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Sy Harding's STREET SMART REPORT
505 E New York Ave., Ste. 2, Deland, FL 32724.
1 year, 17 issues, $250.
Sy Harding: "Our Seasonal Timing Strategy is now in its unfavorable season. Its exit signal was triggered on April 20. Its entry signal had taken place October 16, 2003.
For those who still don't like seasonal timing, the consensus of our non-seasonal market-timing indicators triggered a new buy signal June 9, ending the sell signal of Feb 4. As we said at the time, it is not a low risk signal, since it has to contend with international 'event risk', the market's unfavorable seasonal period, and the fact that the major indexes have potential overhead resistance just overhead.
Nasdaq. The consensus of our technical indicators on the Nasdaq also triggered a new buy signal June 9, ending the sell signal of Feb 4."
THE YAMAMOTO FORECAST
P.O. Box 573, Kahului, HI 96733.
Monthly, 1 year, $350.
Irwin Yamamoto: "Count us in as a long-term bear. Still, there are short-term advances within the context of a secular bear market. And some of them looks like a bullish cycle. I believe one is about to evolve. Also, it holds the potential of being a rally of significance. Enough to participate in it, including us."
THE FINANCIAL REPORT CARD
P.O. Box 7173, Kensington, CT 06037.
Monthly 1 year, $129.95.
Dr. Robert Valuk: "Can we revisit The China Syndrome? China has become concerned about its rapid growth rate and growing inflation. As the country attempts to slam on the brakes, the free world may incur the brunt of the impending collision. While we like to think this "braking" can be done in a smooth and consistent manner, we know that an economy of this size will not surrender willingly. Raw materials prices may tank. Exports (imports too) may suddenly drop. Currency prices will seesaw and world stock markets will shudder. China's explosive growth now represents a large portion of the growth in the world's economy and Japan's recent stock market surge is directly linked to its relationship with China.
"Sell in May and go away" may prove to be a seasonal pattern whose time has come. We feel our markets will be in the doldrums from May through October (a historically weak market period) and we may see a strong sell off before the election. We hope China will stay calm, but if it implodes, cash will be king. We suggest raising a 20-30% cash reserve. Keep it in very short-term bond and fixed income investments (many types of bonds will be hammered over the next six months)."
THE JERRY FAVORS ANALYSIS
7748 Chancel Dr., Columbus, OH 43235.
Monthly, 1 year, $190.
Dow and Nasdaq headed for new highs
Jerry Favors: "At this point it remains our position that the Dow and the Nasdaq will ultimately reach new highs for the year over the coming weeks and months. On a short-term basis there should be strong short-term resistance to any further rally near the 10,600-to-10,700 area on the Dow. The probability of a sustainable rise above that resistance in this particular time frame (by which we mean the next 2 to 4 weeks) is low.
On a short-term basis any decline below 10,243 on the Dow and 1988 on the Nasdaq this week will turn our Gann Weekly Chart down. That would signal that a still-stronger correction is coming short term. As long as any pullback from here holds above 9822 on the Dow and 1865 on the Nasdaq higher prices should follow any correction.
If we are wrong here and we do decline below that important 9822 level on the Dow, the strongest support would come in near 9450 plus or minus 100 points.
THE PETER DAG PORTFOLIO
65 Lakefront Dr, Akron, OH 44319.
1 year, 24 issues, $389.
George Dagnino: "The technical indicators suggest that the market is still mildy oversold and is trying to form a base from which to move to new highs. The put-call ratio is bullish as well as all other indicators we follow.
Trading volume remains positive. It has to rise, however, for the market to move above 1160.
Sentiment is neutral. The specialists are still avoiding to go short, which is bullish. AAII members, like most other investors, are increasing their bearishness.
The market seasonality remains negative.
Outlook. The odds continue to favor a continuation of the rally which started in early May. The longer-term outlook, however, is becoming negative.
Commodities. Why are commodities declining? Should they be much stronger given the strength of the economy? Commodities are sending an important signal, suggesting that there is economic weakness somewhere in the world. I believe we could have seen the peak in commodities for this cycle. Or, at the very least, we are very close to one. This trend confirms my suspicion that there is slowdown in the making.
Inflation. Inflation jumped to 3.1% y/y. A very negative development."
MONEYLETTER
PO Box 6020, Holliston, MA 01746.
1 year, 24 issues, $150.
Walter Frank: "Here we are at the turning point of the year, and the markets are almost where they started last January. The same is true for the performance of our portfolios. Unlike some other years, there has been no niche, no segment of the market to play that would give an edge to performance.
The last few weeks have been particularly frustrating, as the market seemingly cannot get out of its own way. Not only is the market not going anywhere, but nobody seems to care. Volume has been very low, with investors - and this includes the funds and other institutions - sitting on their hands.
What is behind the apathy?
The major reason given is that investors are waiting for the Fed meeting on June 30. Until the Fed acts, no one wants to take the risk of making a dumb investment. Somehow we are not convinced by the explanation. Everybody knows that rates are going up on June 30. The only issue by how much, and even there the odds are strong that this first rate increase will be 1/4% (25 basis points).
If the only thing facing the market were the Fed meeting, we think the market would be much livelier. No, there is something deeper (and a bit more complicated). As we see it, what is bothering the market is the uncertainty of how the economy will develop now that we have left the post-bubble recession and its aftermath behind us.
What is normal?
We are returning to a normally functioning recovering economy, but we don't know anymore in 2004 how the normal the economy behaves. The last "normal" economy we had was six years ago in 1998. Of course, the economic world of 2004 is much different than the world of 1998.
One key question is how prone to inflation are we now? We don't know. Now that companies have started to hire is our productivity boom over? We've had some iffy numbers lately on this score, and Wall Street, with its knee-jerk (or hedge fund) mentality, is already wringing its hands.
But even more serious observers are concerned that the Fed may be underestimating the price pressures to come as industrial production expands strongly and business finds price rises doable. Unfortunately, the inflationary threat, such as it is, is hard to fathom because of the skyrocketing price of oil. The recent price numbers have been disturbing, and they have left us confused.
Aside from inflation, and this is the other side of productivity, we don't know whether profits can continue to expand. Certainly not at recent rates (that is out of the question), but how rapidly? Margins now are sky-high. How long can they hold? The jury is out on these and other matters. Mr. Greenspan believes that the productivity increases will last for sometime. His views on this matter so far have been right."
NATIONAL TRENDLINES
14001 Berryville Rd, North Potomac, MD 20874.
1 year, 4 issues, $85.
Stocks to rally through summer
Douglas Jimerson: "The stock market decline this year has been mild in percentage terms, but long in duration. Since the decline lasted for many months, stocks should be prepared to rally through the summer months.
We obtained trend-generated buy signals for blue chip, growth, international, and high yield funds. All of these asset classes have the potential of strong rallies. Meanwhile, bonds are in a recovery rally that may end over the next several weeks.
Gold and gold stocks appear to have begun the next stage of a bear market decline.
The dollar appears to have entered a trading range that may last through the summer.
The asset allocation accounts were repositioned on June 1 to 30% in blue chip funds, 30% in growth funds, 20% in government bond funds, and 20% in international funds."
STRATEGIC INVESTING
1905 Beacon St., Waban, MA 02468.
Monthly, 1 year, $157.
Volatility reigns supreme
Richard Geist: "We are currently in the second stage of the bull market where volatility reigns supreme and most individual investors remain on the sidelines. Neutrality is reflected in the sentiment surveys because everyone is afraid to commit to a market direction.
While we could certainly be wrong, we have not changed our opinion that the second half of the year will be a strong one - fueled by a growing economy and increased corporate revenues, earnings and capital spending. The underlying dynamics of the market are strong, which should cushion any pull-back.
It's a difficult time for investors to be buying stocks because the headlines continue to change so dramatically day to day. But we still believe, despite the temporarily overbought market, that now is the time for contrarians to be buying for our expected rally in the fall."
THE MAJOR TRENDS
Published monthly for clients of Sadoff Investment Management LLC
250 W Coventry Ct., Suite 109, Milwaukee, WI 53217.
China - Is A Major Potential Problem
Ronald Sadoff: "The U.S. economy is humming along at a near perfect pace - maybe a notch or two too fast, which in turn, would necessitate some Fed tightening. The Fed may just want to insure that inflation doesn't escalate. Our belief is that any inflationary problems, if they do exist, should be short lived.
Meanwhile nearly half a world away, trouble is percolating. China is attempting to cool down its vastly overheated economy. Just last quarter the growth rate in China was a booming 9.7%. The developments in China need watching because its economy can influence the world's growth pattern. China has been the driver of global growth, most notably for the United States, Southeast Asia, Korea. "Two-thirds of the reason for Japan's recovery is China," according to Japanese management consultant, Kenich Ohmae. China and new Japanese plants in China are sucking in so many Japanese exports there are not enough ships to bring them over fast enough. In essence, China is pulling Japan out of its slump. Here is another way to measure China's importance in the global economy. In 2003, 28% of total German export growth went to them and in the United States the figure was 21%.
Multi-nationals - from automakers - to chipmakers - depend increasingly on Chinese demand for new growth. Motorola relies on China for 10% of its chipmaking revenue. General Motors reported that first quarter profits from Asia quadrupled to $275 million, thanks to soaring demand from the mainland.
The soaring demand from China has been the primary force behind the advance in commodity prices over the last 18 months. China is one of the world's largest consumers of materials like aluminum, coal, copper, iron ore, nickel and steel. China is swallowing up 7% of the world's oil supply, 30% of its iron ore output, 27% of all steel products, 31% of coal and 25% of the aluminum market. No wonder commodities have skyrocketed over the last one-and-a-half years.
A sudden slowdown in China could cause commodity prices to decline (perhaps significantly) and slow the global economy.
China's effort to dampen its run away, bubble economy has just started. Because China has been such a powerful stimulus to the world as both a producer and consumer, its economy must be closely monitored. If China were to go from boom to bust, it could inflict great damage on the rest of the world.
How much weight China swings economically can be observed by the recent downward price trends for commodity prices from copper to aluminum in response to its moves to slow its excessive growth. Nickel, one of the hottest commodities over the past year, has tumbled from $17,000 a ton to around $11,000. Most commodity prices have plunged 15-20% over the last few months. Even gold and silver prices have tanked over the past two months - a sign of quieting inflation pressures. And as Beijing applies the brakes more forcefully, commodities could easily give back all their gains. The commodity boom, if not reversing, is losing momentum. Keep in mind that China does not have the experience in slowing a run away economy. For them, this is a learning experience. In summary, China is a very important variable that will determine the path of the global economy.
Top Four National
Chinese Banks Are Insolvent
The Chinese economy is red hot but its foundation is a broken third world financial system. Within the banking system, 45% of all loans are already non-performing. The top four national Chinese Banks are insolvent: China Construction Bank, Bank of China, Industrial and Commercial Bank of China and Agricultural Bank of China.
Moody's Investor Service commented on China's banking system: "Because of huge leverage and interlocking debt relationships among borrowers, the risk exists that a sudden contraction of credit could precipitously trigger cash flow problems for a significant number of them, and the banks will end up bearing the brunt."
Moody's further noted that if the Chinese economy slows, the other banks (not the big four national banks) will see a sharp drop in profits, a bigger rise in loan defaults and have more trouble replenishing their capital. It's difficult for the Chinese banks to stop making new loans to insolvent state owned companies because these companies employ too many workers for it to be politically feasible to shut them. Already over-invested money losing factories are idle along with empty high rises.
The clamp down process has begun. Homebuyers must now put down 30% instead of 20%, for high-end properties. Beijing recently raised bank reserve requirements for the second time in eight months. China has restricted lending for cement, steel and aluminum projects to curb the excess development. Aluminum, auto, cement and real estate companies must now put up a minimum of 35%, up from 20%, of its required investment of any new projects. More credit tightening is coming.
China is a potential trouble spot. Its influence is huge and widespread. The best observation post is to watch industrial commodity prices. The good news is that a soft decline for commodity prices will portend slower world growth and a moderation of inflationary pressures (very bullish for bonds). A waterfall tumble for commodity prices could signal a forthcoming deflationary spiral. If commodity prices push higher, it will signal that China's torrid growth pattern will extend. In turn, this would necessitate further tightening and more restrictions by Beijing to slow down the economy.
Editor's Note: Ronald Sadoff is president of the well-known money management firm, Sadoff Investment Management LLC, 250 W Coventry Ct., Suite 109, Milwaukee, WI 53217. Sadoff Investment Management works as an independent investment advisor, managing assets for all types of investment accounts, including individuals, retirement plans (all types), families, trusts (all types), corporations, foundations and partnerships. For more information on these services call (414) 352-8460 or visit the web site at www.sadoffinvestments.com."
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