - Daily
Charts at a Glance - 5 days
Charts at a Glance - 1 yr

India's Mumbai index set a record with a 7.4% plunge.



The markets in Singapore, Hong Kong and mainland China all saw 5% or more declines on the day.

Based on the sell-off in the S&P500 Futures Market, the S&P500 is currently in "bear market status"
  • (1597-1261)/1597 = 21.04% A bear


Hang in there. This only goes to show why experts say "nobody can time the markets" so the best way to hadle market volatility is with a diversified portfolio of equities and fixed income such as I recommend in "Kirk's Investment Newsletter."

Sunday, January 20, 2008

Market Update

The major US stock market indexes have not had a good first three weeks of 2008. (All charts are clickable to view in full size.)

The markets are down even more since they peaked in 2007:

Ticker - Price - % off 52 wk High

DJIA   12099.30 (14.8%) price weighted
S&P500 1325.19 (15.9%)
NASDAQ 2340.02 (18.2%)
R2000 673.18 (21.4%)
QQQQ 45.35 (17.7%)
VTI 130.57
(16.6%)
 

After leading 2007, Gold (GLD) is the clear winner so far for 2008.


Market Peak


This chart shows how the markets have done since the S&P500 peaked on October 11, 2007 at 1576.09
.

Gold is up 15% while the S&P500 is down over 15%.

Here is a list of The DOW stocks, their closing prices as of Friday January 18th, and their percentage off their 52-week highs.

Ticker - Price - % off 52 wk High

AA $29.10 (40.3%)
AIG $52.05 (28.7%)
AXP $43.61 (33.8%)
BA $78.40 (27.3%)
C $24.45 (56.0%)
CAT $62.81 (27.8%)
DD $42.70 (20.8%)
DIS $28.51 (22.5%)
GE $34.31 (18.6%)
GM $23.52 (45.6%)
HD $26.28 (37.4%)
HON $55.30 (11.2%)
HPQ $43.75 (18.2%)
IBM $103.40 (14.9%)
INTC $19.00 (32.1%)
JNJ $66.29 (3.7%)
JPM $39.59 (25.7%)
KO $60.74 (7.4%)
MCD $52.40 (17.7%)
MMM $74.91 (22.8%)
MO $75.42 (5.2%)
MRK $53.32 (13.5%)
MSFT $33.01 (12.0%)
PFE $22.50 (18.9%)
PG $67.15 (10.7%)
T $36.11 (16.0%)
UTX $68.05 (17.5%)
VZ $39.09 (15.5%)
WMT $47.58 (7.5%)
XOM $85.08 (10.7%)

Avg Dow Stock (21.3%) Not price weighted

Note that if you average the decline of the 30 DOW stocks you find they are, on average, down 21.3% which is why it feels like a bear market to so many.


Saturday, January 19, 2008

Jim Cramer Loses $50K Bet to Eric Bolling: Financial Services was NOT 2007's Hottest Sector

Jim Cramer is both an entertainer and a gentleman for making good on this bet wtih Eric Bolling over his prediction last year that financial services would be the hottest sector for 2007. Bolling, disagreeing with Jim, placed his money on oil and gold.

Well, financial services were hot in 2007. They were so hot they melted down!

The Post is absurd to suggest Cramer is in any way responsible for the subprime meltdown. They would be correct to say Cramer was surprised like the rest of us that great institutions like Citibank and Merrill Lynch were caught with their hands in the cookie jar and were too stupid to sell this toxic paper before the "stuff" hit the fan.

Today's NYPost has a story: " 'MAD' JIM CRAMER LOSES GOLDEN $50K BET


"Should stock jockey Jim Cramer be locked up for aiding and abetting the subprime market meltdown? The host of CNBC's "Mad Money" now owes $50,000 after losing one of the worst wagers of his entire career to rival trading wiz Eric Bolling.

Cramer, who favors the phrase "Boo Ya," made an on-air bet with Bolling about a year ago that financial services would be the hottest sector of 2007. Bolling, a former trader at the New York Mercantile Exchange, placed his money on oil and gold.

Investors who took Cramer's advice would have taken a 30 percent hit to their portfolios as the stocks of financial titans such as Citigroup and Merrill Lynch got hammered by the mortgage crisis. On the other hand, investors savvy enough to follow Bolling's bet on gold and oil would have hit the jackpot, as the hot commodities jumped over 60 percent in the same period.

Cramer, through a spokesman, blamed his loss on Federal Reserve Chairman Ben Bernanke's failure to cut interest rates more aggressively. "The bet turned on Jim Cramer emphatically calling for the Fed to ease rates. The Fed didn't follow Jim's advice, and as a result he'll be happy to write a check to the charity of Eric's choice," a spokesman said.

I am glad to see Jim Cramer made good on his bet like the gentleman he is. The NY Post is... the NY Post.

See Jim Cramers "They know NOTHING" rant video with Erin Burnett here.

.

Monday, January 14, 2008

2008 Options Expiration Calendar

This useful chart is from the "Options Industry Council" published by "The Options Clearing Corporation" or OCC.

Their website says:

"The Options Clearing Corporation (OCC), founded in 1973, is the world's largest equity derivatives clearing organization. We are dedicated to promoting stability and financial integrity in the marketplaces that we serve by focusing on sound risk management principles. By acting as guarantor, we ensure that the obligations of the contracts we clear are fulfilled."

Some more useful information from the OCC is

Subscribe to Kirk's Investment Newsletter today and Get the January 2008 Issue for free!

Friday, January 11, 2008

Saudi Arabian Prince Alwaleed, China and others to invest up to $10 Billion in Citigroup

Late this afternoon the Wall Street Journal reported Saudi Arabian Prince Alwaleed bin Talal, Citigroup's (Charts) largest individual shareholder, will invest in Citibank. How much the price will invest was not disclosed, but he article says the prince wants to keep his stake under 5% to avoid scrrutiny from the SEC.

Others will join the prince investing in Citigroup. In total, the story said investors from China's Development Bank will invest $2 billion in Citigroup along with others to bring the total investment to between $8 and $10 billion.
Last November, Citigroup sold $7.5 billion worth of equity units to The Abu Dhabi Investment Authority.

On a day the DJIA was down 246.79 points to close at 12,606.30, Citigroup was up $0.45 (1.60) to close at $28.56. In after hours trading, Citi gained anouther $0.37 to finish at $28.90.


Disclaimer: I cover Citigroup in "Kirk Lindstrom's Investment Newsletter" where I have very large gains from buying in 1998, taking profits in 2000, buying more shares in 2002, taking profits again in 2003 and now..... I am also long Citigroup in my personal portfolio.

Wednesday, January 09, 2008

Arms Index (TRIN) very Bullish for Contrarians at 1.87

The 10-day moving average (10-dma) of the Arms Index ($TRIN) is giving a very bullish signal for us contrarians as these charts below show.



Richard (Dick) Arms developed the TRIN, or Arms index, as a contrarian indicator to detect overbought and oversold levels in the market. Because of its calculation method, the TRIN has an inverse relationship with the market. Generally, a rising TRIN is bearish and a falling TRIN is bullish. Sometimes you will see the scale of the TRIN inverted to reflect this inverse relationship.

A number of TRIN interpretations have evolved over the years. Richard Arms, the originator, uses the TRIN to detect extreme conditions in the market. He considers the market to be overbought when the 10-day moving average of the TRIN declines below .8 and oversold when it moves above 1.2. Other interpretations seek to use the direction and absolute level of the TRIN to determine bullish and bearish scenarios. In the momentum driven markets, the TRIN can remain oversold or overbought for extended periods of time.
As the charts above show, the 10-day moving average of the TRIN is well above 1.2 and has exceeded the very rare area of 1.5 and higher.
If pressed, I would have to say it looks like we could be making a "bottom" very similar to the one made in 2002/2003. The markets might want to "annoy us" and churn here or even go lower to get the AAII bull/bear survey more negative, but this does not look like the end of the bull market to me at all.
Ding.

Goldman Sachs to Invest $2B In Chinese Partner Fang Fenglei

HONG KONG (Article by Rick Carew ) -- Goldman Sachs Group Inc. (GS) plans to back a new, $2 billion private-equity fund being set up by its China partner, Fang Fenglei, as many of China's top deal makers try their hand at their own funds.

Goldman plans to put around $300 million into the Hopu Fund as a limited partner, people familiar with the situation say.

The birth of a cluster of competitive private-equity firms run by Chinese deal makers marks an important entrance for China on the global financial scene. Those firms, including Mr. Fang's, hope to compete with the likes of Carlyle Group and ...

70% off the Wall Street Journal + 8 Weeks FREE!


Tuesday, January 08, 2008

Byron Wien's 10 Surprises Coming in 2008 include a Recession

I enjoyed watching Louis Rukeyser's show "Wall $treet Week with Louis Rukeyser" when Byron Wein was a guest. He was often wrong as too bearish in the 1990's, but his comments were always interesting and great food for thought. Byron Wein Morgan was Stanley's chief strategist for years until he went to Pequot Capital a little over two years ago. Byron Wein has issued this list annually since 1986.

Here are his 10 Surprises for 2008:

1. In spite of Federal Reserve easing, and other policy measures, the United States economy suffers its first recession since 2001 as housing starts stay soft and banks are reluctant to lend to anyone where a whiff of risk is apparent. Federal funds drop below 3%. The unemployment rate moves definitively above 5% and consumer spending is lackluster.

2. Standard and Poor's 500 earnings decline year-over-year and the index drops another 10 percent. Energy and materials stocks hold up relatively well in what is viewed as a correction rather than a bear market. Market conditions start to improve during the summer.

3. The dollar strengthens in the first half reaching $1.35 against the euro and weakens in the second exceeding $1.50. The European Central Bank begins an accommodative monetary policy. Foreign investors flock in to buy cheap assets in the U.S. early in the year but the dollar declines later as several countries holding large reserves diversify into other assets.

4. Inflation rises above 5 percent on the Consumer Price Index as higher commodity prices and oil finally begin to have an impact in spite of modest wage increases. The 10-year U.S. Treasury yield rises to 5 percent. Stagflation becomes a frequent presidential campaign and Op-Ed discussion topic.
If you want to know what else I have been buying in this period of weakness with my profit taking dollars from selling when the market was higher, Subscribe to Kirk's Investment Newsletter TODAY and get the October 2008 issue FOR FREE!
5. The price of oil goes down early in the year and up later, sinking to $80 a barrel in the first half as western economies slow and inventories are drawn down, and rising to $115 in the second. Established wells continue to decline in production while China, India and the Middle East increase their consumption.

6. Agricultural commodities remain strong. Corn rises to $6 a bushel and cotton to 85 cents a pound. Gold reaches $1,000 an ounce as disillusionment with paper currencies spreads across Asia.

7. The recession in the United States slows the Chinese economy modestly but its stock market declines sharply. Investors recognize that paying biotechnology stock multiples for highly cyclical companies doesn't make sense. The Chinese revalue the renminbi by another 10 percent to control inflation and as a gesture to foreign governments participating in the Olympic Games who complain that Chinese terms of trade are unfair. Several long distance runners refuse to compete in certain Olympic events because of continuing air pollution problems.

8. The new Russian President Dmitry Medvedev, under the tutelage of Vladimir Putin, becomes more assertive in world affairs. He insists that Russian oil and gas be paid for in rubles and demands a Russian seat at major world conferences. Russia and Brazil stock markets lead the BRICs. The Gulf Cooperation Council markets begin to attract interest among emerging market investors.

9. Infrastructure improvement becomes an important election theme for both parties and construction and engineering stocks rally in anticipation of huge programs beginning after the new President's inauguration. Water becomes a critical problem world-wide and desalination stocks soar.


10. Barack Obama becomes the 44th President in a landslide victory over Mitt Romney. With conditions in Iraq improving, the weak economy becomes the determining issue in voters' minds. They want to make sure that gridlock ends and Congress gets something done for a change. The Democrats end up with 60 Senate seats and a clear majority in the House of Representatives.

Wien added that he believes these surprises, which the consensus would assign only a one-in-three chance of happening, have at least a 50 percent probability of occurring at some point during the year.

In previous years, Wien said more than half of the elements of the list have proven correct.

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Saturday, January 05, 2008

ECRI Says Fed Has Room To Cut Rates Despite Fears of Inflation

Friday's jobs report has many worried that the US economy is falling into or has already entered a recession. Rex Nuting of CBS Marketwatch reported:

Last update: 8:30 a.m. EST Jan. 4, 2008
WASHINGTON (MarketWatch) - The unemployment rate shot up to 5% in December as job growth stalled, a sign that the U.S. economic slump has spread to the labor market. U.S. seasonally adjusted nonfarm payrolls rose by 18,000 in December, the weakest job growth since August 2003, according to a survey of thousands of businesses. Job growth was revised up by a total of 10,000 in November and October. Economists were expecting payrolls to increase about 58,000 in December. Private-sector payrolls fell by 13,000, the biggest decline in more than four years. A separate survey of households showed employment plunging by 436,000, marking the biggest decline in five years. The number of unemployed adults rose by 474,000, pushing the unemployment rate up to 5.0% from 4.7%.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index (WLI) inched up to to 135.1 in the week of Dec. 28 from 135.0 in the prior week, revised from 135.2. The plunge in the growth rate of the WLI to -6.2% is the lowest reading since Nov. 16, 2001, when it hit negative 7.1% according to ECRI.

The positive effect of higher industrial commodity prices and lower jobless claims was almost fully offset by weaker housing activity, said Lakshman Achuthan, managing director at ECRI.

"WLI growth is now at its worst reading since the 2001 recession. However, the WLI's recent decline is not based on pervasive weakness among its components, suggesting that a recession could still be averted," Achuthan said.
ECRI's US Future Inflation Gauge (US-FIG), an index designed to anticipate cyclical turning points in inflatinon, also fell in its latest reading. This decline in the US-FIG means the Federal Reserve has plenty of room to cut 50 basis points or even more since inflation pressures are still in a cyclical decline.


Fri, Jan 4 2008, 14:40 GMT
ECRI US Inflation Gauge 117.1 In Dec Vs 119.8 In Nov

NEW YORK (Dow Jones)--An index designed to anticipate cyclical turning points in inflation fell close to a three-year low in December, to 117.1 from 119.8 in November, the Economic Cycle Research Institute said Friday.

The smoothed annualized growth rate of the index also dropped heavily, to -4.6% in December from -0.7% the previous month.

"With the [index] falling to a 31-month low, inflation pressures should not be a serious concern," ECRI Managing Director Lakshman Achuthan noted in a press release.

In this video from Fox Business Network, ECRI managing director, Lakshman Achuthan, spoke with Stuart Varney and Dagen McDowell following Friday's weak jobs report. Topics included the state of the business cycle and prospects for Fed interest rate cuts going forward.



My take on the data is we can still avoid an "official recession" as defined as two consecutive quarters of negative GDP growth if the Fed acts quickly to cut rates, probably 50 basis points or more by the next meeting, and continue to cut rates until either ECRI's WLI turns up and continues up for many weeks OR the US-FIG makes an about face and enters a period of cyclical inflation.

Come ask questions of ECRI Managing Director Lakshman Achuthan in our Investing for the long term facebook discussion forum called "ECRI Data (Economic Cycle Research Institute)"

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Wednesday, January 02, 2008

US Dollar Gives Clues About Future Market Direction

Market lemming herders don't want you to know this, but everything may not be as it seems.
Am I the only one who gets really suspicious after the market is down 250 points in a day and it seems the loudest talking heads on TV "know" why it is and have ideas for "more of the same" on how to profit from it? When a good contrarian says something, it doesn't get the same attention. Maybe those with inventory to sell pay more for commercials?

Today's decline to start the new year was one of those days that makes me think the lemming herders were hard at work.

Market data for January 2, 2008:

Symbol Last Change
DJIA 13,043.96 -220.86
NASDAQ 2,609.63 -42.65
S&P500 1,447.16 -21.20

What if... Citigroup surprises everyone by NOT cutting the dividend, not writing off the worst case $18 Billion many analysts expect and not firing 10% of their staff when they announce earnings on January 15th?

What if... Oil, now that someone seemed to artificially print a trade at $100 just to do it, drops twenty, thirty or even fifty dollars in the next few months? After all, if the US dollar bottomed and starts to recover, then that should help bring down oil prices. The lemming herders are probably trying to get the last few off the cliff before they switch direction.

What if... we avoid a full blown recession as many analysists such as ECRI have been telling us is the most likely scenario?

What if....... the dollar really bottomed in November 2007?
I heard BofA downgraded Intel from Buy to Hold with a target of $26. Intel ended 2007 at $26.66 and finished the first day of trading at 25.35, 65¢ below BofA’s target. It went from 66¢ above to 65¢ below the target. That is almost as funny as the big financial companies downgrading each other AFTER they lost 20, 30 or 50% on the subprime meltdown. If they did not have a clue about their own business, then how do they expect us to believe they have a clue analyzing something complex like semiconductors and semiconductor capital equipment?

Everyone last year seemed to love Amazon.com, Google, RIMM, Apple, HPQ and many other users of chips yet the chip companies in the SOX did poorly. These companies do not have products to sell without chips (or fiber optics to make the networks run fast).

I am not one to try and time the markets with more than a few percent of my portfolio but if any of my “what ifs” come true, it could be fun to be long.

How do you spell "Massive Short Covering Rally?"

Tuesday, January 01, 2008

2008 Dogs of the DOW

The "Dogs of the DOW" are the ten highest yielding stocks in the Dow Jones Industrial Average at the end of the year.

The Dogs of the DOW for 2008 are:

Symbol Company Price Yield
C Citigroup 29.44 7.34%
PFE Pfizer 22.73 5.63%
GM General Motors 24.89 4.02%
MO Altria 75.58 3.97%
VZ Verizon 43.69 3.94%
T AT&T 41.56 3.85%
DD DuPont 44.09 3.72%
JPM JP Morgan Chase 43.65 3.48%
GE General Electric 37.07 3.35%
HD Home Depot 26.94 3.34%
Prices and yields shown are the 12/31/07 close.

See:
2009 Dogs of the DOW

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