Consumer confidence hits a 5 year low, Inflation is out of control, Home prices are plummeting, Foreclosure rates are increasing, Sub prime losses are spreading to Alt-A mortgages, but the stock market is rallying after IBM said they were going to buyback $15 billion in stock and raise its 2008 profit forecast.
The best piece of advice I've ever received on the financial markets is to look at everything with a critical eye. If you get bad news on the economy and stock market, question it. The same goes for the good news.
Today, positive news from IBM put a blanket on bad news as the market headed straight for a re-test of the upper end of its trading range (Dow 12,700 and S&P 1390).
In early trading, the Dow was down as much as -58 points even after Home Depot missed earnings forecasts. In addition, the January PPI was up 1.0% (consensus +0.4%) core PPI was up 0.4% (consensus +0.2%).
There is more BS on the energy front as OPEC President Chakib Khelil told reporters that OPEC will not increase output when it meets next week "because there are plenty of stocks."
If there is plenty of supply then why is crude is trading at $99.48/bbl, and gas prices are well above $3.00 bucks? I'll answer that one, they are out to rob you.
I guess we'll have to ask the bandits in the oil pits who are the speculators responsible for driving up prices. When the EIA released its inventory numbers for the week ending 2/15/08, crude and gasoline had larger than expected builds.
Legendary oil man T. Boone Pickens said he is short crude oil and natural gas and expects that prices will fall $10 to $15 a barrel in the second quarter.
As far as the "Where do we go from here" question, I am becoming increasingly bullish as the media becomes increasingly bearish. The covers of our nations leading publications proudly proclaimed the following;
Business Week said “Meltdown”
Newsweek’s cover read “Road to Recession”
A Wall Street Journal article recently said “Good News: Fund Managers Are Miserable.”
Given that the NYSE short interest hit a record high, short covering rally couldn't have been far behind.
In the February 18, 2008 Briefing, we raised our exposure to the market by 5%.
70% Equities: (Normally 95%) Aggressive
60% Equities: (Normally 80%) Moderately Aggressive
50% Equities: (Normally 60%) Moderate
30% Equities: (Normally 40%) Moderately Conservative
10% Equities: (Normally 20%) Conservative
The all clear signal has not sounded, and probably won't for several months. But, as the old saying goes, they don't ring the dinner bell at the bottom!
This said, investors should use weakness in the markets to increase positions over the next 3-6 months. The best way to do this is to buy (dollar cost average) when the market hits various downside targets. An example would be;
10%= DJIA 12,749
15%= DJIA 12,041
20%= DJIA 11,332
25%= DJIA 10,624
