 | |
| Leeb's Market Forecast | |
| April 18, 2008 | |
 | |
| Dear Investor, Leeb's Income Performance Letter - Weekly Update
-----------------------------------------------------------------------------------------------
Spring earnings season in full bloom. . .
Beauty and beasts in the bond market. . .
-----------------------------------------------------------------------------------------------
Earnings reporting season is in full swing this week and all eyes are on the financials. We have to say we're pleased with what we're reading. The primary source of pain in the equities market in the past year, the financials are now acting as a catalyst for up-moves. Although there's plenty of red ink getting published, most financials have topped expectations this quarter.
Wells Fargo and J.P. Morgan Chase are leading the charge, with a number of regional banks also in the vanguard. Of course the surprises haven't all been positive: Merrill Lynch, for instance, this morning posted a wider-than-expected loss in the period. Yet Merrill's stock managed to climb more than 4 percent on the day. This tells us the worst is already baked into the market.
Looking at the market as a whole, earnings have been fairly good in the early going of the first-quarter profit reporting season. There have been some notable misses, the most prominent of which was General Electric's shortfall last Friday which was largely attributable to weakness in its financial unit. We've also seen some notable positive surprises, such as yesterday's report from IBM, which had profits ahead of expectations and it raised its full-year guidance. Ditto for Google after the close today.
Excluding the financials, profits are up 5 percent this quarter compared to the same period a year ago. And we expect that figure to rise when all is said and done. Questions about the second half of the year continue to linger, however.
Advertisement 33% in 33 days -- how's that for a winner ?
Today's oil prices don't give you much pleasure at the gas pump, but if you're smart enough to put yourself on the right side of this trend, you can really clean up.
For example: A little over a month ago, when oil closed in the three-digit range, three days in a row, for the first time in history, we felt sure that oil service stocks would respond by climbing up from their oversold levels. One of best performing stocks in that group at the time was Weatherford International (WFT). So to maximize our short-term profits, we recommended a leveraged play on the stock.
Just 33 days later, WFT had moved up sharply -- actually looked a little overbought -- so we cashed in our position for a nice 33% gain.
We come across similar opportunities once or twice a week, the profits have been pretty good since we started. (The average gain on a closed trade since inception has been 12%, with an average holding period of just 39 days, so far.)
But if you want to get in on this week's opportunity, you must be the kind of person who can react quickly and that you know your limits. You must also be willing to make a small commitment.
If you you're interested in making a whole lot of fast money, just follow this link for more information .... Leeb's Aggressive Trader.
You'll be amazed how easy it is. ----------------------------------
The economy is indeed weak--although we remain in the minority in that we see it avoiding a prolonged contraction. Many corporate managers, meanwhile, leery over their personal exposure under Sarbanes-Oxley regulations, are hesitant to promise too much and are instead inclined to soft pedal their expectations. Of course that sets the stage of upside surprises next quarter.
A recovery--or at least a leveling out--of home prices would go a long way in reviving the U.S. economy. And that may be a lot closer than most think, with housing affordability at best levels in years according to statistics from the National Association of Realtors. Homebuilder stocks, which as a group have rallied 40 percent off of their lows, are certainly signaling better times ahead.
Keep in mind that while we're constructive (how could we resist the pun) on the economy going forward, there are still reasons for concern. Chief among these is the rising cost of crude oil, which set repeated records this week and at one point topped $115 a barrel. Historically, rises of that magnitude have caused both the economy and the stock market to suffer.
Some of the rise in the price of oil has been exaggerated due to weakness in the U.S. dollar, which is the universal currency for crude oil transactions. But fundamental factors are also at work here. The latest bullish news driving the energy market is slowing crude oil output from Russia in the first few months of this year along with comments from Russian oil industry insiders that the country's production is at or very near a plateau. Russia is the world's largest producer, ahead of even Saudi Arabia, so this is a very big deal.
If crude prices continue to rise we'll be inclined to take a more defensive posture with our investment holdings.
Beauty and Beasts in the Bond Market In the bond market, participants are betting on another quarter point rate cut by the Federal Reserve when its policy setting arm meet again at the end of the month. The central bankers will want to keep some of their powder dry in case the economy truly nosedives, so we're likely coming to the end of the rate cutting for this cycle.
Long-term bond yields, in the meantime, have quietly risen in recent weeks. In part, they're signaling that an accelerating economy is in the offing. But yields are also still well below what we would expect given the current level of inflation. The latest CPI reading has consumer inflation running at a 4.4 percent annual rate. As we've discussed in the past, though, the true rate of inflation (after factoring out Washington's chicanery) is significantly higher than the official rate--and headed higher.
As we move further away from the credit crunch we look for long-term bond yields to rise substantially. To stay ahead of inflation, income investors have to think in unconventional ways. Cash and money market funds are a losing proposition. You don't want to contend yourself with earning 1 percent on your money when inflation is several points higher.
Most long-term bonds are a bad bet these days as well. Think Treasury Inflation-Protected Securities (TIPS) rather than traditional interest-bearing bonds to keep your head above water. Or consider municipal bonds, which are throwing off abnormally high taxable-equivalent yields these days.
For the more risk tolerant, there are opportunities in distressed debt that offer capital appreciation potential as well as high income. We'll discuss some of these in our next newsletter issue.
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. TCI Enterprises, LLC 500 5th Ave., 57th Floor New York, NY 10110 Disclaimer TCI Enterprises LLC, The Complete Investor, Emerging Investments, Leeb ETF Trader, Leeb IPO Insight, Leeb's Aggressive Trader and their affiliated companies and publications ("TCI" or "Letters" or "Publications") are not registered as a broker dealer or investment advisers with the U.S. Securities and Exchange Commission or any state securities authority. Letters and their information and content providers make no representations or warranties of any kind in connection with the subject matter, performance or the suitability of the information contained in publications for any purpose and are not liable for the timeliness, accuracy, or completeness of the information contained herein. The information contained in publications is provided for general informational purposes, and is not a substitute for obtaining professional advice from a qualified person, firm or corporation familiar with your personal circumstances. Please seek the advice of professionals, as appropriate, regarding the evaluations of any specific security, report, opinion, advice or other content. TCI is not responsible for any trades placed by the recipients of TCI based on the information included therein. There can be no assurance that your portfolio or positions can achieve the indicated performance and therefore, the sample performance information should not be relied upon. Investment recommendations are not intended to be construed to be personalized advice, or recommendations to buy, hold, or sell mentioned securities and readers should consider their personal situation before making any investment. All opinions expressed and information and data provided therein are subject to change without notice. TCI, its officers, directors, employees, and/or associated entities may have positions in and from time to time make purchases, or sales of the securities discussed or mentioned in TCI. TCI shall have no liability for any e-newsletter that is lost, intercepted or not received by you in a timely manner, or at all, for any reason.  |
