The February 5th Newsletter Briefing was posted last night. To access the newsletter portion of the website, simply click on the "Subscribe Now" tab, establish a username and password, and you'll have full access to the Dynamic Growth newsletter and portfolio. This free trial will end on June 1, 2007.
Despite all of the negatives that would cause a reasonable person to be cautious about the stock market, the indexes continue to march higher.
As I mentioned in this weeks briefing, insiders are selling at a rate of 7 to 1, energy prices still relatively high, inflation exists that is not accounted for in the inflation data, manufacturing jobs continue to leave the U.S., consumer debt is high, the housing market is weak, the yield curve is inverted, geopolitical problems are tense, and the market continues to march higher.
Many rational market experts are throwing in the towel for any meaningful decline in the market since their practical analysis of macroeconomics no longer works. Its seems that the fears of missing a runaway market has overtaken all reasonable calls for caution.
Some have suggested that some strange things have occurred in stock market since former Goldman Sachs boss Hank Paulsen took over as Treasury Secretary in July;
I had a few articles from the major media outlets on my website in November, but for some reason they vanished.
Even the practical Raymond James strategist, Jeff Saut, made these comments in late October 2006;
Yet, there remains an eerie bid in the equity markets since those July lows. For example, markets typically rally, then correct by about one-quarter to one-third of that rallys point gain, before beginning another rally phase. After that phase, they again correct by one-quarter to one-third before re-rallying. This, however, has not been the case recently. Indeed, every time it looked like the indices were about to correct, mysterious buyers materialized in the futures markets. Those buyers tend to widen the futures premiums so far above the cash markets that it attracts arbitrageurs. The arbs, in turn, short the futures and buy the appropriate baskets of stocks. That operation allows the arbs to lock in the spread between the futures price and what they paid for the basket of stocks, assuring them a risk-less profit and, in the process, driving stocks higher.
In November, Saut added;
Other “non-footers” include:
1) a personal U.S. savings rate that appears to have bottomed, implying that Americans are saving more. This is not an unimportant observation, for it can be argued that for every 1% increase in the nation’s savings rate the business sector loses roughly $100 billion in profits;
2) reinforcing point one is a rare event that saw consumer credit actually get paid down in September with a concurrent reduction in bank lending to households during the month of October;
3) that begs the question, “following the Goldman Sachs-induced crash in gasoline prices, which have subsequently rebounded now that the gasoline weighting has been cut from 7.3% to 2.5% in Goldman’s much indexed commodity index, why have the retail stocks held up so well?!;”
4) evidently Amazon (AMZN/$42.55) and Wal-Mart (WMT/$47.50) don’t believe the retail rebound is sustainable since they are cutting their respective capex spending budgets;
5) and why, pray tell, does the U.S. Dollar Index remain amazingly resilient in light of low interest rates and given the fact that China, Russia, the United Arab Emirates, Saudi Arabia, Switzerland, New Zealand, etc. all telegraphed that they are reducing their weightings of U.S. Dollar reserves?;
6) why did the SEC, in mid-October, reduce margin requirements for select investments by hedge funds?;
7) how in the world can “guest workers” sue U.S. companies for under-paying them ( USA Today 11/15/06)?; 8) we could go on, but you get the idea . . .there are a lot of disconnects currently.
So, despite the markets relentless march toward higher ground, we are content with a more conservative approach to the markets.
