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| Leeb's Market Forecast | |
| April 4, 2008 | |
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| Dear Investor, Leeb’s Income Performance Update ----------------------------------------------------------------------------------------------- Bernanke almost uses the "R" word. . . Third time's the charm. . . ----------------------------------------------------------------------------------------------- Fed Chairman Ben Bernanke returned to capital hill yesterday and today to talk to Congressional banking committee members about the central bank's role in the JP Morgan Chase takeover of Bear Stearns, the state of the overall economy, and the steps the central bank was taking to alleviate the credit situation. Bernanke's comments, both in his written statements and in the Q&A sessions, are notable for what he didn't say as much as what he did say. The Fed Chair used his comments for justify the central bank's non-bailout bailout of Bear Stearns with the aid of Morgan as a way of preventing economic dislocations that could have spread far beyond Wall Street. In the process, Bernanke offered a downbeat forecast for the first half of the year. He suggested that a shallow contraction can't be ruled out, although he didn't use the word "recession" in his prepared remarks. The other subject notably absent from Bernanke's speeches (contrary to statements earlier this year), were indications of the Fed's plans to lower short-term interest rates further to spur growth. Although the market is expected another rate cut at the next Federal Open Market Committee meeting at the end of this month (and the Fed will cut rates beyond that if necessary), Bernanke seemed to be quietly signaling that we may be near the end of the easing cycle. It takes months for the full impact of rate cuts to be felt and we're only now coming up to that point. And although it's true the economic data coming in is still weak, on balance it has been better than analysts' pessimistic expectations. That suggests the economic picture will improve from here, not worsen. Consider today's news that initial jobless claims rose above 400,000 last week for the first time since just after Hurricane Katrina. While we'd much rather see jobless claims closer to 300,000 than where they are today, they're still not at levels typically associated with recessions--either on an absolute basis or on a year-over-year basis. In like vein, the unemployment rate is likely to tick higher in the coming months. However, at less than 5 percent today, the unemployment rate (which happens to be a lagging economic indicator) is a far cry below what one would expect in the depths of a recession. Keep in mind that our economy is getting a friendly hand from the developing world. Slower growth here is will influence growth abroad, but not by much. The International Monetary Fund (IMF) lowered its worldwide forecast for economic growth yesterday to "just" 3.8 percent. While that is the lowest rate of expansion since 2002, it's still quite high by the standards of recent decades. And with more than half of the world's growth coming from surging developing economies it will ensure that demand for our exports remains strong. Advertisement A Trading Advisory Service For Active Investors Designed for well-capitalized investors with high risk tolerance seeking... The potentially higher gains consistent with short-term trading. A better way to target sectors experiencing above average growth. A way to seek positive returns even in flat or sideways markets. Leeb's ETF Trader offers investors a sophisticated short-term trading strategy that is easy to follow, requires only a few minutes a week, and features on-going support from a team of professional analysts. Are You Ready For The Next Level Of Active Trading? ------------------------------------- If the U.S. economy really was in trouble as the TV talking heads have seemingly been saying ad nauseam of late, today's jobless claims number would have set off a decline in the stock market. But instead share prices were relatively flat by the closing bell. The market has also shrugged off big losses from the likes of UBS and Deutsche Bank this week. In fact, we saw big up-moves in the prices for their shares following the bleak news. Likewise, investors have cheered word that Lehman Brothers and Merrill Lynch, among others, were raising capital. Conservative investors should be in no hurry to add these ailing financial stocks to their portfolios, but you can use their recent favorable action as confirmation that the worst is behind the market for the time being. Third Time is The Charm If you want further proof that the stock market offers much more upside potential than downside risk right now forget what you read in the headlines, the market itself is sending out some pretty bullish messages. Last week we pointed the dichotomy taking place between the utilities and the transportation sector, which has grown stronger since then. The weak interest-rate sensitive utilities, which while up 6 percent in the past several weeks, are still much closer to their lows than their highs. The story is quite different for the transports, which have climbed 25 percent off of their lows. The transports are signaling much stronger economic growth in the months ahead. The utes are also telegraphing stronger growth in a way: They're telling us that inflation is going to be much more of a problem going forward. Another "loud and clear" bullish indicator is the wide-eyed advance we saw on Tuesday. The tally at the end of that day showed that nearly 10 stocks advanced for every one that declined. Likewise, volume skewed to the upside by a 10-to-1 margin. This was the third such extensively asymmetrical bullish day in the past three weeks. One such bullish day doesn't mean all that much for the market's prospects. Two such days in short order is typically a clear-cut indication that the bearish trend has come to an end. And three such days over a brief span of time is a pretty much a bell ringer: It signals that market psychology has changed for the better and it paves the way for further gains that can last from months to years. While the overall market is somewhat attractively priced at current levels, valuations are still high enough that we're not willing to bet the farm on a runway bull market getting under way at this time. Still, we suspect that current run can tack on at least another five percent, and perhaps as much as 10 percent more, before the rally exhausts itself. Factor in dividends and you have the potential for healthy total returns as a result. Until Next Time, Your LIP Team If you cannot view this mailing click here. This email was sent to LEMMETRY@GMAIL.COM. You are receiving this email because you have requested a free subscription to Dr. Stephen Leeb's Market Forecast. Click here to be removed from this mailing list. Click here to be removed from all of our promotional offers. 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