Elaine Garzarelli Gives Market Targets On Kudlow Report

Yesterday Elaine Garzarelli gave her market outlook on Larry Kudlow's program, "The Kudlow Report." This article summarizes her key points, shows the whole video interview then lists what it would take to turn her bearish.

Elaine Garzarelli's Key points:

• Household formation data through 2015 will be very strong due to demographics. This same thing happened in 1983, the beginning of the last great bull market.
• She is buying Retailers. She would play Walmart because it has lagged the whole market.
• Elaine likes the industrials because the whole sector has lagged.
• She also likes financials and technology. Both require a gain of over 200% to get back to where they were.

On what would turn her negative, she said she would short the market if FASB imposed new "mark-to-market" rules on the financials. She says that was the reason "everything happened to begin with."

Developed countries like Europe are "the next to go" since they lag the US markets in the recovery.

On Bonds, Elaine thinks we will have low inflation for a long time. Capacity utilization rate is 68%. The Fed doesn't normally tighten until it gets to 80% and they don't usually tighten until a year after a recession ends.

She thinks we could get a correction of 10 to 15% if/when short-term rates get up near the S&P500 dividend yield of 2.5%.

She thinks the S&P500 can go much higher

• Has 2010 S&P500 earnings of $73
  
• said apply a 17.5 multiple for her target
  

$73 x 17.5 = 1,278
S&P500 Charts

Best earnings will come from consumer discretionary and materials. She likes materials, aluminum, paper, infrastructure (industrial) for the next six to twelve months.

Garzarelli interview starts at 2:30 on the video.
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Airtime: Thurs. Aug. 13 2009 | 4:48 PM ET

Biggest risks to the market are if:

• BAA bond yield goes up and interest rate spreads widen
  or
  
• the Fed raises rates close to the S&P500 dividend yield

Elaine thinks a sideways or 4 to 7% correction at any time but nothing more.

Current Market Statistics:

Dow	9,296.24
S&P 500	1,001.35
Nasdaq	1,981.67

Past Reports:

• February 17, 2009:
  Elaine Garzarelli Bearish on NBR; 750 to 950 Trading Range

• October 19, 2007:
  Elaine Garzarelli is Bullish: Indicators on a Strong Buy Signal

click chart courtesy of stockcharts.com for full size image

Post and Read Comments

Quality Real Estate Holds Up In Sub Prime Meltdown

I am impressed at how negative “the boyz” have everyone from Jim Cramer and Larry Kudlow to Republican politicians fearing for their jobs. They are panicking as the stock markets are correcting for excessive risk taking when they ask the Federal Reserve to bail the risk takers out before the Fed is sure inflation is going down for good (See Chart of ECRI's WLI Growth Rate vs US GDP: 09/09/07 that shows the Fed can now cut rates.)

It is sad to see some will lose their homes when their mortgages reset at market rates they can't afford, but what made them think they could live in a house with a monthly mortgage far cheaper than the house cost to rent?

I have little sympathy for those seeking returns in excess of safe CDs and US Treasuries who are being crushed when their sub prime paper they bought with all sorts of fancy names is worth less than they paid. Sure it was nice to get 8 or 11% yields for awhile, but only a fool would think you get that sort of yield without high risk. (See Best CD Rates.)

In the major cities benefiting from global trade where there are good jobs and homes are too expensive to buy for speculation, real estate is going up! I do not think anyone is talking about this on TV.

Los Altos, California Real Estate Prices 2000-2007

Click image to see it full sized.

Los Altos, CA, just down the street from Google with its young millionaires looking for homes to raise families in a city with great schools, is doing great despite sky high prices.

Towns across the SF Bay or in South San Jose where renters were converted to homeowners to buy inflated houses due to the low cost of money are not doing well. This should serve as a reminder to anyone “speculating” on a home that buying a house in a poor location just because it is going up is risky.