Uglier than a 1937 Plymouth sedan
Thomas Henning: "The Bond Market has started a cyclic bear market after topping out at 120 and legging down to 105. A close below 105 would suggest the start of the next downleg to about par.
Higher rates are bursting the debt, housing and auto bubbles.
The Gold Complex is in a cyclic bull market. Within that bull cycle, the lovely III-wave has begun to leg up off of the May, 2005 low. For a detailed favored Elliott count, see my article in this issue of The Bull and Bear.
Near term, a correction has evolved with re-buys flashing off of the June lows, suggesting that the next upleg is in gear.
In broad terms, gold has broken out against all currencies, suggesting that a world-wide currency repudiation is occurring, which suggests that the world-wide debt bubble is bursting.
The Stock Market is in the late stages of a bull cycle that started in August, 1982. As the final waves have evolved, the internal structures of the market have become unbelievably ugly, suggesting that when the market confirms downward, an implosion will result.
Near term, early sell signals have evolved as sensitive levels were broken to the downside. The market bottomed in mid-June and started a final upleg, which should last until a late July, early August time window.
Closes below Industrials 10,700, Transports 4400, would confirm the start of a cyclic bear market. This situation is uglier than a 1937 Plymouth four-door sedan."
HS DENT FORECAST
15310 Amberly Dr., Ste. 165, Tampa, FL 33647.
Monthly, 1 year, $199.
Unusual Sell-off in Stocks and
Commodities Signals Bull Market
Strong selling pressure in stocks, commodities, foreign markets and emerging markets shows that a strong buying opportunity is near and the downside risk is limited believes Harry S. Dent, Jr. founder and president of the HS Dent Foundation.
"Finally, the strong rally we have been waiting for occurred on Thursday, June 29. Rising stock volumes brought a late, but clear confirmation rally. Hence it is very likely that we have seen a bottom on stock prices, and this period could well prove to be low for the year," Dent said. Even in this extreme technical correction, stocks have held up remarkably well relative to other investments. As other investments fall out of favor with the financial community, equities are becoming more attractive.
"We remain confident the stock market will rally back to the recent highs," Dent emphasizes. "There is simply nowhere else for money to go now that real estate is clearly slowing and declining in some areas, foreign markets are cooling, and commodities are likely taking a substantial break due to the slowing economy. The one clear trend is that earnings are still growing strongly - and stocks are still undervalued nearly 30 percent vs. bonds in the United States."
Following a modest pullback in October, Dent economic indicators continue to forecast a very strong market rally that will last into late 2007 that would push the Dow up to 17,000. Even the most conservative model suggests that stocks could rally somewhere between 15,000 to 16,000 into 2007. The difference in the strength of the rally depends on whether the stock bubble starts now or later this year Dent noted.
Investors should closely follow long-term economic trends in order to make the most out of all investment opportunities Dent cautions. In the coming years, spending in America will start to slow down as Baby Boomers pass their peak consumer spending years. Despite what other forecasters say about the record growth in China and India, these countries can't compete with U.S. consumer spending. When U.S. buying power waivers, the stock market will make a deep and prolonged retreat that could last for years.
"The message to investors is to stay alert for buying opportunities, and purchase quality investments on market weakness," Dent suggests. "The rally expected this summer could be a great opportunity for savvy investors."
According to Dent, most investors have given up on the stock market, but stocks are just the place to be. "Stay with equity investments, unless the market starts to show tangible signs of weakness or reacts strongly to some cataclysmic event," Dent said. "Be prepared, a strong sustainable advance is just ahead - the beginning of the next stock bubble is at hand."
Editor's Note: HS Dent Publishing (www.hsdent.com) of Tampa, Fla. helps people understand change and prepare for its arrival through a variety of Dent publications, including the monthly HS Dent Forecast. The Dent methodology, which is based on the study of demographics, or the study of whole populations and their spending habits, takes financial forecasting out of the world of theory and into the realm of real-world consumer behavior, allowing investors to make intelligent and informed economic decisions about their future.
Harloff's THE INTELLIGENT FUND INVESTOR
815 Crocker Rd., D-10, Westlake, OH 44145.
Monthly, 1 year, $179.
Dr. Gary Harloff: "The world's equity and basic precious metals markets continue to sell off, beginning May 12, 2006. Our independent research indicates that the recent worldwide sell off was induced by hedge fund over-speculation in basic materials and emerging markets.
Our (HVI) analysis contained herein, indicates, that the sell off is not over yet. Thus our model portfolios are still in money market. Only the short funds (the funds that go up when their underlying index go down) are buys.
We show that large companies are better for investing than small companies, but neither is good now. Gold is the weakest sector, and correspondingly the U.S. dollar is quite strong. Gold usually moves inverse to the dollar, as it is doing now. The dollar has strengthened due to a rise in short term interest rates.
The markets are difficult to follow now and one must be nimble. Due to the monthly nature of this newsletter, we moved our hypothetical positions into money market.
Our only timing model on a buy is the 10-year U.S. bond yield (yields going higher)."
INSIIDE TRACK
P.O. Box 2252, Naperville, IL, 60567.
Monthly, 1 year, $179.
Overview for long-term investors
Eric Hadik: "Stock Indices - Stock indices are completing a major uptrend but could see a peak extend into November 2006.
Interest Rates (opposite of Bond direction) - Long-term neutral-to-down trend consolidating. Rates could now pull back into Oct./Nov. 2006.
Gold & Silver - Long-term uptrends in Gold & Silver remain intact. A 2-4 month pullback is unfolding.
Dollar - Long-term trend down and projected to continue into 2008/2009. An intervening 12-18 month rebound is intact and could stretch into September 2006 - or even Feb./Mar. 2007.
Crude Oil - Long-term trend up. Consolidation is unfolding.
Commodities - Long-term trend up; May 2006 - July 2006 was/is next anticipated correction."
The Elliott Wave FINANCIAL FORECAST
P.O. Box 1618, Gainesville, GA 30503.
Monthly, 1 year, $228. www.elliottwave.com.
A picture of peak social mood
Peter Kendall: "The art market has done it again, producing a new all-time high price for a single painting in the aftermath of an important stock market peak. At $135 million, Gustav Klimt's "Adele Bloch-Bauer" becomes the highest price ever paid for a painting. Bidding for the six most expensive paintings on record all took place in the wake of stock peaks. Our graph shows the progression. The Elliott Wave Theorist of May 1990 first made the key point: "When the stock market finally tops out, art prices won't be far behind."
The Mei Moses Art Index traces the value of major artwork back through the beginning of the last century (to see comparison with the S&P, go to today's entry at Sociotimes.com). Over that span, art prices have tracked stock prices almost precisely except for two key periods: the 1920s, when stocks rose and artworks declined, and the 1990s, when stocks also soared to new heights unaccompanied by art prices. This time around, the art index managed to join the Value Line Arithmetic Index at new all-time highs, probably because of the higher level and greater breadth of speculation at the end of Supercycle V. As happened in the 1920s, however, the relative underperformance of art prices through the bull market probably foreshadows a coming deflationary era. Art is extremely illiquid in periods of decline, so art prices should suffer greatly in the years ahead.
Another sign of an approaching trend change in art and art prices is the "flight from quality" that The Elliott Wave Financial Forecast discussed in June 2004 (also available at Sociotimes.com.) Notice the difference between the stature of the artist at the beginning of the art boom in 1987 when Van Gogh's work was the object of the bidding frenzy and this year's recipient, Gustav Klimt. Compared to the other artists shown on our chart, Klimt is relatively unknown. According to The Wave Principle of Human Social Behavior, tastes in art progress from traditional in a healthy bull market and colorful and "alive" at a peak to "anarchic - anything goes" in a bear and deliberately ugly at a bottom. The frenzy for "Adele Bloch-Bauer" is a subtle sign of the move away from traditional tastes. A not-so-subtle sign of bear market tastes is "Exhibit 1201" at London's Royal Academy of Arts. It is the work of an artist who entered a sculpture into a field of 9,000 applicants for exhibition in the Royal Academy. His sculpture was rejected, but the stand he had put it on won entry to the Royal Academy. In the judgment of The Wall Street Journal, the actual sculpture of a laughing face, "One Day Closer to Paradise," lost because of its "emotional content." The "laughing head is not only fatally well rendered but exudes a sense of joy and hilarity, and the overtly evocative is déclassé. How much more sophisticated a stoic square of slate [is]." In a bear market, tastes crash from the "alive" phase of the peak to an emphasis on death at the bottom. The judges' preference for the inexpressive over "joy and hilarity" indicates that the re-ordering of the art world is underway along with the re-ordering of financial values."
PEARSON INVESTMENT LETTER
P.O. Box 3739, Apollo Beach, Fl 33572.
Monthly, 1 year, $150. www.pearsoncapitalinc.com.
Some profitable
companies are privatizing
Christopher Carothers: "Some companies are so profitable they are taking themselves private. One of my favorite stocks, Kinder Morgan (KMI) has decided to privatize and is offering $100 per share to its current holders. Even if the stock market continues to decline, many companies will take the opportunity to go private or use their large cash positions to make major stock repurchases. Some good companies will be bought out by others taking advantage of this major decline."
GLOBAL DYNAMICS LETTER
19 Adams Pt. Rd., Barrington, RI 02806.
Published quarterly. E-mail: rkm@brown.edu.
Global markets and
hedge fund meltdown
R.K. Matthews: "Volatility in most foreign markets is running two to four times what we are seeing in the U.S. This is the kind of stuff that can lead to meltdowns overnight. Margin calls in those 'hot' markets? Hedge funds will sell some of anything they own in the vastly larger, more liquid, less-depressed U.S. markets. A buying opportunity?
Stock of the month? - GE may be bottoming; likewise, UNFI and WFMI. Accumulate July to November?
THE FINANCIAL REPORT CARD
P.O. Box 7173, Kensington, CT 06037.
Monthly, 1 year, $129.95.
Dr. Robert Valuk: "In the coming months, our economy will enter recession (or at the very least a slowdown), the housing boom will bust, interest rates will continue to rise, corporate earnings will falter, inflation will increase. Congress will continue to do nothing (a non-political statement of fact) and geopolitical factors and oil needs will further depress equities. Our identification of significant market changes from 2000 to now have been uncanny, including the identification of the "range-bound market." The question now is: will the range-bound market hold on the downside? We see Dow 10,000 as a critical downside support level and, if breached, we must face the Bear. Making money in a Bear market is difficult and we prefer a range-bound market. Also, if support is breached, we must also face the sad fact that this Bull market is over and market cycle/sector strategies must shift. Based upon the current stage of the market and market cycle sector rotation, we continue to favor oil stocks, oil trusts, and energy partnerships. Utilities with yields over 4% are also getting our attention. High-yield stocks, especially those that offer covered calls, will also be "home runs" as interest raters peak, flatten, and then decline. We also favor bank stocks (money center and regional) that pay dividends over 3.5%. When rates peak, bonds will once again shine, and if we enter the Bear market lurking out there, they will surge. In general, technology and high-beta stocks and funds will falter. Overseas investments will sell off, and wide swings in the markets will occur. Be careful not to get sucked into rebound rallies. Set price levels for you purchases, and stand fast with your cash. Money markets are paying 5.2%. Between now and November we suggest selling into rallies."
THE NO-LOAD FUND INVESTOR
P.O. Box 3029, Brentwood, TN 37024.
Monthly, 1 year, $199.
Marc Salzinger: "We continue to believe that the market is unlikely to sustain significant rallies until the Federal Reserve Board stops increasing the rates under its control. However, the longer-term picture looks positive for stocks, especially for large U.S. companies. As we approach 2007, reasonable valuation, steady corporate-earnings growth and robust financial strength should help the market."
THE PERSONAL CAPITALIST
6911 South E. Ave., Ste. 301, Tulsa, OK 74133.
1 year, 24 issues, $195.
Sean Christian: "We continue to project that the DJIA will reach 12,000 in the next major move. While we can't be 100% certain, we believe the correction may have ended already and the next move will be higher."
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-- AUGUST 2006