U.S. stocks should continue drifting higher this week without much in the way of market-moving news. The Trade Balance, Inventories, Advance Retail Sales, Current Account Balance and preliminary reading of the Univ. of Michigan Consumer Confidence for March are the main reports scheduled for release. Oracle's(ORCL) 3Q report and Texas Instruments mid-quarter update are the only reports with market-moving potential this week. Other companies of note scheduled to report include Ann Taylor(ANN), Kroger(KR), Albertson's(ABS), Krispy Kreme(KKD), Talbots(TLB), El Paso(EP) and Border's Group(BGP).
Retail Sales and Consumer Confidence are the two most important releases this week. Advance Retail Sales are expected to have risen .6% in February vs. a .3% decline in January. The Univ. of Michigan Consumer Confidence preliminary reading is expected to come in at 95.4 for March vs. 94.4 in February.
BOTTOM LINE: I expect the majority of stocks to have a pretty good week. I will be monitoring tech closely for any signs that investors are shifting to a more positive stance on the sector as my short-term indictors turned positive on the group last week. As well, NASDAQ short interest relative to NASDAQ volume, a measure akin to the short interest ratio of an individual stock, is currently very high which will result in buying pressure as shorts cover their postions. Homebuilders have had a 20% move in just a few weeks, thus it is likely they will at least consolidate this week. Biotechnology, Financial Services, Retail and Basic Materials should continue to outperform with lower rates and a lower dollar. Overall, I will use pull-backs to buy in select areas and leave the Portfolio's market exposure relatively high. It is currently 100% net long.
I have five main concerns right now with respect to the U.S. equities markets:
1) The possibility of a terrorist attack on U.S. soil.
2) A change in the government's attitudes towards more protectionist economic policies and higher taxes.
3) A further rise in energy prices throughout the spring.
4) A sudden sharp move up in interest rates.
5) A continuation of the recent fall in consumer confidence over the next few months.
All five of these are currently not an issue, but any one could occur and would likely result in a change of my bullish outlook for 04.
Sunday, March 07, 2004
Saturday, March 06, 2004
Market Week in Review
S&P 500 1,156.87 +1.04%
A broad array of sectors contributed to another positive weekly performance for U.S. stocks. Homebuilders led the way with Gaming and Biotech stocks not far behind. With corporate executive corruption, Intel's conservative conference call and a weaker-than-expected jobs report dominating headlines, it is surprising and quite positive that stocks rose at all.
There were several developments that brought back investor concerns over executive corruption. First, Martha Stewart was found guilty of conpiring to obstruct an investigation of her sale of Imclone stock. Bernie Ebbers, the former CEO of WorldCom, was indicted on Federal charges that he masterminded the largest accounting fraud in U.S. history. Ex-CFO Sullivan pleaded guilty to the same charges. Finally, the New York Supreme Court dismissed the most serious charge against former Tyco CEO Kozlowski, however he still faces a possible 30 years in prison on other charges.
There were changes in leadership at a couple of America's top companies last week. Disney(DIS) decided to split the role of Chairman and CEO, leaving Eisner as CEO and naming George Mitchell as Chairman. Michael Dell will hand over his CEO title to President Kevin Rollins, but will remain Chairman of Dell.
In other developments, Clear Channel(CCU), the largest U.S. radio broadcaster, agreed to pay a $775,000 fine for airing lewd material. It was the second biggest fine ever for indecency. Intel lowered its 1Q guidance modestly after citing a small inventory buildup overseas, which it said it has since "worked through." Lehman Brothers was named manager of California's $15B bond approved by voters Tues. Walmart(WMT) opened its first grocery store in California. It plans to open 40 more in the next 4 years in Cali. to compete with Kroger, Safeway and Albertson's. Finally, Boston Scientific(BSX) won FDA approval for its drug-coated Taxus stent, allowing the co. to challenge Johnson and Johnson(JNJ) for the no. 1 spot.
BOTTOM LINE: Considering the fact that the headlines last week were dominated once again by negative news, obscuring the very positive economic data, it is a good sign that most stocks rose. Many sectors have broken out technically in recent days, with the exception of technology. I believe the catalyst to propel tech shares higher will be next quarter's earnings reports and guidance. While it is possible that semiconductor and equipment stocks may experience one more down-leg before they find a bottom, I think most are at good entry points right now. A 10% correction in the SOX, combined with rapidly improving fundamentals, makes valuations much more compelling than just a few months ago. I think the current semiconductor cycle will last much longer than analysts are now suggesting.
A broad array of sectors contributed to another positive weekly performance for U.S. stocks. Homebuilders led the way with Gaming and Biotech stocks not far behind. With corporate executive corruption, Intel's conservative conference call and a weaker-than-expected jobs report dominating headlines, it is surprising and quite positive that stocks rose at all.
There were several developments that brought back investor concerns over executive corruption. First, Martha Stewart was found guilty of conpiring to obstruct an investigation of her sale of Imclone stock. Bernie Ebbers, the former CEO of WorldCom, was indicted on Federal charges that he masterminded the largest accounting fraud in U.S. history. Ex-CFO Sullivan pleaded guilty to the same charges. Finally, the New York Supreme Court dismissed the most serious charge against former Tyco CEO Kozlowski, however he still faces a possible 30 years in prison on other charges.
There were changes in leadership at a couple of America's top companies last week. Disney(DIS) decided to split the role of Chairman and CEO, leaving Eisner as CEO and naming George Mitchell as Chairman. Michael Dell will hand over his CEO title to President Kevin Rollins, but will remain Chairman of Dell.
In other developments, Clear Channel(CCU), the largest U.S. radio broadcaster, agreed to pay a $775,000 fine for airing lewd material. It was the second biggest fine ever for indecency. Intel lowered its 1Q guidance modestly after citing a small inventory buildup overseas, which it said it has since "worked through." Lehman Brothers was named manager of California's $15B bond approved by voters Tues. Walmart(WMT) opened its first grocery store in California. It plans to open 40 more in the next 4 years in Cali. to compete with Kroger, Safeway and Albertson's. Finally, Boston Scientific(BSX) won FDA approval for its drug-coated Taxus stent, allowing the co. to challenge Johnson and Johnson(JNJ) for the no. 1 spot.
BOTTOM LINE: Considering the fact that the headlines last week were dominated once again by negative news, obscuring the very positive economic data, it is a good sign that most stocks rose. Many sectors have broken out technically in recent days, with the exception of technology. I believe the catalyst to propel tech shares higher will be next quarter's earnings reports and guidance. While it is possible that semiconductor and equipment stocks may experience one more down-leg before they find a bottom, I think most are at good entry points right now. A 10% correction in the SOX, combined with rapidly improving fundamentals, makes valuations much more compelling than just a few months ago. I think the current semiconductor cycle will last much longer than analysts are now suggesting.
Economic Week in Review
ECRI Weekly Leading Index 133.70 unch.
The Institute for Supply Management's Factory Index held close to a 20-yr. high at 61.4, as more factories said they were hiring to meet demand. The ISM employment gauge rose to its highest level since 1987. Moreover, this was the 4th straight month the index stayed above 60, the longest stretch since 83-84. The breadth of the improvement was impressive as all 20 manufacturing industries reported growth.
The Institute for Supply Management's Service Index came in at a very strong 60.8, down from its all-time high reading of 65.7 the month before. As well, the Intl. Council of Shopping Centers predicted sales of U.S. retailers rose 7% last month, the most in almost 4 years as tax refunds are boosting incomes by over $70B the first 6 months of the year.
The final Non-farm Productivity reading was 2.6%, growing at the slowest pace in a year. Fed Governor Bernanke said he expected companies to increase hiring soon as productivity gains slow. As well, first-time claims for unemployment insurance fell to 345k last week, near a three-year low. The Index of Aggregate Hours Worked per Week rose last month at the fastest pace in almost 8 years, as companies tried to keep up with demand. Finally, the Temporary Help Services Index has risen 10% in the last 10 months, the best showing since 1999 and a leading indicator of employment growth.
The unemployment rate met expectations and held steady at 5.6% for the month of February. However, the Change in Non-farm Payrolls was a much weaker-than-expected 21K. This number resulted in a significant rally in the Bond market and a modest decline in the U.S. dollar. Trading in interest rates futures now indicates that investors don't expect the Fed to raise the benchmark overnight bank lending rate from 1%, the lowest since 1958, until December at the earliest.
BOTTOM LINE: The vast majority of the data released last week point to continued strong economic growth with a pick-up in hiring in the next few months. Inflation remains subdued as well. The Personal Consumption Expenditure Price Index, the Fed's favorite gauge of inflation, rose a scant .3% last month even with record-high energy prices. In my opinion, the more momentum the economy builds before the first Fed rate hike, the better. Companies will find it increasingly more difficult to meet rapidly rising demand with their current labor force. Employment growth has always been a lagging indicator. Investors and pundits focused on this one number are looking in the rear-view mirror of the economic automobile. Those looking out the front window see improvement in the near future.
The Institute for Supply Management's Factory Index held close to a 20-yr. high at 61.4, as more factories said they were hiring to meet demand. The ISM employment gauge rose to its highest level since 1987. Moreover, this was the 4th straight month the index stayed above 60, the longest stretch since 83-84. The breadth of the improvement was impressive as all 20 manufacturing industries reported growth.
The Institute for Supply Management's Service Index came in at a very strong 60.8, down from its all-time high reading of 65.7 the month before. As well, the Intl. Council of Shopping Centers predicted sales of U.S. retailers rose 7% last month, the most in almost 4 years as tax refunds are boosting incomes by over $70B the first 6 months of the year.
The final Non-farm Productivity reading was 2.6%, growing at the slowest pace in a year. Fed Governor Bernanke said he expected companies to increase hiring soon as productivity gains slow. As well, first-time claims for unemployment insurance fell to 345k last week, near a three-year low. The Index of Aggregate Hours Worked per Week rose last month at the fastest pace in almost 8 years, as companies tried to keep up with demand. Finally, the Temporary Help Services Index has risen 10% in the last 10 months, the best showing since 1999 and a leading indicator of employment growth.
The unemployment rate met expectations and held steady at 5.6% for the month of February. However, the Change in Non-farm Payrolls was a much weaker-than-expected 21K. This number resulted in a significant rally in the Bond market and a modest decline in the U.S. dollar. Trading in interest rates futures now indicates that investors don't expect the Fed to raise the benchmark overnight bank lending rate from 1%, the lowest since 1958, until December at the earliest.
BOTTOM LINE: The vast majority of the data released last week point to continued strong economic growth with a pick-up in hiring in the next few months. Inflation remains subdued as well. The Personal Consumption Expenditure Price Index, the Fed's favorite gauge of inflation, rose a scant .3% last month even with record-high energy prices. In my opinion, the more momentum the economy builds before the first Fed rate hike, the better. Companies will find it increasingly more difficult to meet rapidly rising demand with their current labor force. Employment growth has always been a lagging indicator. Investors and pundits focused on this one number are looking in the rear-view mirror of the economic automobile. Those looking out the front window see improvement in the near future.
Weekly Scoreboard*
Indices
S&P 500 1,156.87 +1.04%
Dow 10,595.55 +.11%
NASDAQ 2,047.63 +.88%
Russell 2000 599.54 +2.39%
Wilshire 5000 11,314.42 +1.27%
Volatility(VIX) 14.48 -.48%
AAII Bullish % 47.83 +15.03%
US Dollar 88.17 +.99%
CRB 274.00 +.46%
Futures Spot Prices
Gold 401.60 +1.11%
Crude Oil 37.26 +3.30%
Natural Gas 5.44 +.52%
Base Metals 109.87 -2.81%
10-year US Treasury Yield 3.83% -3.02%
Average 30-year Mortgage Rate 5.59% +.18%
Leading Sectors
Homebuilders +8.87%
Gaming +5.83%
Biotech +4.18%
Lagging Sectors
Internet +.15%
Transports -.65%
Hospitals -.79%
*% Gain or loss for the week
S&P 500 1,156.87 +1.04%
Dow 10,595.55 +.11%
NASDAQ 2,047.63 +.88%
Russell 2000 599.54 +2.39%
Wilshire 5000 11,314.42 +1.27%
Volatility(VIX) 14.48 -.48%
AAII Bullish % 47.83 +15.03%
US Dollar 88.17 +.99%
CRB 274.00 +.46%
Futures Spot Prices
Gold 401.60 +1.11%
Crude Oil 37.26 +3.30%
Natural Gas 5.44 +.52%
Base Metals 109.87 -2.81%
10-year US Treasury Yield 3.83% -3.02%
Average 30-year Mortgage Rate 5.59% +.18%
Leading Sectors
Homebuilders +8.87%
Gaming +5.83%
Biotech +4.18%
Lagging Sectors
Internet +.15%
Transports -.65%
Hospitals -.79%
*% Gain or loss for the week
Friday, March 05, 2004
Friday Close
S&P 500 1,156.86 +.17%
NASDAQ 2,047.63 -.36%
Leading Sectors
Homebuilders +3.26%
Restaurants +1.65%
Gaming +1.58%
Lagging Sectors
Semis -.86%
Software -.87%
Iron/Steel -2.03%
Other
Crude Oil 37.26 +1.69%
Natural Gas 5.44 -.26%
Gold 401.60 +2.14%
Base Metals 109.87 +.48%
U.S. Dollar 88.17 -1.10%
10-Yr. Long-Bond Yield 3.84% -4.32%
VIX 14.48 +.56%
Put/Call .78 +14.71%
NYSE Arms 1.37 +52.22%
After-hours Movers
None of note.
Recommendations
Goldman Sachs says ACV up on speculation of a takeover by L'Oreal. They would not chase stock at current levels. GS saying tight inventory at retailers should limit markdowns going forward. Goldman interprets the March 3rd letter from the CBO as an incremental shift towards supporting gov. drug price negotiation under Medicare, with potential negative implications for the role of private-sector managed care companies in negotiating drug price discounts.
After-hours News
The S&P 500 rose for the seventh day in eight, led by homebuilders, financials and consumer cyclicals after a report showed the economy generated fewer jobs than expected. This report resulted in a substantial bond market rally and a falling dollar, which in turn led to the eventual rally in U.S. stocks. After the close, Delphi said it faces potential losses of $10M a day if 2 suppliers halt shipments because of a price dispute, DJ Newswire reported. Crude Oil is now trading near a 1-yr. high on unrest in Venezuela. Martha Stewart Living shares plunged 36% from their intra-day high after Stewart was found guilty on 4 different charges.
BOTTOM LINE: The Portfolio finished the day slightly higher, as weakness in my tech positions was offset by strength in biotech and homebuilding stocks. The Portfolio is 100% net long heading into trading next week. The Morgan Stanley Tech Index is at a critical juncture technically. I suspect, after weekend reflection, investors will bid tech higher in the coming week. Interest rates near 50-yr lows, a P/E of 18.7 and falling for the S&P 500 on 04 estimates, strong GDP growth near 20-yr. highs, strong corporate profitability near all-time highs, strong consumer/corporate spending, improving debt-service ratios, a stabilizing U.S. currency and record low inflation are all characteristics of the current market environment and all very positive for U.S. equities. I will discuss potential negatives I see in this weekend's commentary.
NASDAQ 2,047.63 -.36%
Leading Sectors
Homebuilders +3.26%
Restaurants +1.65%
Gaming +1.58%
Lagging Sectors
Semis -.86%
Software -.87%
Iron/Steel -2.03%
Other
Crude Oil 37.26 +1.69%
Natural Gas 5.44 -.26%
Gold 401.60 +2.14%
Base Metals 109.87 +.48%
U.S. Dollar 88.17 -1.10%
10-Yr. Long-Bond Yield 3.84% -4.32%
VIX 14.48 +.56%
Put/Call .78 +14.71%
NYSE Arms 1.37 +52.22%
After-hours Movers
None of note.
Recommendations
Goldman Sachs says ACV up on speculation of a takeover by L'Oreal. They would not chase stock at current levels. GS saying tight inventory at retailers should limit markdowns going forward. Goldman interprets the March 3rd letter from the CBO as an incremental shift towards supporting gov. drug price negotiation under Medicare, with potential negative implications for the role of private-sector managed care companies in negotiating drug price discounts.
After-hours News
The S&P 500 rose for the seventh day in eight, led by homebuilders, financials and consumer cyclicals after a report showed the economy generated fewer jobs than expected. This report resulted in a substantial bond market rally and a falling dollar, which in turn led to the eventual rally in U.S. stocks. After the close, Delphi said it faces potential losses of $10M a day if 2 suppliers halt shipments because of a price dispute, DJ Newswire reported. Crude Oil is now trading near a 1-yr. high on unrest in Venezuela. Martha Stewart Living shares plunged 36% from their intra-day high after Stewart was found guilty on 4 different charges.
BOTTOM LINE: The Portfolio finished the day slightly higher, as weakness in my tech positions was offset by strength in biotech and homebuilding stocks. The Portfolio is 100% net long heading into trading next week. The Morgan Stanley Tech Index is at a critical juncture technically. I suspect, after weekend reflection, investors will bid tech higher in the coming week. Interest rates near 50-yr lows, a P/E of 18.7 and falling for the S&P 500 on 04 estimates, strong GDP growth near 20-yr. highs, strong corporate profitability near all-time highs, strong consumer/corporate spending, improving debt-service ratios, a stabilizing U.S. currency and record low inflation are all characteristics of the current market environment and all very positive for U.S. equities. I will discuss potential negatives I see in this weekend's commentary.
Mid-day Update
S&P 500 1,157.31 +.21%
NASDAQ 2,051.56 -.17%
Leading Sectors
Homebuilders +2.50%
Restaurants +1.80%
Gaming +1.26%
Lagging Sectors
Semis -.61%
Fashion -.71%
Iron/Steel -1.97%
Other
Crude Oil 37.15 +1.39%
Natural Gas 5.43 -.49%
Gold 399.80 +1.68%
Base Metals 109.87 +.48%
U.S. Dollar 88.04 -1.20%
10-Yr. Long-Bond Yield 3.83% -4.70%
VIX 14.28 -.90%
Put/Call .75 +10.29%
NYSE Arms 1.32 +46.7%
Market Movers
AAPL +6.92% on Sony buyout rumors.
SBL -11.7% on continued weakness from 4Q report.
NUE -5.7% on Prudential downgrade to Neutral.
Homebuilders up across the board on a technical gap breakdown in interest rates.
Economic Data
Unemployment Rate came in at 5.6% in Feb., meeting expectations.
Change in Non-farm Payrolls was 21K in Feb. vs. expectations of 130K.
Change in Manufacturing Payrolls was -3K vs. expectations of down 2K.
Average Weekly Hours was 33.8, meeting expectations.
Recommendations
QCOM raised to Buy at Deutshe Bank and has $70 target. KWK cut to In-line at Goldman Sachs. PFCB raised to Buy at Citi Smith Barney, target $60. Citi also saying its sees recent positive trends in INTC's data points and investors should Buy now on weakness. Citi says March CIO Software Survey shows increased spending on applications, with emphasis on ERP, HRMS and CRM. Citi also saying that % of deployed applications that are web-based will grow from 25% today to 70% by 2010, benefiting BEAS and MSFT. Finally, Citi says MU's upcoming earnings report will be strong with outlook strong. Prudential raised BSX target to $53. X cut to Underweight at Prudential, target $28. TLB priced target raised to $43 at Prudential. Prudential also raised price target of MBG to $56. Lehman raised CNXT to Overweight. Raymond James raised BBY to Strong Buy. OSTK rated Strong Buy with $50 target at JMP Securities. Cramer, of TheStreet.com, says to buy tech on any short-term weakness from INTC call.
Mid-day News
U.S. stocks are mixed mid-day as they recover from an early morning sell-off. Homebuilders are leading the market again as interest rates broke to the downside on the much weaker-than-expected jobs report. The unemployment rate held steady at 5.6%. The 10-yr long-bond is having its best day since 2001. Flextronics(FLEX) says Qaulcomm's(QCOM) CDMA phone is gaining traction in China, Brazil and India. New York City's Taxi Commission proposal raises fares 26%, NY Daily reported. China's transportation system has bogged down under strains of rapid economic growth, causing delays in deliveries of raw materials and raising a risk of higher inflation, NY Times says. EchoStar would be forced to consider an acquisition or merger should rival Comcast succeed in buying Disney said Chairman Ergen, according to the Denver Post. Sun Microsystems credit rating was cut to "junk" by Standard & Poors.
BOTTOM LINE: While it is disappointing in the short-run that the U.S. isn't creating more jobs, it is actually better for the long-run. The Fed will not raise rates until it sees a couple of good jobs reports, in my opinion. Thus, the longer interest rates stay exceptionally low, the greater the pent-up demand for workers will be down the road. It is likely that the airwaves will be filled with negativity this weekend as media pundits continue to focus on the past instead of the future. These same pundits said that U.S. stocks, specifically technology, would remain in a bear market for a decade after the bubble of the 90's burst. They said corporate scandals would cause investors to flee U.S. stocks permanently. After 9-11, they said the U.S. would see many more attacks on U.S. soil in the near future. They said corporate spending wouldn't improve for years due to the overcapacity created during the 90's. They said a declining dollar would result in foreign selling of U.S. assets. They said U.S. budget and trade deficits would result in a crash in the economy and stock markets. All of these predictions proved to be wrong. Any investors that listened to this negativity likely missed out on the historically strong run we have had in U.S. stocks during the last 18 months. The economy is in very good shape and is getting better. With this improvement, job growth will come. Like I have said before, this recovery is in slow-motion as the U.S. economy continues to burn off the excess capacity created during the 90's bubble. We are close, but not there yet. Investors that focus on the future and all the recent positive developments with respect to the economy will be rewarded by year-end. The Portfolio is up today as I added a couple of interest-rate sensitive positions on the morning weakness and homebuilders continue to generate stunning profits. The Portfolio is now 100% net long.
NASDAQ 2,051.56 -.17%
Leading Sectors
Homebuilders +2.50%
Restaurants +1.80%
Gaming +1.26%
Lagging Sectors
Semis -.61%
Fashion -.71%
Iron/Steel -1.97%
Other
Crude Oil 37.15 +1.39%
Natural Gas 5.43 -.49%
Gold 399.80 +1.68%
Base Metals 109.87 +.48%
U.S. Dollar 88.04 -1.20%
10-Yr. Long-Bond Yield 3.83% -4.70%
VIX 14.28 -.90%
Put/Call .75 +10.29%
NYSE Arms 1.32 +46.7%
Market Movers
AAPL +6.92% on Sony buyout rumors.
SBL -11.7% on continued weakness from 4Q report.
NUE -5.7% on Prudential downgrade to Neutral.
Homebuilders up across the board on a technical gap breakdown in interest rates.
Economic Data
Unemployment Rate came in at 5.6% in Feb., meeting expectations.
Change in Non-farm Payrolls was 21K in Feb. vs. expectations of 130K.
Change in Manufacturing Payrolls was -3K vs. expectations of down 2K.
Average Weekly Hours was 33.8, meeting expectations.
Recommendations
QCOM raised to Buy at Deutshe Bank and has $70 target. KWK cut to In-line at Goldman Sachs. PFCB raised to Buy at Citi Smith Barney, target $60. Citi also saying its sees recent positive trends in INTC's data points and investors should Buy now on weakness. Citi says March CIO Software Survey shows increased spending on applications, with emphasis on ERP, HRMS and CRM. Citi also saying that % of deployed applications that are web-based will grow from 25% today to 70% by 2010, benefiting BEAS and MSFT. Finally, Citi says MU's upcoming earnings report will be strong with outlook strong. Prudential raised BSX target to $53. X cut to Underweight at Prudential, target $28. TLB priced target raised to $43 at Prudential. Prudential also raised price target of MBG to $56. Lehman raised CNXT to Overweight. Raymond James raised BBY to Strong Buy. OSTK rated Strong Buy with $50 target at JMP Securities. Cramer, of TheStreet.com, says to buy tech on any short-term weakness from INTC call.
Mid-day News
U.S. stocks are mixed mid-day as they recover from an early morning sell-off. Homebuilders are leading the market again as interest rates broke to the downside on the much weaker-than-expected jobs report. The unemployment rate held steady at 5.6%. The 10-yr long-bond is having its best day since 2001. Flextronics(FLEX) says Qaulcomm's(QCOM) CDMA phone is gaining traction in China, Brazil and India. New York City's Taxi Commission proposal raises fares 26%, NY Daily reported. China's transportation system has bogged down under strains of rapid economic growth, causing delays in deliveries of raw materials and raising a risk of higher inflation, NY Times says. EchoStar would be forced to consider an acquisition or merger should rival Comcast succeed in buying Disney said Chairman Ergen, according to the Denver Post. Sun Microsystems credit rating was cut to "junk" by Standard & Poors.
BOTTOM LINE: While it is disappointing in the short-run that the U.S. isn't creating more jobs, it is actually better for the long-run. The Fed will not raise rates until it sees a couple of good jobs reports, in my opinion. Thus, the longer interest rates stay exceptionally low, the greater the pent-up demand for workers will be down the road. It is likely that the airwaves will be filled with negativity this weekend as media pundits continue to focus on the past instead of the future. These same pundits said that U.S. stocks, specifically technology, would remain in a bear market for a decade after the bubble of the 90's burst. They said corporate scandals would cause investors to flee U.S. stocks permanently. After 9-11, they said the U.S. would see many more attacks on U.S. soil in the near future. They said corporate spending wouldn't improve for years due to the overcapacity created during the 90's. They said a declining dollar would result in foreign selling of U.S. assets. They said U.S. budget and trade deficits would result in a crash in the economy and stock markets. All of these predictions proved to be wrong. Any investors that listened to this negativity likely missed out on the historically strong run we have had in U.S. stocks during the last 18 months. The economy is in very good shape and is getting better. With this improvement, job growth will come. Like I have said before, this recovery is in slow-motion as the U.S. economy continues to burn off the excess capacity created during the 90's bubble. We are close, but not there yet. Investors that focus on the future and all the recent positive developments with respect to the economy will be rewarded by year-end. The Portfolio is up today as I added a couple of interest-rate sensitive positions on the morning weakness and homebuilders continue to generate stunning profits. The Portfolio is now 100% net long.
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