Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : News Links and Chart Links -- Ignore unavailable to you. Want to Upgrade?

To: pallmer who wrote (5562)	2/7/2003 4:18:47 PM
From: Softechie	Respond to of 29599

AG why so sad? Greenspan in no mood to celebrate By Rex Nutting 02/07/2003 16:10 WASHINGTON (CBS.MW) -- Federal Reserve Chairman Alan Greenspan and the Congress should be in the mood to congratulate themselves heartily on a job well done. The massive monetary and fiscal stimulus they engineered in the past two years has provided just about the only momentum the economy has had. If it hadn't been for the interest rate cuts, the tax cuts and rebates, and the surge of government spending, the economy would still be mired deep in recession. Most of 2002's growth came from government spending or consumer spending on interest-sensitive goods like houses and cars, supercharged by the tax cuts. As much as they accomplished, it wasn't enough. The economy is struggling to create jobs, profits and security. The challenges faced by policymakers are now even greater than those they faced in 2001 and 2002. The economy is stagnant, but the Federal Reserve and the Congress are both running out of effective ammunition. And so when Greenspan makes his semiannual pilgrimage to the Senate Banking Committee, there won't be much time for celebration. His appearance is scheduled for Tuesday at 10 a.m. He'll reprise his testimony at the House Financial Services Committee the next day. "At a time of great uncertainty about the economic and political outlook, he is unlikely to break new ground relative to recent Fed statements about the economy," said Ed McKelvey, an economist at Goldman Sachs. Most economists expect Greenspan to repeat the basic themes of recent statements from the Federal Open Market Committee: Interest rates are already very low, structural productivity improvements remain impressive, and worries about terrorism and war are dominating business and consumer planning. The consensus among Wall Street economists is that the Fed won't do anything on interest rates for the next six months, at least. A minority believes another rate cut is probable in the spring. One economist thinks Greenspan should harp on the good news during his congressional testimony. "The economy has gotten a bad rap," said Ken Mayland, president of ClearView Economics. "We've got a recovery, although it's been unsatisfying." With growth of 2.8 percent in the past four quarters, "there's no way under the sun that you can argue we're still in a recession," Mayland said. "What goes unreported and unappreciated is how bad it might have been had not monetary policy been as aggressively easy as it was," Mayland said. Recent FOMC statements have put a lot of the blame for the current "soft patch" in growth on "geopolitical" worries. In other words, the looming war in Iraq and a possible terror attack The theory has been that businesses are reluctant to hire and spend during such a time of uncertainty. In turn, consumers have turned conservative pending the outcome of the war. The economists at Goldman Sachs think the economic impact of war worries has been overstated. They see fundamental weaknesses in the economy that would be laid bare by a quick U.S. victory. Greenspan will undoubtedly be asked for his opinion about President Bush's tax cut plan, which is being sold on the Hill and to the public as an economic growth plan. While Greenspan typically favors tax cuts, especially on capital income, he's highly unlikely to fully endorse Bush's plan. Almost alone among Republicans, Greenspan remains loyal to the idea that large federal deficits are not a positive for economic growth. Two years ago, Greenspan support for the tax cuts helped to solidify support among those Republicans who call themselves fiscally responsible. But Greenspan's backing for the 2001 cuts was based on his believe that the surplus was getting too large. That's not a problem anymore. Greenspan has already strongly endorsed the elimination of double taxation of dividends, but he's backed it on the grounds that it would improve corporate governance, not because it would raise the economy's growth potential. Greenspan is hesitant to endorse any fiscal stimulus package. Not only would fiscal policy infringe on the Fed's turf, it might not be effective. The weakness in the economy is centered in the business sector, where capital spending remains weak. Tax policy, or monetary policy for that matter, can't do much to entice businesses to invest when they don't see any return from that investment.

To: pallmer who wrote (5562)	2/7/2003 4:33:10 PM
From: Softechie	Respond to of 29599

ROFLMAO!!! Barfing.com: The Big Picture - Market View 07-Feb-03 00:16 ET There is plenty for the market to be concerned about - Iraq, pension liabilities, weak business investment, large write-offs, and so on. It is worthwhile, however, to take a step back and look at the most important factor for stock valuations - earnings. Fourth quarter earnings reports have been reasonably good, and current valuations suggest long-term investments in stocks will pay off. Long time readers of Briefing.com know that we are natural skeptics. Apart from short-term trading opportunities, we were never comfortable with the new paradigm stock market of the late 1990s. That is why we find our current moderately bullish stance a bit surprising ourselves. Current Earnings Assessment About 80% of the S&P 500 companies have reported fourth quarter earnings. So far, operating earnings are up about 15% from the fourth quarter of 2001, which was admittedly a very poor quarter. The full year operating earnings for the S&P 500 look like they will come in about $48.25, down a bit from $48.95 in 2001. The S&P index, however, has come down a lot more than operating earnings. At a closing level of 838.15, the S&P 500 is now trading at just 17.4 times trailing operating earnings. That valuation is extremely reasonable given the current level of interest rates. It translates into a 5.7% earnings yield, which compares favorably to the 4% yield on 10-year government bonds. Future Earnings are the Key Whether or not one wants to invest in stocks at this valuation depends on expectations for future earnings growth. If earnings decline in 2003 and the U.S. is headed for a stagflation similar to Japan, stocks will be a poor investment. But if earnings increase at even a modest pace, stocks should end this year higher with an even better outlook long term. Wall Street is notoriously famous for being overly optimistic, but let's take a look at its forecasts anyway. On a top-down basis (forecasting based on economic data rather than on individual company estimates), the average estimates from Wall Street estimates compiled by Multex calls for S&P 500 companies to earn $52.11 in 2003. That would be about an 8% increase. Briefing.com's view is that earnings might grow at a slower pace than that, but not by much. And for once, we're buying into the hockey stick forecasts (flat for a while, then up more sharply). This is because economic growth is very likely to pick up in the second half of 2003. There is no denying the economy is sluggish right now. Consumer and government spending are increasing at a solid clip, but business investment remains extremely weak. This may continue for another half year, or even a year. But as businesses clean up their balance sheets and stabilize their cost structure, increased earnings leverage will emerge. And the earnings don't have to materialize for stocks to go up, just the realization that the leverage is appearing. It is our belief that stimulative fiscal and monetary policy will lead to such a scenario in the second half of this year. Conclusion Stock valuations are at reasonable levels (finally). The economy grew 2.3% in 2002, despite press reports to the contrary. Growth will probably accelerate moderately in 2003. As this happens, modest earnings growth will lead at some point to the perception that the worst is behind us, and at that time rising perceptions of future earnings growth will greatly increase the current value of stocks. There are risks. That is always the case with stocks. And for many, it is hard to make investments given the pain of the past few years. Heck, the pain has been there the past month. Now, the uncertainty of Iraq has made investors even more nervous. But that too will eventually pass. Just as it was hard to sell in 1998, it is equally hard to buy in 2003. It may also prove equally as wise to buck the conventional wisdom now, and to build a conservative portfolio of high quality, low valuation stocks, perhaps spiced up with some technology stocks. If you believe the U.S. economy will grow at a decent pace the next several years and that inflation won't surge out of control, current stock prices will seem like a real bargain in 2005. WHAT DA FACKING LONG TIME!!!