Wednesday, May 28, 2008
Wednesday, May 14, 2008
8. Corporate earnings ex-financials rose by nearly 10%, a very welcomed surprise. While a slowing US economy will impact the rest of the world’s economies, the strong global economy seems to remain on track. Additionally, there is evidence that the emerging markets are continuing to decouple from their dependence upon the US. As we said earlier, historically, 90-day T Bills have traded at a 0.20% spread below the Fed Funds Target Rate. During the last two weeks, the 90-day T Bill has moved from 1.35% to 1.81%, almost exactly 0.20% below the Fed Funds Target Rate of 2%. This would indicate that the big investors believe that a level of peace has returned to the valley, thanks to the quick and creative work of the Fed. Given everything spelled out above, very low interest rates (long and short), and an economic stimulus package just now being mailed to taxpayers, it looks as though the coast is becoming clear for stocks to move higher, perhaps significantly higher. The one big bugaboo in the economy right now appears to be rising petroleum prices. Our discussion seemed to have arrived at the point that consumers are already finding ways to adapt to high gas prices and they will continue to pursue others. We will all be on the watch-out for continuing evidence of this theory.We believe it is time to nibble on a short list of beaten down stocks that generate a large percentage of their earnings overseas. Since we have not bought them all yet, we will not name them, but the Industrial Sector still looks very strong to us.