Economic Outlook

January 27, 2012

As the U.S. Republican primaries progressively narrow the candidate field, while the current administration is instituting increasing governmental guidance in addressing the economy, the stock market has responded positively during the past 2 months after bottoming on November 28th.  52 week high resistance is now being tested at the 12,841 level on the Dow, an encouraging scenario.

Crude Oil, after dropping to the 75 range in early October, has progressively climbed and remained in a 93 - 102 trading range for the past several weeks, thereby stabilizing prices at the pumps.  Natural gas prices have steadily declined since their high of 5 in June in an unseasonably warm U.S. winter to date.  Heating Oil has remained in a trading range around 3 since 2Q, 2011.

The Fed is leaving interest rates essentially untouched for the foreseeable future, encouraging the steady growth that has recently occurred without evidence of an inflationary trend.  The unemployment rate has been declining progressively for the past 4 months, now at 8.5%, the lowest level since February, 2009.  The real estate market continues to lag, with single-family property purchases down 2.2% to the 307,000 annual rate level.  Bank lending to small businesses continues to be flat, a key element necessary for progressive economic recovery.

Emerging and European markets declined further at end 2011, responding to the continuing EU debt crisis.  Credit ratings for Austria and France shifted downward. Market interdependency has taken its toll on the BRIC markets, slowing previously accelerated positive trends, as well as pressuring U.S. T-bond interest rates since late October.

While the Euro has declined during the same period, the U.S. Dollar has done well since bottoming in April, 2011, retracing during the past couple of weeks from the 82 resistance level.  The Yen has remained in a 1.3 trading range since August, 2011, and the Real has seen some recovery this year after its precipitous decline in 3Q, 2011.  India is experiencing inflationary pressures as a result of its strong growth during the past several years.

The EU will continue to experience difficulty in 2012 in the near term.  Asia markets offer promise of differing degrees for different markets, recoiling somewhat as a result of EU issues.  We are optimistic regarding the potential for progressive U.S. economic recovery during the next 12 - 24 months. 

September 12, 2011

Discussion of the possibility of a Greece default and discomfort with the Euro economy has led to a correction in the markets during the past several weeks. Gold's 7 month rally has recently paused at the 1920 level, now seemingly in a trading range.  Crude Oil has declined since May, now exhibiting some recovery, although also in a 76 - 90 trading range for the nearby. Wheat has undergone correction in a pattern similar to Crude Oil, with Corn reaching a 5 year high in June, now more subtly correcting.  Natural Gas, after reaching a 5 year high in June, 2008, has endured descent since, to historically conventional levels.

The U.S. Dollar has fractionally exceeded the recent 4 month trading range, perhaps representing early evidence of forthcoming ascent, although further movement is needed to support this as a conclusion. The British Pound is approaching 8 month lows in a similar manner to the Canadian Dollar and the Euro, while the Yen continues its 4 year ascent.  

 

August 10, 2011

Erratic market activity has included a correction relating to the downgrading of U.S. credit and France's credit issues. While economic recovery is not progressing as quickly as most would like, nevertheless, the trajectory is upward in our view.  Market corrections are to be expected along the way, a fact often forgotten by investors with a short-term perspective as well as the media. Technical analysis evidence that this is not a new downward trend includes a bottom consistent with Fibonacci retracement since the corrective low of June, 2010, and the 30 degree Gann conformity with the March, 2009 bottom of the market (which we subtly described on April 2, 2009 - see below).

The real estate markets continue to be burdened by excessive foreclosure property inventory selling as low as 50% of market value in many areas.  Stringent Fannie Mae and Freddie Mac qualification guidelines exclude the majority of home buyers who are required to show tax returns burdened with the economic fallout of the last 2 - 3 years, thereby further impeding the recovery.  The banks, also subject to heavy regulation and qualification requirements, are lending predominantly to thriving businesses who have remained untouched by recent economic conditions.  

Crude Oil has been volatile and declined in the 3Q to as low as $79 per barrel, while Natural Gas has also declined during the past 2 months, most recently settling near 4.05 on the nearby.  The Euro and British Pound continue their gradual ascent, while Gold approaches the 1800 mark.  The softs are retracing after reaching multi-year highs earlier this year, while the 30-year Bond has reacted in a conventionally inverse manner to equity market movement.

 

January 11, 2011

On this day of ones (1-11-11) we look at the continued ascent of the market as evidenced by the DJ at 11671.88.  The bull market continues in the face of mild dissent and pervading doubt in the financial community manifested from the past 3 years' experiences, usually a healthy sign.  

Crude Oil is again approaching the 100 mark, while Gold, after a rapid ascent until mid 4Q, remains in a trading range.  Coffee has retraced slightly after progressive December gains.  Sugar is approaching 31 resistance once more after dramatic declines in November followed by gradual recovery.  The Dollar has posted recent gains as well.

Housing starts remain flat, with the (core) PPI gradual recovery lagged by the CPI. 

 

October 25, 2010

As the bull market continues the DJ is approaching its previous 2010 high of 11,258, with continuation above this point indicative of a strong sustained move upward, and a resistance bounce another addition to the 4th wave, nevertheless part of an ongoing ascent.

Gold, making new highs, shows little sign of hesitation, supported by continued weakness of the dollar.  While the dollar may remain in the present trading range for some time, any breakout to the upside may affect the Gold trend.  Silver and Copper are benefiting from the recovery, with the latter now approaching potential resistance at 4 dollars.

The CPI has been slowly ascending this year, not yet reaching 2008 highs, while the PPI has been increasing for the past 3 months.  While the continued expansion of the economy is likely to sustain itself, greater momentum appeared imminent earlier in the year which has softened a bit, making it less likely that the Fed will raise rates in the near term.

Crude Oil has met resistance at the 84 level remaining in its present trading range, while Natural Gas is diminishing in price, achieving new lows. 

Wheat, after limit up moves in August, retraced moderately within its current upward trend.  Corn and soybeans remain strong.

 

May 5, 2010

The present bull market has pushed the DJ as high as 11,258 on April 26, with some expected pullback since that time.  Support remains at 10,730 with continuation upward prior to descent below that level illustrating continuation of the upward trend.

Discussion of the return of inflation as part of recession recovery has become more apparent recently.  While unemployment and real estate are lagging, consistent with previous post-recession trends, corporate earnings are on the ascent overall, with significant relative growth evident in the time period since the market bottom in March, 2009.

Gold, peaking at 1219.50 on December 3, 2009, has retraced somewhat, now re-approaching previous highs.  Crude Oil continues in a trading range of 64 - 88 during the past 12 months. 

Retail sales are gaining steadily, with overall upward trends in consumer confidence, consumer spending, and producer prices.

This is a unique time in investment history, with opportunities available in various sectors seen on only a handful of occasions during the past 2 - 3 decades.  Market leader growth curves will remain appealing during 2010.  Expect the Fed to gradually raise rates as early as 3 - 4Q, 2010. 

December 10, 2009

While there remains some caution from those who follow the markets, a clear bullish trend has continued as stated below in our previous Outlook narratives.  The DJ will likely remain in the 10,000 - 10,500 trading range for the remainder of the year, before continuing its advance. 

Gold has reached new highs with the decline of the dollar, although this trend will end with forthcoming inflation commencing, in our view, at the earliest in mid to late 2010.  Various other commodities are exhibiting upward movement.

The current Los Angeles Auto Show is devoid of at least 2 previously regular high-end exhibitors, and the crowds are somewhat thin to date.  Absent the government incentives earlier this year, confirmation of continued upward sales trends remains to be seen.

Retail sales this holiday season will  lag pre-recession growth rates, with some optimism beginning to emerge.  The Fed is likely to avoid raising interest rates through 1 - 2Q, 2010, unless clear inflationary signals prompt acute intervention.

Lagging employment and real estate market recovery is consistent with previous recovery patterns, and leaves us with a nevertheless optimistic view of relative economic growth for 2010.

August 10, 2009

As mentioned in early June, the DJIA rose to 9000, retraced and returned in a bullish fashion now approaching 9450 range resistance.  Some retracement is expected at this juncture as low as 8800, however the outlook continues to be a bullish one. 

The Financial community is now openly discussing current conditions as being consistent with the end of the recession.   At this stage, we view the economic outlook as favorable and anticipate continued advancement.

Crude Oil and Gasoline prices continue to waver, with a general upward trend following Crude Oil's bottoming at the 30 spot level several weeks ago.  September Gasoline reached a recent high, retraced, and is now on the increase once again, presently just above $2.  Heating Oil is likely to continue above the $2 range, while Natural Gas remains below the $4 range, based upon nearest futures contracts.

Financial Services industry recovery has been strong during the past several months.  The mindset of TARP fund repayment and recapture of management independence holds high priority among some participants. 

Although the Auto market was soft for 1H, 2009, the Cash For Clunkers program has been very successful, with relative sales increasing at rates not seen since 2007.  Funding endurance remains the chief issue of concern to dealers as well as their buyers.

June 2, 2009

As discussed on April 2 below, the DJIA rose to the 8400 range, hovered there and exhibited what is, in our view, bullish behavior, consistent with the progressive economic recovery currently occurring, by continuing to rise to the 8700 range.  As mentioned, the next resistance is at 9000, where retracement may occur. 

Recollection of previous recessions is accompanied by the understanding of variation in the rate of progress of economic recovery.  Talk of a "soft landing" after a varying periods of bullish activity, as evidence of normal price action driven by profit taking, is an integral part of the process.   

Recent bankruptcy filings by GM and Chrysler are evidence of extremes of economic fluctuation normally seen within the industry accompanied by the dynamics of international competitors' pursuit of alternative approaches.  Necessary transition will now occur in the face of current business conditions with the concurrence of the U.S. government as the majority shareholder.  We will be watching for opportunity here upon bankruptcy emergence.

The financial services industry is also continuing their recovery, with most of the borrowers looking toward repayment of TARP funds in order to restore independent management policies.  JP Morgan, Bank of America, and Citigroup, among others, are benefiting from building investor confidence levels.  Consumers and businesses are awaiting the necessary restoration of funds availability in order to restore the growth curve.

Crude Oil and other commodities are experiencing significant price recovery, as strengthening demand accompanied by the Northern Hemisphere tourist season and continuing growth in Asia occurs.  Retail gasoline prices will continue to ascend at least through the July 4th holiday in the U.S., consistent with seasonal trends.

April 2, 2009

After hitting a 12 year low of 6470 on March 6th, the DJIA has rebounded significantly to a high exceeding the 8000 level today.  Bullish movement is supported by gradually increasing stability of the Banking Industry with the support of the U.S. Government, low interest rates, the G-20 meeting, and a recovery mindset focused upon 2H, 2009. 

On a technical basis, The DJIA has reached a resistance level, with some retracing expected intermittently, and further bullish trend indicated by a breakout above 8400, next resistance at 9000. 

As with previous recessions, employment, housing, and consumer confidence levels, among other indicators, continue to bottom in a cyclic fashion.  The current scenario is consistent with a recovery trend, however, pinpointing market/economy turnaround points is entwined with considerable risk.  For those companies with available cash, the time has arrived, in our view, for aggressive acquisition at currently favorable price levels, where portfolio strategy and future synergistic upside paint a compelling picture.

 

March 10, 2009

As predicted in the article below, the market broke to new lows shortly after February 19, with the DJIA plunging to the 6500 range, retracing to 6800 so far today.

The banking sector has led the decline with Citigroup dipping below $1, and Bank of America in the $3 range.  Other competitors have declined as well, mostly based on the fear of government takeover of the banking system.

Crude Oil prices have bounced back to $47, while Gold has declined to the mid $900 area.

Retail Supermarket and Pharmacy chains are surpassing others in the current climate, as are sectors of the Food and Beverage Industry.

 

February 19, 2009

While the Financial and Automobile Industries are seeking additional government support along with various other sectors, President Obama recently imposed new restrictions on upper management stipends for new entrants.  Numerous international governments have followed the U.S. lead in structuring stimulus packages.

The Banking, Brokerage, and Real Estate sectors remain subdued, without apparent sign of notable recovery.   Occasional upticks in home sales reflect the record number of foreclosures resulting in good values for those able to secure financing and willing to buy and hold.  Fed Interest Rate lowering has added to the buyer's market.

Crude Oil price declines in late 4Q and early 1Q have been followed by intermittent recovery, reflected by prices at the gas pump.  Inventory decline drove prices higher today.  The wide spread between the nearby and longer term contracts continues, suggesting bottoming behavior.

The U.S. stock markets today, have broken out of their trading range to the downside, with the Dow Jones closing at a new low under 7500.  This defines, in our view, a possible first leg of another downside move on a technical basis, with fundamentals consistent overall.  Continued bearish movement of the markets over the next few days increases the probability of a sustained downtrend.

While the mindset of the country is hopeful following the recent U.S. election, and significant efforts are being made by the U.S. government to support and stimulate the economy, visible signs of a sustained recovery remain on the horizon.

 

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