About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Wednesday, February 20, 2008

Stock Market -- Fundamental

My SP500 Market Tracker has dropped from the 1340-1350 area
down to 1325. This is entirely a reflection of the acceleration
of inflation, which now stands at 4.3% yr/yr. Short term
earnings expectations have steadied, and the consensus forecast
for '08 SP500 eps has been raised ever so slightly. That tiny bump
is the first positive one following months of cuts.

Economic data for January show a flattish economy and do not
confirm a recession is underway. The weekly leading economic
indicators have shown more stability as well. However, since the
indicators have fallen hard enough since last July to be
consistent with the development of a recession, the jury is still
out.

Last year's financial crisis blew a $600 billion hole in liquidity.
The yr/yr change in credit driven liquidity has dropped sharply to
5.2%. This compares to a yr/yr change of 6.7% for the $ cost of
production, which has been strongly influenced by a higher inflation
rate. Net, net, the real economy is draining liquidity via higher
inflation, leaving the capital markets primarily dependent on
portfolio and money fund cash for support.

At the current 1360 level, the SP500 is treading water relative to
recent earnings and inflation readings.

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