THE ALEXANDER PARIS REPORT
161 N. Clark St., Ste. 2950, Chicago, IL 60601.
Monthly, 1 year, $195.
Continue cautious investment strategy
Alexander Paris: "The over-optimism regarding fourth quarter economic activity will be replaced by slower more realistic growth in the first half. The credit-induced housing bubble was a once-in-a generation boom that will require a sizable extended correction of the excesses much like the preceding technology boom and bust that is still looking for a bottom after seven years. However, outside the housing and auto industries, the rest of the economy has been showing good 4%-plus growth. Housing and autos, which together represent less than 10% of the GDP, already had a sizable correction in 2006 and we doubt any combined negative effect would be any larger in 2007 barring any substantial rise in bond rates that might arise from currently undefined international risks. The corporate sector is still in very good financial condition and, outside of real estate, the banking industry is in good shape as well. Like the stock market, the mid-cycle economic correction is setting a good foundation for better low inflationary growth starting later in 2007 and into 2008. But the early technical damage to the market and investor sentiment should still require more time to repair to establish a solid bottom. It may still be a routine pull-back in an otherwise upward market trend but it is still larger than investors had become accustomed to over the preceding eight months and requires more adjustment.
We are continuing with our previous cautious intermediate-term strategy with a positive long-term outlook. That means a balanced portfolio with a lean toward the defensive sectors. While ordinarily this might mean a good position in bonds, we believe Treasury issues are overbought after the recent rush into them as safe-haven investments. Credit spreads between Treasuries and corporate bonds and emerging country debt are far too narrow and not reflecting current risk. Moreover, any significant negative surprise will come from international markets and directly impact the U.S. bond market.
Financial Sector: For the same reasons, plus the still not fully defined ultimate spill-over in the subprime mortgage market to other financial institutions and inverse yield curve, we would also continue to significantly underweight the S&P financial sector.
Defensive Investments: We would continue to overweight defensive sectors like consumer staples and healthcare at least until the Fed eventually eases monetary policy and likely for a few months thereafter.
Energy: We continue to expect relatively flat oil prices in 2007 with most trading between $50 and $60/barrel. So, we would continue our underweight rating on the overall energy sector ETF which is heavily weighted toward large oil companies that require higher prices for earnings growth. First Call analysts are forecasting a 4.6% decline in 2007 energy sector earnings. Longer term, the secular rise in demand from China and India should continue, but will still be difficult in quickly replacing worldwide production. Currently the world is using 86 million barrels per day and if every oil well in the world were running at an assumed 1.2% production growth, we would produce 88 million bpd. Even if economies in China and India slow it won't slow demand for oil by much.
China, for example, currently uses around 6.5 million barrels per day, less than one-third of the 20 million used by the U.S. but has a quarter of the world's population. That population is increasingly trading in bicycles for cars and trucks, buying homes and demanding air conditioning and appliances. Even if Chinese economic growth slows much more than expected, we doubt oil demand will fall much nor will demand for other industrial commodities. In the first two months of 2007, industrial production there increased 18.5% year-over-year with retail sales up 14.7%. We would focus energy investments this year on companies that will be bringing new production on the market and on U.S. oilfield services companies. There will also continue to be a strong focus on alternative energy sources and is a good additional area for investment.
Precious Metals: Gold and gold shares surprisingly sold off with the stock market instead of performing their usual contrary market behavior. We suspect a good part of the reason for liquidation was to meet margin calls and other financial obligations. With the risks in international markets and the likely continued longer-term decline in the U.S., however, still makes this a good longer-term portfolio hedge. The Bank of China is preparing to launch gold trading options for individual investors and South African gold production in 2006 was the lowest since 1922 with production cost up 11.9%."
INSIIDE TRACK
P.O. Box 2252, Naperville, IL 60567.
Monthly, 1 year, $179.
Overview for long-term investors
Eric Hadik: "Stock Indices are expected to enter a 1-2 year decline - in 2007-2008.
Interest Rates (opposite of Bond direction) - Long-term rates could see a spike low into June 2007, before a new rise takes hold.
Gold & Silver - Long-term uptrends in Gold & Silver remain intact. Correction into mid-2007 possible.
Dollar - Long-term trend down & projected to continue into 2009 or later. 1-2 year consolidation is intact.
Crude Oil - Long-term trend up. Consolidation is unfolding. New bullmarket expected - late-2007 - 2011.
Commodities - Long-term trend up but correcting; 2007 low expected to give way to new bull market."
THE PERSONAL CAPITALIST
6911 S 66th E Ave., Ste. 301, Tulsa, OK 74133.
1 year, 24 issues, $195.
Holding higher cash levels
Sean Christian: "While it's not yet entirely clear, we believe that the brief February-March decline was merely an initial "tremor" of a larger correction to come.
We are in a "in between" state. We aren't fully bullish, believing a significant correction looms ahead. Neither are we truly bearish, expecting a short-term rebound before a full correction. Even then, we do not expect a full bear market. As a result, we plan to continue to hold higher than normal cash levels. We will add one new position, however, as we see a defense buildup coming.
The Model Portfolio will purchase 7,000 shares of PowerShares Aerospace & Defense (ASE: PPA, $19.38) at market. This is an Exchange-Traded Fund (ETF) that focuses on the defense industry."
CRAWFORD PERSPECTIVES,
6890 E Sunrise Dr., #120-70, Tucson, AZ 85750.
Monthly, 1 year, $250.
Arch Crawford: "The worst of the Mars-Uranus Crash Cycle is now over! That does NOT mean that our markets won't decline, only that it is not as likely to be one of the worst 8-10 declines in the last 100 years! The actual Low of that cycle averages out to be at the conjunction, occurring in this instance late on April 29th. The Crash portion will not reignite until August of 2008.
May 18 looks to be one of the worst individual days, and by then, we are in the declining portion of the Seasonal Pattern, lasting often into late October. That seasonality has not been much in evidence in the recent instance. It's a strong one, tho, and will likely return to dominance sometime later this year.
Although the third years of Presidential election cycles are often very positive years ending in seven are among these setting records for downside horrors. Some analysts think the year will end higher, but with greater than normal corrections. We are more inclined to think that the economic battle lines being drawn with Iran, China and the European Union may bring about more serious dislocation probably involving the stability of the U.S. $!"
Editor's Note: Crawford Perspectives has been providing quintessential market timing by planetary cycles & technical analysis since 1977. www.crawfordperspectives.com.
The Elliott Wave FINANCIAL FORECAST,
P.O. Box 1618, Gainesville, GA 30503.
Monthly, 1 year, $228.
All-the-same market
forecast in place: Down
Steve Hochberg and Pete Kendall: "After retracing a near-exact Fibonacci .618 of the decline from the February peak, the DJIA has rolled over into the next leg of the bear market. Most other major stock indexes are in similar positions. This decline should be much more dramatic than the initial decline from late February to early March. Junk-to-Treasury credit spreads are on the rise again and should accelerate their widening as stocks decline. Positioning for this move remains the best opportunity in the bond market. EWI's all-the-same market forecast is very much in place. It implies that gold and silver will join stocks in a significant leg lower. Gold's target remains below $500, while silver should decline beneath $9.38. A stock decline should lift the pressure that appears to be holding back a rally in the U.S. Dollar Index. The next move of consequence should be a multi-month dollar advance."
GLOBAL DYNAMICS LETTER
19 Adams Pt. Rd., Barrington, RI 02806.
Published quarterly. E-mail: RKM@brown.edu
R.K. Matthews: "We consider the market schizophrenic. Incredible amounts of money are being tossed around, yet the markets turn (-) suddenly. In our view, LBOs taking companies private mostly make large fees for hedge fund managers. With hedge fund IPOs graciously selling a tiny part of their empire to 'the little guy', might the end be near?
Longer term, from current levels, we look for another 5% upside for the DJI, 10% for the S&P 500 and 15% for the Nasdaq. When is anybody's guess. "Buy low; sell some high.
We are now at 40% in stocks. One must choose the averages that best reflect one's exposure to risks. For us, that is Nasdaq and the S&P 500. We look to play 15 to 30% moves."
THE NO-LOAD FUND INVESTOR
P.O. Box 3029, Brentwood, TN 37024.
Monthly, 1 year, $199.
Marc Salzinger: "The markets were buffeted in March by the sub-prime mortgage market and volatile energy prices. The sub-prime issue manifested itself most clearly in poor performance in some financial and REIT sector funds but especially in the homebuilding sector. Higher oil prices helped energy and natural-resources funds as well as commodities-oriented countries among the emerging markets.
Though the sub-prime problems are likely to linger, they are well known and thus unlikely to hurt the market much going forward. The rise in the price of oil from about $61 a barrel at the beginning of March to about $68 at month's end was thanks mainly to Iran's seizure of 15 British servicemen and the fear of another fully engaged shooting war. However, the recent release of the servicemen will likely allow the price of oil to fall again.
A change in the Federal Reserve Board's view of the economy is likely to have more long-term effect on the market, however. In its statement accompanying its decision on March 21 to maintain the rates under its control at their current levels, the Feds dropped the verbiage about traditional firming, i.e., interest-rate hikes. This decreases the very real risk that with some measures of inflation continuing to float above the Fed's comfort zone, the Fed would surprise the market and actually increase rates. With the threat of a hike reduced, the market looks a little better here than it did before the Fed Statement."
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-- APRIL 2007