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| Leeb's Market Forecast | |
| April 29, 2008 | |
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| Dear Investor, Market Update ------------------------------------- In this week's update... ***** The united states of denial. ***** No more oil from Russia, Saudi Arabia. ***** The inflation train is picking up speed. ***** Don't panic if our Master Key flashes "Sell". ------------------------------------- Our nation today appears locked in a collective state of denial, refusing to admit the serious risks regarding oil and our energy situation. The campaign chatter around this issue simply boggles our mind. One candidate we heard recently argued that a quick solution to the energy crisis would be to declare a moratorium on gasoline taxes. That's certainly a novel way of encouraging people to conserve! A bit like trying to reduce the grocery bill by eating out more. Or like offering free ice cream to encourage people to lose weight. Other candidates have spent hours trying to ascertain which of them had closer ties to the 1960s radical group The Weathermen - as if the answer to that question had anything to do with our energy needs. (Soon they may be drafting bizarre conspiracy theories to account for the decline in oil production - anything but take responsibility for our own lack of planning and overconsumption.) If you want to know what Wall Street really thinks about energy, the trick is to ignore what various pundits are saying and look at how investors are valuing the energy sector. Over the past few years, the P/E ratios and relative P/E ratios of energy stocks have fallen to the point where they are now capitalized well below the market. That is true even for oil service companies, which typically have higher ratios than the market. In other words, Wall Street expect the energy sector to grow slower than average, which means it expects oil prices to fall sharply in the years ahead. Such optimistic expectations just don't jive with recent news ... Advertisement How To Profit From Stocks On The Rebound Buying a stock that has been unfairly punished can be a great way to get a bargain. But how would you like take home fast, fat profits, and lower your long-term risk at the same time? Here's what we did with Western Digital. The stock had been punished along with most of the technology sector in January, yet its main product (disk drives) is one of the bright spots in the industry enjoying strong demand. After rebounding through February, the shares then surrendered much of their gains. So we took a leveraged position looking for a retest of the highs, ahead of the company's next earnings report. But here's where we played it safe. Rather than take a chance that earnings wouldn't be as high as everyone expected, we cashed in our position the day before for a nice gain of 27.7% in just 20 days. Of course, to take advantage of situations like this, you have to be able to act at the right time. That's why we issue trade recommendations in these cases by email. We also used leverage to amplify our gains. However, there's a lot to be said for our style of trading. In the years since we started, roughly 69% of our trades have made money - which is far more than most traders can say. Want to see for yourself how you can easily put such opportunities to work in your portfolio, and add some real juice to your returns? Take a look at some of the FREE information posted at ... Leeb's Aggressive Trader ------------------------------------- GROWING TROUBLE IN THE OIL PATCHES Just in the past two weeks, Russia announced that it will be unable to increase oil production beyond current levels. Meanwhile, However, considering that Saudi promises in the past have always been wildly overstated, even the 12.5 million figure seems unlikely to ever be reached. Clearly the Saudis are looking hard for more oil, judging from the huge number of rigs in operation in their country at the moment. But we suspect it is just a vain attempt to postpone the inevitable fall in production. We hope the decline won't be too sharp - at least not until the end of this decade - but who knows? In your last update, we wondered why the U.S. is currently adding oil to the Strategic Petroleum Reserve. It could be that someone expects the worst. The other day, we came across a piece by Bernstein and Co. which we found quite remarkable. These are the same researchers who, not too long ago, were calling for oil prices to retreat to $40 a barrel. So they tend to be bearish on energy. Bernstein's current prediction is that oil prices will decline in the near future (we hope they're right about this), and then rise toward the end of the year. One reason they are so complacent about oil is that they went to the trouble of hiring aircraft to survey the Saudi oilfields from above. The main focus, naturally, was the Ghawar field, which is the source of most Saudi oil. Bernstein's optimism is based on their conclusion that "Ghawar is not in significant reservoir trouble." In other words, Ghawar is in trouble, just not in what they would call "significant" trouble. This is how spinmeisters like to reassure people. First they say there's enough oil to last for decades. Then they say everything is fine, despite a few delays typical to such projects. Then they say they're doing everything they can in hope of meeting their deadline. Then they say there's no significant trouble. Then they say they would rather leave some oil in the ground for future generations anyway. Then they say the problems have been worse than anticipated, but they will be solved in time. Then they say the problems will be solved eventually, as technology improves. Then they stop saying anything. The question is, how long does it take for a reservoir to go from trouble that's insignificant to trouble that is significant? Perhaps it's only a matter of months. The point is that Ghawar is the most essential reservoir in As we said above, we are concerned that the world is in mass denial over the risks to our oil supplies. No one wants to admit there's a problem, but now it seems there is a problem in Saudi Arabia. The Saudis have admitted that won't be able to raise production beyond 12.5 million b.p.d.. There's also a problem because, despite all the rigs at work in their country, production is still less than 10 million b.p.d. You don't need to be a geologist to realize which direction the oil supplies are headed. Of course, oil prices could come down in the near term, if demand drops for some reason. But longer term, we have a rocky road ahead of us. We hope we can get through this without a bone-jarring recession or depression (though that would also cause oil prices to fall). But the most likely outcome is inflation, and a lot of it. Advertisement How to make money staying out of some stocks. In volatile markets, here's how you can make better returns picking your entry points carefully and taking profits as they come... Micron Technology (MU) is a semiconductor maker whose products appear in PCs, servers and a wide range of consumer electronics. On April 2, we took advantage of the stock trading at a historically low price/book ratio. The stock has also been in the process of rebounding from a 52-week low - and it was supposed to report its quarterly results. Plus, there had been some positive news for the industry as a whole. Now, if this had been 1998, we might have bought this stock and held it for a year or more. But with today's uncertainty, we would rather take profits as they come. So 14 days later, when the stock was up nearly 11% above our entry price, we were quite happy to sell - instantly eliminating any risk that the price would pull back. Another example was our recent trade on Charles Schwab (SCHW). Schwab had limited exposure to the subprime meltdown and credit crisis, but its share price had been pulled down along with the entire financial industry. We expected that when the company announced good earnings there would be a rebound in the shares. So we bought the stock right before the earnings announcement, and sold it the next day for a profit of over 8% -- which is a great return considering our market risk lasted just over 24 hours. To get in on trades like these, check out Leeb's Ground Floor Trader program. It's easy to use. It takes very little time. You don't need much trading experience - because we give you all the help you need. It doesn't use complicated strategies like options. And it comes with a 60-day money-back guarantee. Just follow this link... Leeb's Ground Floor Trader ---------------------------------- RANGE-BOUND MARKETS...INFLATION COMING We continue to advise you overweight energy stocks. We especially like oil service stocks. The long-term prospects of Nabors (NBR) and Schlumberger (SLB) look particularly attractive. Despite gold's recent weakness (and it could remain weak for a while) we continue to recommend you overweight gold and buy on dips. Every likely scenario we can see is one in which precious metals become ever more precious. As far as the overall market indicators and the economy as a whole, we still can find no hard data to suggest that the economy is rolling over. All the evidence shows that weakness has been confined to the financial sector and has yet to spread to other sectors. In addition, the Fed's monetary easing (even if interest rates stay the same this week) has been extraordinary. It should be more than enough to pull the economy out of its current slow patch. Of course, we are a little concerned that the loose monetary policy will have side effects. The government no longer keeps track of M3, the broadest measure of the money supply, however certain private groups continue to make estimates. The latest estimate we have seen suggests that M3 is now growing at a record pace - even faster than at its At the same time, we expect the market will remain range-bound. On the bottom, stock prices are protected by a fairly strong economy and good earnings reports. On the top, they are limited by rising inflation and oil prices. Our long-term Master Key is quite likely to pass the 80% point, which (as covered in our book The Oil Factor) can be interpreted as a sell signal for stocks. HOWEVER, we probably won't make dramatic changes in the TCI portfolios, even if this event occurs. We have been making gradual changes for some time in anticipation of a signal by overweighting our low-risk hedges. A Master Key sell signal is a sign to reduce exposure to the overall market. Some sectors should continue to do well regardless, and as we don't have a sell signal yet, we aren't making any further changes. Keep in mind too that when we presented the Master Key in The Oil Factor, Donna and I had to assume that most readers were not TCI subscribers and would not be receiving advice from us on a monthly basis. You have the benefit of getting regular advice and updates, so you can better adjust to the changes as they occur. If oil spikes sharply, we may send you a special Alert by email explaining what to do, but don't rush out and sell all your stocks on the basis of a Master Key "sell" signal alone. Get our advice on the situation first.
Until next week, www.completeinvestor.com  |
