anyone know who is - HUGH JOHNSON, CIO, FIRST ALBANY
Keep up with the latest market trends with one of the nation's most
quoted economic analysts--Hugh Johnson, Senior Vice President and Chief
Investment Officer of First Albany Corp. and Chairman and President of
First Albany's Asset Management Corp.
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Synchronized Global Expansion Update
7/26/99
It is easy to become hysterical when one becomes caught up in the daily
or even weekly changes in the markets. Take for example what happened
last week in Asia. Interest rates rose…in some cases sharply…and stock
prices declined…in some cases sharply. Interest rates rose quite sharply
in Singapore, Thailand, and the Philippines; stock prices declined
sharply in South Korea.
These moves appear to be sharp changes in the financial markets. And,
for one week, they were. It is, however, important to place these
changes in a more general context—to review the changes in the context
of what has been generally occurring in these markets.
Generally, stock prices have been rising in 1999. The same has been true
for Europe. Stock prices are higher in 1999 in Germany, France, and the
United Kingdom and, with the possible exception of the United Kingdom,
the trend seems to be positive even though prices have declined somewhat
recently.
There is also a pattern…generally…for long-term (10-year) interest
rates. Generally, although interest rates are lower in 1999 than they
were in 1998, they have begun to rise. Although interest rates are
generally lower in 1999, they have generally begun to move up from their
April lows.
The same has been generally true for Europe, as well, where interest
rates have been generally rising all year. Stock prices and interest
rates are rising in both Asia and Europe even though there are some
teeth-rattling reversals for days or weeks.
In our judgment, stock prices and interest rates are rising because
early warning signs for the Asian and now European economies are
pointing up. The Foundation for International Business and Economic
Research publishes indices of leading economic indicators for various
regions of the world to include North America, Europe, and Asia. The
six-month rate of change for each is shown in the following three
charts.
Stock prices, interest rates, and leading economic indicators dictate a
more normal stock market-economic-interest rate cycle is unfolding. In
response, forecasts for other countries for 1999 are for stronger growth
and, moreover, those forecasts are being revised higher…generally.
The case is reasonably sound that the Asian, North American, and
European economies will continue to expand. Under these conditions, the
U.S. is unlikely to benefit to the same extent as from ample global
capacity conditions and declining import prices. After 27 consecutive
year-to-year declines, import prices have begun to post increases. This
is somewhat a useful leading indicator of inflation. As such, it is no
longer suggesting that U.S. inflation rates will decline.
Strategy
As warned last week, we are recommending investors reduce the percent of
equity assets invested in industrial issues.
As mentioned last week, the trend in seven of the nine sectors that we
track is lower, and the trend in two sectors (technology and
conglomerates) is higher.
We would add that the relative performance of smaller issues continues
to deteriorate and the relative performance of large-capitalization
issues continues to strengthen. We would postpone adding to small stock
positions until we see a change in these trends.
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exchanges as well as a member of SIPC and NASD. Important Information.
© First Albany Corporation, 1999. All rights reserved.
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