OLD WORLD, NEW WORLD .....by Eric Roseman
The consensus is bleak - and not just for the U.S.
economy. I recently returned from a nine day visit to
Europe. Bankers in Copenhagen and Zurich believe that
the U.S. dollar will continue to struggle going forward,
but at the same time, they're not particularly excited
about the Euro, either.
European GDP growth is slowing this fall. Germany,
Europe's largest economy, is barely expanding her
economy, accompanied by rising unemployment. The country
is the key to Euroland economic vitality, at 36% of GDP.
But you certainly wouldn't get that impression from her
stock market: The Frankfurt DAX is down a dizzy 57% from
its all-time high back in March 2000. Earnings are
generally poor, the rising Euro is hurting exporters and
companies are not spending capital.
The only good news in Europe is that stocks are
generally much less expensive than Wall Street. But
again, the consensus here in the Old World is that
corporate earnings projections are still too high and
that 2003 will not be particularly good for European
companies.
Both the U.S. dollar and the Euro are like two drunks
after a big night of partying. They walk in tandem,
occasionally stumble, intoxicated by spending, sluggish
growth and deteriorating trade balances. But in a
relative world, Europe is indeed healthier, still
harboring a positive trade-balance and current-account
surplus versus massive deficits for the United States on
both scores. The Euro is simply a better currency at the
moment.
The key word here is at the "moment."
Europe is now embarking on a huge spending spree after
the worst floods in over one hundred years delayed tax
cuts in 2003 for several countries, including Germany.
This is not bullish for personal consumption, but might
give the economies a short-term boost because of
billions in government outlays.
Bonds are still favored by some heavyweight money-
managers over here, though durations have been cut to
just three years for many clients. Bankers in Denmark
and Switzerland believe interest rates can't go much
lower from these levels.
And what about stocks? The advisors I spoke to were
generally avoiding equities. Values, however, do remain
in the emerging markets. The big money to be made over
the next few years will generally not be in common
stocks. With the exception of short-term trading
opportunities, the bulk of profits will come from
foreign currencies, alternative mutual funds, gold and
commodities. You'll also make good money betting against
U.S. stocks.
In August, after flirting with a summer rally, global
stock markets failed to rebound and ended the month
flat. Usually following a dramatic decline in values
(such as in July), equities would stage a big recovery
the following month. Remember last October? Though the
Dow and S&P 500 Index are up 15% since the July 23 lows,
they both ran out of gas just over a month ago.
This is going to be a bad decade for most common stocks,
similar to the 1966 to 1982 bear market. During that
period, and adjusted for inflation, the Dow did
absolutely nothing for 16 years. That doesn't mean we'll
have the same boring market this decade, but it is
extremely fundamental to understand what possibly lies
ahead in the 2000s.
After a stock market bubble has burst, it can take years
for the public to return en masse, years for stock
prices to recover and years for domestic and
international stability to re-emerge. During bear
markets, the economy turns sour; the government gets
bored and decides to make war. They also print their way
out of misery, discontent and ultimately, invite Mr.
Inflation as a consequence of stupid policies. That is
exactly the scenario unfolding around us today.
Take a good, hard look around you...Does 2002 feel or
look anything like 1999? In the space of just three
short years, the world is a completely different place.
We just finished the greatest bull market mania of all
time, in 2000. And now, I hear some pundits predicting a
new bull market, starting in 2003.
While this is dangerous thinking, what we are likely to
experience in 2003 is a huge mini-bull market in the
context of a secular bear market. From 1966 to 1982,
stocks did enjoy some terrific gains - but these profits
were wiped out by big spills in between, and of course,
by inflation. But you earned fat gains in 1975, 1976 and
1978.
Over the next four-to-six weeks, you could try very
speculative index-based trades. Notice how I said
"trade", and not an investment? That's because the "buy-
and-hold" mentality we enjoyed over the last 20 years is
finished. If you don't get out with nimble but quick
profits in this mess, you'll get clipped by the bear.
It's that simple.
Sometime, very soon, I'm looking for a strong BUY signal
on the stock market. We're not there, yet. But that day
is coming. I'm betting that most of 2003 will be a
superb year for global equities. Yes, I realize you may
want to have my head examined. But in a secular bear
market, the bull visits, but just for a short while. His
goal is to take as many suckers as he can to the
cleaners, making them believe the bull is REAL.
But I don't plan to stick around for that to happen. If
I'm right about 2003, we're looking at 35% to 50%
profits by Christmas next year.
Sound bold? Maybe off the top?
Yeah, I'm pretty alone on this call, and that makes me
feel quite confident.
The indicators I follow continue to be extremely bullish
for the stock market near-term. All the key ratios I
track are flashing BUY. I'm just standing by and waiting
because September is statistically the worst month for
stocks - even worse than infamous October.
We're going to see a rapid acceleration of these trends
over the next 12 months. It is very important that you
diversify, diversify, diversify...and stay tuned.
Regards,
Eric Roseman,
for The Daily Reckoning
P.S. In August, the gold stocks were the best performing
stock market constituents, up an average 15%. We did
very well last month with a few mining shares that were
in the midst of a big sell-off earlier in June and July.
Those who followed my advice are easily ahead about 20%
by now. |
