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Post by Conrad Alvin Lim on Oct 22, 2006 19:33:07 GMT -4
ECONOMIC PREVIEW GDP dipped to 2% in quarter, economists say By Rex Nutting, MarketWatch Last Update: 7:18 PM ET Oct 20, 2006
WASHINGTON (MarketWatch) -- The U.S. economy slowed further in the third quarter, dragged down by falling investment in homes and lower output of autos, economists said.
The Commerce Department will provide its first estimate of gross domestic product in the June to September quarter on Friday at 8:30 a.m. Eastern. It'll be the highlight of the economic calendar during a week that also features a monetary-policy meeting at the Federal Reserve.
Economists said that real growth probably came in at an annualized rate of just 2% after the 2.6% rise in the second quarter, marking the weakest back-to-back quarters in more than three years.
Just a few weeks ago, economists were looking for a growth rate in the third quarter closer to 2.5%, and a month before that were predicting a number closer to 3%.
The economy had been growing at pretty steady pace of around 3.6% before the higher interest rates began to bite. The economy grew at a 5.6% pace in the first quarter as it bounced back from the hurricanes.
The slowdown in the past two quarters can be laid directly at the Federal Reserve's feet. The two most interest-sensitive sectors of the economy are in retreat after two years of steadily tighter monetary policy. The economy is finally doing what the Fed wants: growing slower than the long-term trend of about 3%.
Slower growth is essential to the Fed's goal of putting inflation back into the bottle. If the unemployment rate drifts slightly higher over the next few quarters while consumer-price inflation drifts lower, the Fed will be mighty pleased.
The Federal Open Market Committee meets Tuesday and Wednesday, with no change in policy the most likely outcome. The committee remains worried about core inflationary pressures, despite the big drop in the consumer-price index last month.
Officially, the committee isn't concerned that the economy will slow too much, but financial markets are banking on a cut or two in interest rates over the next year to keep growth from faltering.
Housing is a minus Residential investment probably fell at a 20% annual rate in the quarter, shaving 1.2 percentage points from growth, said Ed McKelvey, an economist for Goldman Sachs. That would be the biggest hit from housing in 25 years.
"The pullback in auto production and the ongoing downdraft in residential construction, which together comprise just 9% of real GDP, probably subtracted about 1.5 percentage points from growth," said Brian Jones, an economist for Citigroup Global Markets.
Housing has been a modest drag on growth for three quarters now, and history indicates that once housing falters, it generally takes between two and four years before it recovers enough to add to growth. Jones expects home builders to work off their inventories relatively quickly and that the drag from housing will fade by the first half of 2007.
Although the wreckage of the housing sector and the pain of Detroit will be apparent in the GDP report, other sectors of the economy were holding up well in the third quarter.
Consumer affairs "Consumer spending continues to defy gloom and doom forecasts," said economists at Credit Suisse, who expect consumer spending to rise at a healthy 3.5% annual rate.
"The consumer has remained resilient of late largely due to the decline in energy prices, the stock market rally and the solid labor market," said John Shinn, an economist for Lehman Brothers.
The strength of the consumer is the main reason why economists are expecting a pick up in growth to about 2.7% in the current quarter. Business investment probably grew about 8%, according to Citigroup's Jones.
Durables strengthen After two months of declines, orders for new durable goods probably surged in September by 2.5%, economists said.
Aircraft orders led the way, as Boeing Co. (BA : 81.74, -0.67, -0.8% ) booked 175 orders in September after just 30 in August, said Jay Feldman, an economist for Credit Suisse, who is looking for a 5.5% rise in durables orders. Excluding transportation, Feldman expects a 2% gain as high-technology orders bounce back.
Home fires The pending home-sales index rose in August, while mortgage applications flattened out as rates fell.
"Although home sales are likely to soften, the declines will probably not be pronounced, as some of the indicators tied to the housing market have shown signs of stability recently," said Michael Moran, chief economist for Daiwa Securities America.
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Post by Conrad Alvin Lim on Nov 12, 2006 19:21:11 GMT -4
MARKET SNAPSHOT Stocks expected to rise as economy returns to fore Inflation, housing data on tap; earnings reports due from Wal-Mart, H-P[/b][/size][/color] By Carla Mozee, MarketWatch Last Update: 7:00 PM ET Nov 10, 2006
SAN FRANCISCO (MarketWatch) -- U.S. stocks are expected to rise next week as investors, relieved that the midterm elections are out of the way, review the last set of major third quarter earnings as well as economic data that most market strategists think will be favorable.
Driving the earnings results will be quarterly reports from Dell Inc. (DELL : 24.89, -0.09, -0.4% ) and Hewlett-Packard Co. (HPQ : 39.99, +0.43, +1.1% ) , which investors hope will continue the trend of strong earnings from technology companies this quarter. Read H-P earnings preview.
Earnings are also due from Home Depot Inc. (HD : 36.64, -0.21, -0.6% ) , Tyson Foods Inc. (TSN : 14.35, -0.01, -0.1% ) , Tyco International Ltd. (TYC : 29.64, +0.29, +1.0% ) , and Starbucks Corp. (SBUX : 37.79, +0.87, +2.4% ) .
Starbucks Corp. (SBUX : 37.79, +0.87, +2.4% ) is expected to report a higher fiscal fourth-quarter profit on Thursday. Investors will be looking to see if a price increase on coffee drinks and a new hot breakfast menu will boost results ahead of the holiday season.
As list of earnings reports grows shorter each week, the market will switch its attention back to the economy. Among the bigger releases are the Labor Department's reports on producer and consumer prices, which will come on Tuesday and Thursday. Both reports are expected to show cooling inflation.
Reports on housing starts and industrial production will also be closely watched by investors.
Since the Federal Reserve's last meeting on Oct. 24, most economic data has been weak, said Matthew Smith, vice president and portfolio manager at Smith Affliated Capital. That has led to hopes that the Fed will remain on hold or even go into a rate-cutting mode.
"I think that all continues to play going forward, which should be a win for the equity market," said Smith.
In the past two weeks, the major indexes found little comfort in that rate-cut scenario. Smith said he sees a difference in terms of momentum between past sessions and the coming week.
"There was a combination of the huge run in stocks, and we were going into an election; people were trying to take gains off the table."
Jim Paulsen, chief investment officer at Wells Capital Management, expects the economic reports to be to the market's liking; and if that's the case, he sees the S&P 500 Index ($SPX : 1,380.90, +2.57, +0.2% ) reaching another round-number mark.
"That 1,400 [level] is staring the S&P in the face. We're within a good day's trade of challenging it and I think we might do that next week."
The October producer price index is expected to decline by 0.4%, according to economists polled by MarketWatch, after a 1.3% decline in September.
Excluding volatile food and energy prices, the PPI is seen increasing 0.1% vs. a 0.6% increase the month earlier.
Economists expect October's consumer price index to decline 0.2% compared with a decrease of 0.5% in September. Stripping out food and energy prices, the CPI is expected to rise 0.2%, the same pace as seen in September.
The retail sales figures will be the highlight of next week's action for Brian Gendreau, investment strategist at ING Investment Management.
The report is expected on Tuesday and economists are looking for a decline of 0.3%, compared with a 0.4% decline in October. Excluding auto sales, the index expected to fall 0.2% versus an earlier decline of 0.5%.
"Everybody knows that the housing market is softening...the big question is what spillover that will have on consumer spending," he said. "Are people going to go out and still spend if they don't feel as wealthy as they did before and if they feel that their home equity is declining?"
Gendreau believes that retail sales will hold up fairly well for the next few quarters, but if the figures for October are weaker than expected "we could get a very big market reaction."
Smith said if the weakening in the housing market continues, investors should begin seeing the industries that benefited while housing was booming start to erode.
Wal-Mart Stores Inc. (WMT : 46.47, +0.08, +0.2% ) , which said earlier this month it expects November same-store sales to be flat, is scheduled to release its quarterly results on Tuesday. The retailing giant is expected to post a 4% rise in earnings to 60 cents a share on an 11% increase in sales.
The housing starts report for October, due next Friday, is expected to show starts fell to 1.69 million from 1.77 million in September.
This past Friday, a real estate industry group said the housing market correction has further to run, with new-home construction expected to fall another 12% next year.
Weekly market roundup Stocks closed higher on Friday after strong financial results from American International Group (AIG : 69.63, +1.59, +2.3% ) and lower crude oil prices offset disappointment with Walt Disney's (DIS : 32.40, -1.18, -3.5% ) latest earnings report.
For the week, the Dow Jones Industrial Average ($INDU : 12,108.43, +5.13, +0.0% ) rose 1%, the Nasdaq Composite ($COMPQ : 2,389.72, +13.71, +0.6% ) gained 2.5% and the S&P 500 rose 1.2%.
The gains this week included a rise in stocks on Wednesday. The market, which typically frowns on surprises it deems unfavorable, held steady the day after the election considering that the Democrats exceeded expectations by capturing both the House and the Senate from the GOP.
Smith said if there is a short-term downside facing equities, it's the potential drawback in sectors that have been doing well recently, namely healthcare, energy and utilities, because those are areas of relative safety in a slowing economy and where future growth has been predicated on the Republicans running Congress.
He said one strategy is to look within those headline sectors and search for small-to-mid-cap companies not included in the Dow, as opposed to larger multinationals.
"The Dow is heavily industrial laden with heavy energy, healthcare, and utility exposure...so you're getting all these things that tend to really blow up under a Democratic regime...you have to peel back [those sectors]...and look at companies that fly below the radar."
In other market action, Treasurys closed higher Friday, putting pressure on yields. The 10-year Treasury note closed with a yield ($TNX : 45.86, -0.47, -1.0% ) of 4.581%, its weakest yield in about a week and down from 4.632% on Thursday.
The U.S. dollar on Friday hit an almost three-month low versus the euro on concerns that China, the world's largest holder of foreign-exchange reserves, will begin to diversify away from the U.S. currency.
Crude-oil futures fell 2.6% Friday after the International Energy Agency trimmed its 2006 global oil-demand growth forecast. They closed up less than 1% for the week.
Gold prices closed with a loss of nearly $7 an ounce, but prices still posted a minor gain for the week as traders mulled the metal's prospects in the wake of China's plans to diversify its currency reserves. "I think Wal-Mart is one indication [of that] with slowing sales."
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Post by Conrad Alvin Lim on Nov 12, 2006 19:28:35 GMT -4
ECONOMIC PREVIEW Negative numbers popping up in the data By Rex Nutting, MarketWatch Last Update: 7:00 AM ET Nov 12, 2006
WASHINGTON (MarketWatch) - If the U.S. economy is so strong, what are all those negative signs doing in front of the economic statistics?
In the coming week, it's likely we'll see falling retail sales, falling prices and falling housing starts. The bright points, such as they are, will probably be a couple of marginally positive reports on the factory sector.
On the face of it, the upcoming numbers would point to some serious slowing in the economy.
But all that negativity is a bit misleading; it's mostly due to falling gasoline prices, not a weaker economy. The only sector of the economy that's truly in free fall is the housing sector. So far.
Consumer prices The biggest news of the week will come on Thursday, when the government reports on the consumer price index for October. Economists surveyed by MarketWatch are expecting a second straight decline in consumer prices, the result of lower energy prices. The decline in October is expected to be 0.3% after a 0.5% drop in September.
"Like September, October's headline inflation readings will largely reflect the sharp decline in energy prices," said Mickey Levy, chief economist for Bank of America, in a weekly note to clients.
Retail gas prices dropped to $2.29 a gallon in October from $2.61 in September, enough to push energy prices down about 6%, wrote Citigroup economist Brian Jones in his research note.
However, core inflation, which excludes food and energy prices, likely continued to rise at a troubling pace in October. Markets could be spooked if core inflation rises 0.3% in October, rather than the fourth straight 0.2% gain that's expected.
Any move higher in core inflation could put pressure on the Federal Reserve to raise interest rates again. Right now, most analysts expect the Fed's next move to be a cut in interest rates sometime next year. That expectation about the Fed has been the biggest reason for the recent rally in bonds.
"We do not expect anything in the report that would agitate the circling hawks at the Federal Reserve, so it may be slightly positive for bond prices," wrote Brian Bethune, an economist for Global Insight, who expects a 0.2% reading on the core CPI.
If the CPI does fall 0.3%, the year-over-year increase would drop down to 1.5% from 2.1% in September and 4.3% as recently as June. If the core CPI rises 0.2% as expected, the year-over-year increase would stay at a cyclical high of 2.9%, well above the range the Fed wants.
The Fed and most economists expect core inflation to cool as the economy does, but it'll take time for the improvement to show up in the inflation data. "October might be too soon to expect a turn to softer core price momentum," wrote Avery Shenfeld, an economist for CIBC World Markets. "At this point, the bond market needs an occasional 0.1% core month" to keep the rally going.
Housing starts Some thought they saw signs of stability in some of September's housing data, especially in the 5.8% rise in housing starts following a 19% decline in the previous 12 months. The good news is not expected to last; starts are projected to fall another 4.5% to a seasonally adjusted annual rate of 1.69 million in October. The figures will be reported on Friday.
"The ground floor for housing is still many months away," wrote Stu Hoffman, chief economist for PNC.
After an expected 11% drop this year, the National Association of Realtors expects starts to fall another 12% next year to about 1.63 million for the year. See full story. Others think the decline will be even worse.
David Greenlaw, an economist for Morgan Stanley, thinks the overhang in inventories of unsold new homes could force builders to cut back even more, pushing starts down to a sustainable 1.50 million pace by the middle of next year. That would be the slowest pace of building since 2000.
Falling gasoline prices will make the retail sales figures look worse than they really are, because sales are recorded in nominal dollars, not inflation-adjusted ones. Economists reckon sales dropped 0.3% in October after a 0.4% decline in September. It would be the third decline in the past five months. The figures will be reported Tuesday.
Chain-store sales were tepid in October. The automakers reported a 2.8% decline in unit sales in October, which should translate into a 1% drop in the dollar-value of sales in the government report, said Drew Matus, an economist for Lehman Bros., in his weekly forecast.
The dip in retail sales has mostly been a story of cars and gas so far, but the other stores didn't set the world on fire in October, either. Sales excluding both autos and gasoline probably rose about 0.2% in October, according to the forecast of Credit Suisse economists.
Although there's been a lot of speculation that the weakening housing market would begin to crimp consumer spending, "relatively few impacts have been seen in the hard data," Matus wrote.
But Jan Hatzius, chief economist for Goldman Sachs, sharply disputed a benign forecast for consumer spending. Given the huge boost from falling gasoline prices, consumer spending should be doing a whole lot better than just holding up, he wrote in his weekly viewpoint.
"If it doesn't strengthen significantly from here, I think that would be quite meaningful," he said.
Real consumer spending (that is, adjusted for inflation) is on track for a 3.8% annualized growth rate in the fourth quarter, Matus said, up from 3.1% in the third quarter.
Industrial production Output of the nation's mines, factories and utilities probably bounced back in October from September's 0.6% decline. Economists are expecting industrial production to rise 0.2%. The figures will be reported on Thursday.
With auto assemblies in retreat, manufacturing output probably fell 0.3% in October, the second straight decline, Citigroup's Jones predicted.
Going forward, economists are sharply divided about manufacturing. On one side are those, like Jones, who believe output will stabilize as business investment spending remains strong.
On the other hand, "the story that the manufacturing downturn is confined to autos is badly wrong, in my view," Hatzius wrote. Inventories outside the auto sector have been building up at the fastest pace in six years.
"This indicates a significant inventory problem, which will likely push the [Institute for Supply Management index] down further to the mid-40s over the next three to six months," Hatzius said.
The ISM fell to 51.2% in October, the lowest since June 2003. The Federal Reserve always cuts interest rates when the ISM moves and stays below 50%, which is the dividing line between growth and contraction in the factory sector.
Manufacturing surveys Two early clues about the November ISM will come from the Fed banks in New York and Philadelphia. The Empire State index is expected to slip to 15.4 from 22.9, while the Philly Fed is expected to break back above zero to a still-weak 5.7 from a negative 0.7 in October. In both indexes, readings over zero indicate expansion in the factory sector in those regions.
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Post by Conrad Alvin Lim on Nov 16, 2006 23:27:58 GMT -4
PETER BRIMELOW Another record close Commentary: Finish gives veteran worriers reason to do more of the same By Peter Brimelow, MarketWatch Last Update: 12:01 AM ET Nov 16, 2006
NEW YORK (MarketWatch) -- Well, the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average recommended stock market exposure among a subset of short-term stock market timing newsletters tracked by the Hulbert Financial Digest., stood at 61% on Wednesday night.
That's only slightly below the level, 67%, it had reached two weeks ago, when Mark Hulbert concluded that it was giving a contrary opinion sell signal.
HNSI was then at its highest level for almost five years. The Dow Jones Industrial Average ($INDU : 12,305.82, +54.11, +0.4% ) closed at 12,050.23, 200 hundred points below Wednesday night's close.
From a contrary opinion point of view, it's a relief that sentiment has subsequently subsided, slightly. But the timers' exposure is dizzily far above the average reading, 10%, for the HSNSI since the bull market began in 2002.
Dow Theory Letters' veteran Richard Russell is still worried. He is not yet prepared to give the sort of buy signal he gave at the bottom of the bear market in 1974. He wrote Wednesday night: "Volatility in bonds, stocks, precious metals, most items extremely low. The market "weather" is calm beyond calm nobody is thinking about, or prepared for big action. Like the ocean here in La Jolla a few day ago no waves, surf calm and appearing like a sheet of glass. Surfers hate it, so do the traders."
In a typical Russell paradox, he is now worrying that the Dow Jones Transportation Average's slow close on its own record high "might be comparable to a situation back in the '30s when the Transports, far from confirming the Industrials, slowly crept up towards a confirmation. Robert Rhea, the great Dow Theorist, wrote that if or when 'the Transports finally confirm,' that might, ironically, be the end of the upward move. And I've wondered, could this be a similar case today?"
So a confirmation might actually mean ... a non-confirmation? Hmm!
But hold it, Russellphobic readers. Remember that his market timing record is one of the strongest recorded by the Hulbert Financial Digest since it started monitoring him in 1980. And right now, Russell is still out of the market.
But another veteran bear is much more accommodating. Investor's Intelligence's Michael Burke has long argued that the market's post-2002 strength is a bear market rally, and that stocks are in a sideways shuffle comparable to 1966-1982. But that's hard to tell from his current recommended exposure. Burke is 80% invested in equities.
Burke is worried about possible short-term weakness: "That is normal after the recent strong rally." But he adds: "The primary trend remains positive and we expect any pull backs will result in better buying opportunities."
And Chartist's veteran worrier Dan Sullivan is still bullish. Currently, he's 95% invested. He's still worrying, of course. He wrote recently: "Stocks are overbought at this juncture, with many of the key indices overrunning the upper boundaries of bullish channels, which have been in effect for several weeks. While this overbought condition needs to be worked off, it remains a healthy bull market, which in our opinion has further to run."
Sullivan is worrying less because, he notes, "From a historical standpoint the best time to be invested in the market is between Nov. 1 and April 30."
Among his recent purchases: Research In Motion Ltd. (RIMM : 134.19, +5.77, +4.5% ) , Sears Holdings Corp., (SHLD : 169.26, -9.89, -5.5% ) and Comcast Corp. (CMCSA : 40.37, +0.10, +0.2% )
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Post by Conrad Alvin Lim on Nov 20, 2006 4:27:34 GMT -4
MARKET SNAPSHOT Stocks to be range-bound as holiday approaches By Carla Mozee, MarketWatch Last Update: 2:10 PM ET Nov 18, 2006
SAN FRANCISCO (MarketWatch) -- U.S. stocks are likely to be traded in a narrow range next week with few economic reports to dictate direction as market professionals and investors wind down for the Thanksgiving holiday.
Trading volume is expected to thin leading up to Thursday, when financial markets will be closed. Equity trading will finish early on Friday and the bond market will close early on Wednesday and Friday.
Edgar Peters, chief investment officer at Pan Agora, said stock movement in thinly traded markets may be exaggerated in either direction if something "completely unexpected" arises. But at this point Peters doesn't see anything significant enough to cause major fluctuations.
On Monday, the Conference Board releases leading economic indicators for October. The index is expected to edge up to 0.2% from 0.1%, according to a poll of economists conducted by MarketWatch.
The final revision of the University of Michigan's consumer confidence survey for November is due on Wednesday. Economists expect that it will move up slightly, to 92.8 from 92.3. The survey gauges consumer sentiment on current economic conditions and their expectations for the future.
There are few earnings reports on the schedule, but investors will zero in on results from Lowe's Cos. (LOW : 30.48, -0.23, -0.7% ) , Nordstrom Inc. (JWN : 48.08, +0.16, +0.3% ) , Medtronic Inc. (MDT : 48.71, -0.10, -0.2% ) , and Borders Group Inc. (BGP : 23.22, -0.76, -3.2% ) .
Ted Parrish, co-portfolio manager at Henssler Equity Fund, said if the earnings are positive, "chances are [good] that we'll finish higher," next week.
The jump into the holiday shopping season will begin on "Black Friday," the day after Thanksgiving when consumers traditionally pack the stores to look for price bargains.
Peters said market players will be keen to see how retail sales perform that day, as a yardstick for measuring demand through the full holiday season. He also said the recent drop in oil prices, including this week's 6% fall in the benchmark crude contract, is positive.
"It's a boon for consumers," freeing up funds for other items.
Paul Mendelsohn, chief investment strategist at Windham Financial Services, said this week's tamer-than-expected inflation data was another support for equities, which finished higher for the week. The data has eased concerns that the Federal Reserve will hike rates again, and raised hopes it may even begin to cut them early next year.
The Fed has been on hold since June, after raising its key rate to 5.25% with 17 hikes.
Mendelsohn said the optimistic view has kept investors in buying mode. The central bank, in notes released Wednesday from its most recent policy meeting, was less concerned about the slowing economy than it was with inflationary pressure building.
A number of Federal Reserve officials delivered speeches this week emphasizing that policymakers need to be vigilant on inflation.
Mendelsohn said the Thanksgiving break may give market players time to assess the run-up in stocks.
"The market is incredibly overbought. In addition, bullish sentiment has really skyrocketed which would be another warning signal. I'm participating in this rally, but...my antenna is up," he said.
Dow hits a new record; stocks finish higher for the week The major indexes closed mixed Friday but they recovered from their lowest levels of the session as investors shrugged off a government report that October housing starts tumbled nearly 15% to a six-year low.
The Dow Jones Industrial Average ($INDU : 12,342.56, +36.74, +0.3% ) rose 37 points to 12,342.56, its new record closing level and its sixth consecutive close higher. The S&P 500 Index ($SPX : 1,401.20, +1.44, +0.1% ) picked up 1 point to 1,401.20, while the Nasdaq Composite Index ($COMPQ : 2,445.86, -3.20, -0.1% ) lost 3.2 points to 2,445.86.
For the week, the Dow rose 1.9%, the S&P 500 gained 1.5%, and the Nasdaq Composite climbed 2.3%.
Treasury prices closed with strong gains Friday. The 10-year benchmark Treasury note closed with a yield ($TNX : 46.07, -0.48, -1.0% ) of 4.600%, down from 4.653% in late trade on Thursday.
Crude-oil futures' benchmark contract closed Friday at its lowest level in 17 months as concerns over global energy production continued to ease and volatility associated with the expiration of the front-month contract increased.
The U.S. dollar fell against other major currencies Friday. For the week, the dollar gained about 0.2% against the euro and 0.1% versus the Japanese yen.
Gold futures closed higher Friday for the first time in six sessions, but posted a loss of 2.4% for the week.
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Post by Conrad Alvin Lim on Nov 21, 2006 7:39:16 GMT -4
MARK HULBERT It was nice while it lasted Commentary: For contrarians, the handwriting is on the wall By Mark Hulbert, MarketWatch Last Update: 12:01 AM ET Nov 21, 2006
ANNANDALE, Va. (MarketWatch) -- If contrarian analysis has it right, then Monday's modest decline is only the beginning of something much bigger.
That's because the editor of the average short-term market timing newsletter tracked by the Hulbert Financial Digest has become even more bullish than he was at the end of October, at which point he already had become more exuberant than he had been in nearly five years.
To be sure, the stock market was able to postpone the serious decline that contrarians then anticipated. That's because, as the market began to decline, newsletter editors beat an unexpectedly hasty retreat. As I wrote at the time, this gave the rally another lease on life.
Unfortunately, however, that lease appears now to be up.
Consider the latest readings of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average recommended stock market exposure among a subset of short-term market timers tracked by the Hulbert Financial Digest. As of Monday night, the HSNSI stood at 67.8%.
This is higher than the 67% level to which the HSNSI already had risen in late October, which, as I pointed out at the time, was the highest level for this sentiment measure since Jan. 7, 2002.
In fact, the HSNSI's current reading is less than 12 percentage points below the index's all-time high. Ominously, that all-time high came in February 2001, early in the 2000-2002 bear market.
As contrarians often say, bull markets like to climb a wall of worry. And, true to form, the average HSNSI level since October 2002, when this bull market began, has been 29.9%. But, with the current HSNSI more than double that average, there's not much of a wall of worry left for the market to climb.
When interpreting the current high HSNSI reading, bear in mind that sentiment is not the only thing that makes the markets go around, and a high reading doesn't guarantee that the market will decline.
And even if the market does decline, it need not start doing so immediately. My econometric research suggests that sentiment has its best forecasting record when predicting the market's direction over the subsequent three months. So even if the market were lower in late February than it is today, it could still go higher over the short-term before ultimately reaching that lower level.
Finally, don't forget that we're entering a period of positive seasonal tendencies. So a sentiment level that could sabotage the market at another time of year might not have as much an effect now.
Still, it can't be a good sign for the market that so many newsletter editors believe that it will continue to go up.
The bottom line is neatly summarized by Michael Burke, editor of Investors Intelligence. Based on his reading of newsletter sentiment, he recently concluded: "The sentiment readings are now bearish. Although they don't signal an imminent decline, the increased optimism say's it's a good idea to start planning an exit strategy. We are in the seasonally strong six-month and three-month periods of the year and there is no reason why stocks can't go higher for a while, but the handwriting is on the wall."
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Post by Conrad Alvin Lim on Dec 11, 2006 22:41:01 GMT -4
THE FED Will Fed acknowledge 'straws in wind' of slowdown? By Greg Robb, MarketWatch Last Update: 3:17 PM ET Dec 11, 2006
WASHINGTON (MarketWatch) -- It will be as quiet as the night before Christmas at the Federal Open Market Committee meeting, with thoughts about a change in policy tucked away until next year, economists said Monday.
The FOMC is not likely to change the target for the federal funds rate and the wording of the statement should be similar to the previous statement in October.
The Fed's statement includes a tightening bias, showing policy-makers' continued worries about inflation. Read text of Fed's Oct. 25 statement. "The FOMC meeting on Dec. 12 is likely to be uneventful," said Michael Moran, chief economist at Daiwa Securities America Inc.
Speeches since the last Fed meeting show Fed officials more comfortable in their decision to pause its hiking campaign, according to Steve Stanley, chief economist at RBS Greenwich Capital.
"The Fed is firmly entrenched at a 5.25% funds rate target, and the odds of a move in either direction anytime soon are extremely low," he wrote in a research note.
The Fed has kept its target funds rate steady since late June. In a speech last month, Fed Chairman Ben Bernanke suggested that the central bank hadn't been surprised by any of the economic developments since the summer.
Bernanke argued that "the economy will be fine, the housing spillover will be limited and that inflation is still a concern," Stanley said, with no signal of any change in Fed thinking.
Over the past six months, Bernanke and other Fed officials have stuck with the forecast that the economy was likely to moderate to a slow but steady growth rate, and that this slowdown was likely to reduce inflationary pressures. At the same time, the Fed has stressed that until there is evidence of lower inflation, it remains the key risk to the outlook.
Steve Ricchiuto, chief economist at ABN-Amro, said that the continued inflation bias is justified by underlying core PCE consumer inflation remaining above the Fed's comfort zone of 1% to 2% and the tight labor market.
One minor subplot will be whether Richmond Fed President Jeffrey Lacker dissents for the fourth-straight meeting in favor of higher rates to curb inflation. Many economists who believe that the key risk ahead is a slowdown are questioning Lacker's position.
Lacker's dissents "are looking increasingly ridiculous," said Tim McGee, chief economist at U.S. Trust Corp.
Economists said that the Fed's sanguine view was bolstered by the November unemployment report released last Friday, which showed 132,000 payroll jobs were created.
The November jobs report "was a picture-perfect number for them to hold the funds rate steady and still come out and say they are concerned about inflation," said Stuart Hoffman, chief economist at PNC Financial.
Ed McKelvey, economist at Goldman Sachs, said that a case could be made for a substantive change in the statement -- to take account the various "straws in the wind" suggesting that a deterioration in the outlook for economic growth next year, but added that the Fed was unlikely to mention them.
A change in the wording was unlikely, according to McKelvey "Without much labor-market damage staring it in the face, we doubt the FOMC will do much more than tinker at the margins in the statement that follows Tuesday's meeting."
Economists said that any softening of the statement would only fuel expectations of easier monetary policy early next year. "If they were to do anything else, they would be throwing gasoline on a fire since the market is already so far ahead of them," agreed McGee of U.S. Trust.
The financial market is pricing in a Fed easing by June, and this fits with the general consensus of Wall Street economists.
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Post by Conrad Alvin Lim on Dec 14, 2006 7:17:46 GMT -4
PETER BRIMELOW Testing the new year's metal Commentary: Letter sees growing demand for gold, silver, uranium - and oil By Peter Brimelow, MarketWatch Last Update: 12:02 AM ET Dec 14, 2006
NEW YORK (MarketWatch) -- In the new year, oil and gold will still rule, according a top-performing newsletter.
Justin Litle's Outstanding Investments is the fifth-best performing letter over the past 12 months, according to the Hulbert Financial Digest, up 37.2% vs. the dividend-reinvested Dow Jones Wilshire 5000's 16.54%.
Over five years, Outstanding Investments is up a remarkable 36.88% annualized, vs. 8.86% for the total return DJ Wilshire.
Unquestionably, this is because, for whatever reason, Outstanding Investments has been in synch with a major market move: the rebirth of oil and gold. But you can't argue with Hulbert numbers: It's really worked.
Editor Litle is aware of this, but he's carrying on anyway. As he wrote Wednesday night: "Every New Year's Eve in recent memory, I've thought to myself: "It can't get any crazier than this. How can the new year possibly top the last?" Yet for five years running at least, the new year HAS topped the last, in all the ways that count.
"2007 is shaping up to be the same, yet even more so. A lot of chickens will be coming home to roost. 2007 could be the year we see oil above $100 ... the year gold breaks its 1980 highs ... the year silver jumps over the moon ... the year developing-world economics and infrastructure woes really hit home ... and that is just a start."
This is true both strategically and tactically. When I last checked in, Outstanding Investments was standing firm with oil and gold.
It worked, especially with gold. Outstanding Investment's latest letter was published some time ago, in early December. The service continues to be intensely focused on what it sees as a looming brute physical shortage of energy, and raw materials generally, in the world.
It wrote: "It's like a broken record, I know: Chinese growth is driving the commodity boom. We hear it all the time. And it's true. The fact of the matter is that China has struck some incredible deals with countries like Canada, Russia and Venezuela, and the list goes on. While we've seen a pullback in many of the commodities in the third quarter, China used that pullback to prepare for the next leg of the rally in commodities. Meanwhile, the U.S. has been asleep at the switch and busy trying to stave off nuclear proliferation in various regions of the world, with about 50/50 success. The U.S. is woefully behind in the race to snatch up valuable resources and lock in key partnerships as we head past the halfway mark of the first decade of the millennium."
One result: Outstanding Investments seconds veteran editor Jim ("The Dines Letter") Dines' fascination with uranium.
For example, Outstanding Investments continues to recommend Cameco Corp. (CCJ : 40.36, +0.90, +2.3% ) despite the recent flooding of the huge Cigar Lake, Saskatchewan, uranium mine, in which Cameco has a half interest. If anything, Outstanding Investments seems to think that this will just exacerbate the supply crunch.
Outstanding Investments does think about other things. For example, its most recent stock of the month was Walter Industries Inc. (WLT : 47.73, -0.79, -1.6% ) . Admittedly, it's partly a high-quality metallurgical coal play. But Walter also owns Mueller Water Products, a leading provider of water infrastructure products. Outstanding Investing thinks U.S. infrastructure is heading for a crisis. And, as it happily quotes someone saying, "Water is the new oil."
Outstanding Investments recommends buying WLT below $48.
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Post by Conrad Alvin Lim on Dec 21, 2006 7:01:35 GMT -4
Lasting impact The top 10 stories of 2006 that will hit your wallet in 2007 By Steve Kerch, MarketWatch Last Update: 12:01 AM ET Dec 21, 2006
CHICAGO (MarketWatch) -- The housing market was topmost on Americans' minds in 2006, as a four-year boom came to an end, home prices recorded their first declines in more than a decade and a glut of homes for sale rapidly turned a seller's market into one in which buyers had the upper hand. But there were plenty of other personal finance stories of historic importance this year, and like the real estate story, they will all have an impact on pocketbooks in 2007. Here's a look at 10 issues that popped up this year that will make you want to clamp a hand over your wallet next year.
1. Home prices hit the skids The news: Homeowners used to watching the price of their houses jump double digits each year got a crash course in economics in 2006, as appreciation fell off markedly across the country and prices even declined in many markets. Unlike previous housing downturns, mortgage rates were not to blame, as they remained tame. Call it a healthy correction as a four-year boom ground to a halt.
The upshot: The question that confounds bankers, retailers and economists is how much poorer homeowners will feel without those big home-price cushions underneath them. With personal income stagnant in inflation-adjusted terms, home equity has been a big driver for everything from home improvement to car sales to travel. Watch holiday spending for clues about how thrifty homeowners will be in 2007. And keep an eye on home-sales ads in your neighborhood: you could see a lot of "price reduced" notices come spring.
2. Exotic mortgages give many the creeps The news: Regulators sought to crack down on loose-money mortgage lenders, complaining that too many folks who couldn't afford them have been getting "nontraditional" home loans. Some of these required little down, or came with extremely low "teaser" rates, or allowed "option" payments that in some cases wouldn't even cover interest. Folks needed those loans to pay for those high-priced houses, but many fear the lending community has leaned too far to the "liberal" side of mortgage underwriting.
The upshot: A tremendous amount of adjustable-rate mortgage debt, close to $1.5 trillion, is due to reset in 2007. Plenty of homeowners who can afford higher, fixed-rate payments will refinance before they face the strong-ARMing, but more than $600 billion of housing debt is going to jump and is likely to catch many mortgage holders sleeping. Look for mortgage delinquencies and foreclosures to rise, and hard-hit homeowners to curb discretionary spending even more.
3. Online fraud grows in sophistication The news: In addition to crooks who send official-sounding e-mails that purport to be from your bank and the sneaks who raid unshredded mail, more-sophisticated bad guys are popping up online. Several online brokers this year report they now have to set aside more money to pay for fraud restoration, a sign that the guys in the white hats are having a hard time keeping up with the dark side of innovation.
The upshot: Don't expect fraudsters to take any vacations in 2007, no matter how much they have pilfered from brokerage accounts. There will always be new scams to lure unsuspecting people. But watch for new products and services that will help you protect and manage your online-account security, much as spam filters and antispyware have proliferated to safeguard e-mail and computers.
4. Consumer-directed health care gets stronger The news: Health-care costs continue to grow out of all proportion to inflation. Employers continue to cut costs, foisting more of the health-care burden on employees. A nascent push to consumer-directed health plans, which place more of the onus to hold down those costs on the insured themselves, is underway. So far, the reviews are anything but positive, at least from everybody but the corporations who are saving money.
The upshot: The discomfort with the current employer-based health-insurance system is sure to grow, and it won't be just consumers -- medical professionals are growing weary of it as well. You'll pay more for health care in 2007 -- that is a given. But you will also be more likely to find yourself pushed into those consumer health plans at the same time you find your doctor opting out of any arrangements that don't involve you paying directly.
5. Consumers finally start reining in credit The news: Outstanding consumer credit fell by its largest amount in 14 years in October, led by a decline in debt to finance auto purchases. Yes, this is a volatile monthly statistic. And, sure, Americans' debt levels remain way too high and our savings rate is way too low. But we have to turn a corner some time, right?
The upshot: Despite their debt burden, U.S. households have managed to boost their net worth at a respectable pace because of home-price appreciation and capital gains. But in 2007 both of those are likely to be hard to come by. Will that send us rushing back to the credit cards? One leading indicator may be holiday sales at the end of this year; so far, unless they see massive discounts, shoppers just aren't biting. That suggests a modicum of spending discipline.
6. Gasoline prices reshape auto-buying habits The news: Gas prices are high. OK, that really isn't news -- that's a way of life today. But for the first time, we may have seen in 2006 a shift in consumer attitudes about those high prices. Sales of hybrid-fuel vehicles soared while gas-guzzling SUVs sat in lots, without much loving coming their way for the first time in their relationship with drivers.
The upshot: Will the jilted find themselves new partners in 2007? Not likely. Oil at $100 a barrel is far more likely than oil at $30. And as if the gas-mileage numbers on sport utility vehicles weren't already dismal enough, new standards that go into effect next year for 2008 will lower those ratings even more, by 30% in some cases. That'll produce a whole different kind of sticker shock.
7. A new pension bill throws off plenty of tax consequences The news: Congress went in to shore up the traditional pension system, which it did with the Pension Protection Act of 2006. But as is its nature, the legislative body layered on plenty of other material, much of it tax-related. And, as usual, the changes are anything but cut-and-dried: a provision for direct charitable rollovers from IRAs is good only this year and next, and new rules on claiming donations for everyday items (think about what you put in the Salvation Army paper bag) leave plenty of room for interpretation.
The upshot: A new Congress is unlikely to have any more success than the old one at true tax reform in 2007, or any other year for that matter. But between the pension bill and a year-end tax catch-all bill, taxpayers will need to be on their toes in April when they file for 2006 as well as all year long for 2007 changes. Those who don't follow such things carefully may end up feeling the bite in April 2008.
8. The truth starts to overtake retirement myths The news: The first baby boomers turned 60 in 2006 and their thoughts turned not to how life begins after 60 but to how retirement is ever going to begin. Like turning on a fire hose, the start of this massive generational shift flooded millions with the realization that they have not done enough and are not doing enough to prepare for life after work. But the doom and gloom of many projections might be overdone.
The upshot: Get ready to be inundated with "retirement planning" products. The boomer market has always been a big one and you can already see financial-services companies salivating over the prospects of cashing in on this trend. In 2007 you will also see more on the workplace front to boost employee savings, and there will be a growing sophistication in those plans as new rules free sponsors to give more advice and get more involved.
9. Investing strategies that counter recession prove popular The news: We are a worrisome lot. Despite few mainstream predictions that the economy will do anything but grow in 2007, albeit modestly, the second most popular Personal Finance story of 2006 on the MarketWatch Web site provided readers with five strategies to recession-proof their portfolios.
The upshot: Forget what economists predict and forget the hype you get from Wall Street. Whether there is a recession or not in 2007 there is likely to be a flight to more-conservative investments among mainstream portfolio savers. You don't have to search too hard around the globe to find a flashpoint, and you can assess for yourself the chances that one of them will ignite next year. Lots of people were hot on commodities in 2006; the hot commodity in 2007 might just be fear. Oh, the No. 1 Personal Finance story this year: Ten investing ideas for the next 12 months.
10. Exchange-traded funds come of age The news: As assets in exchange-traded funds top $325 billion and the number of ETFs climbs near 300, investors now have indexed-based choices that cover everything from the S&P 500 to foreign currencies. That has some people wondering if there aren't already too many options. Lower fees, better tax efficiency and the ability to trade at will have been cited for ETFs' popularity. But it should also be noted that the big surge in ETFs coincided with the outbreak of scandal in the mutual fund business in 2003.
The upshot: Expect the explosion in exchange-traded funds to continue in 2007. Despite their growth, ETFs remain on the fringe of mainstream investing. But as more and more investors grasp the basic truth evident in study after study -- that the overwhelming majority of mutual funds cannot beat appropriate benchmark indexes -- they will come to see ETFs as a better alternative in many cases. But don't think the $10 trillion fund machine won't fight back.
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Post by Conrad Alvin Lim on Dec 29, 2006 5:57:26 GMT -4
Nasdaq to close Tuesday for Ford funeral New York Stock Exchange also expected to close By Ruth Mantell, MarketWatch Last Update: 10:26 PM ET Dec 28, 2006
SAN FRANCISCO (MarketWatch) - The Nasdaq Stock Market will close Tuesday, and the New York Stock Exchange also is expected to close, in observance of a national day of mourning to mark a funeral in Washington, D.C. for former President Gerald R. Ford.
The closing delays the start of 2007 trading by a day. If the NYSE also closes, it would create the longest closing of major U.S. stock markets since the Sept. 11, 2001 terrorist attacks in New York and the Washington area.
"President Ford was a historic American president and a notable businessman, who served on the NASD board from 1999 to 2000, during a critical time for the Nasdaq Stock Market," Bob Greifeld, Nasdaq's president and chief executive, said in a statement.
President George W. Bush declared the day of mourning for Ford, who served from 1974 to 1977 and died Tuesday at age 93. Ford's state funeral will be conducted Saturday in the Capitol Rotunda, with a second funeral Tuesday at the National Cathedral.
Memorial messages will be broadcast on the Nasdaq Tower throughout the day.
The markets will also be closed Monday in observance of New Year's Day.
If the NYSE joins the Nasdaq in closing, the markets would be closed four days in a row, including the weekend, for the longest stretch since the Sept. 11, 2001, terrorist attacks on New York and the Pentagon. The markets were closed then for six consecutive days, Tuesday through Sunday.
The NYSE, which closed in observance of former President Ronald Reagan's death in June 2004, has historically recognized presidents' funerals.
The minutes of the Federal Open Market Committee's Dec. 12 meeting will be released Wednesday instead of Tuesday as originally scheduled. The 12 regional Federal Reserve banks will operate Tuesday, and provide all usual financial services.
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