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 !!!

Friday, April 29, 2005

Stock Market -- More on Fundamentals

S&P 500: 1146
I gave up on investing in 1996, when the bubble first started to form. Now, nearly ten years later, the market is far more reasonably priced, but I am at an age where long term investing holds little allure. So, I will buy shares, hold for a while, then sell and pay my taxes.

From a business cycle perspective, the best time to own stocks is when interest rates are falling, monetary liquidity measures are accelerating in growth, confidence in the economy is on the rise and profits are recovering back up to the long term trend line. In this cycle, that all ended around 3 / '04. Since then, the key fundamentals have slowly deteriorated and went fully negative over the 2 / '05 - 3 / '05 period. I do not see us in the kind of squeeze that kills an economic expansion, but as going through a period designed to enforce an economic slowdown to remove some of the inflation pressures from the system. The Fed would strongly prefer to stretch this expansion out another four - five years if it can.

For my part, I intend to wait out this interval until inflation pressures abate and market short term interest rates begin to weaken a little. At that point, it would be a good time to see if aggressive exposure to the market is in order.

In the meantime, fundamentals can yield up the occasional trade. One measure I like is the direction of Federal Reserve Bank credit. http://www.federalreserve.gov/releases/h41/Current/

This account is down so far for the year, and if the Fed is to maintain a policy of moderate liquidity growth as I suspect, They will have to add nearly $60 billion to Their account by year end 2005. I expect the FOMC to begin stepping up purchase activity over the next 4-6 weeks. If the Fed wants to buy, may be I should too.

Saturday, April 23, 2005

Stock Market -- Fundamentals

S&P 500: 1152

I have us as remaining in a cyclical bull market in the USA. True
enough, the market is no higher than it was a year ago, and has
been in a correction phase recently. But the action of the market
is merely repeating what happens after the powerful initial phase
of stock price and profits recovery in the wake of recession. Once
profits complete a "V"pattern recovery and move into the expansion
phase, it is common for inflation pressures to intensify and for interest
rates to begin to rise. This is what we experienced over 1964-66,
1973, 1983 and 1994.

The process of inflation containment has grown easier over the years
for three reasons: 1) The Fed has learned to move more forcefully;
2) It has attacked inflation earlier in the cycle; and 3) accounting and
tax policies have made inventory speculation less attractive for
businesses. The Fed did fail to extend the expansion and the bull
market over 1973-74, as companies pursued aggressive inventory
speculation via FIFO accounting -- "first in, first out" -- which led to
large but unsustainable earnings gains, inventory imbalances and

The process of inflation containment to extend economic growth and
the bull market could be difficult this time. The current inflation impulse
or impetus is the strongest The USA has encountered in nearly thirty
years. As well, the Nation's financial system has more weak spots for
the Fed to worry over. For now, the policy seems to be to maintain
money and liquidity growth at moderate rates and to let inflation
pressure cut into growth so that the resulting slowdown will create
enough slack to cool inflation pressures and allow the Fed to ease up on
the monetary reins subsequently.

As of now, the data suggests the economy may slow in the months
ahead but that inflation stimulus still remains strong, particularly in
the fuels sector. Since there is slack already in the system, the policy
still has a reasonably good chance to work.

Now the hard truth is that during these inflation containment periods, the
stock market can easily decline by 10 - 12% even if the program is a
success, as uncertainty during the process can take a toll. Thus, it
should be no surprise if the S&P 500, already down 5.5% from the recent
interim high, falls another 5 -6% to the 1085-90 area. Much should
depend on how fast we see progress on the containment front and how
confidently investors react.

Success here is very important. Giving the economy "room" to expand
another three-four years will help fill the US Budget coffers with regular
income revenues as well as capital gains taxes from a rising market.

Saturday, April 16, 2005


I set up this blogspot for a couple of reasons. One, I'm no longer a spring chicken, and I find that writing helps me tighten the logic of my thinking. Two, we are now moving through a
transition in economic drivers and the investments marketplace that will usher in a markedly new era on a global basis. I want to provide current perspective, but I also want to start looking
ahead at prospective dramatic change that is coming at us, but which is now only barely discenible. The era from 1980 - 2004 was well defined early on in both the global economy and the capital markets. Once you saw the shape -- broadening global growth with decelerating inflation and falling interest rates -- investing became like shooting fish in a barrel. But now, a period of accelerating change lies ahead, with all the pitfalls and opportunities it will bring for investors. I hope you will follow along as we start to look for and define the markers of great change.