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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: Nemer who wrote (17251)	3/3/1998 10:12:00 AM
From: IQBAL LATIF	Read Replies (2) \| Respond to of 50167

From Samira: I just received the following bulletin (2nd March) from Merrill Lynch, which Ike requested me to post, on their recommendations and analysis of the markets which you might find interesting: The latest update to the "Sell Side" Indicator is 53.3% up from last month's 52.6%. The indicator continues to travel further into neutral territory. The long-term average of the indicator is 53.4%, so the indicator really couldn't get too much more neutral. Accordingly, Merrill Lynch's (ML) rolling 12-month expected return for the S&P 500 remains at about 10-11%, and their recommended asset allocation is still 60/30/10 stocks/bonds/cash. ML valuation models continue to be mixed, but generally suggest an equity market that is slightly overvalued to fairly valued. In other words, valuation still does not appear unattractive to them. Their theme on the overall market continues to be "don't get too bearish too quickly." Internationally, ML commented two weeks ago that the rally in U.S. Technology stocks was directly related to the rally in Asian markets because Technology is the most foreign exposed sector in the U.S. Similarly, if one is bullish on the Asian markets, then one should probably be bearish on the U.S. T-Bond. The U.S. T-Bond has sold off at nearly the exact same time that the Nikkei has rallied. Merrill Lynch's theory is that investors are in the process of re-evaluating the "quality" of the Japanese financial markets, and the re-evaluation might cause a narrowing of the spread between U.S. and Japanese government bonds and between U.S. and Japanese P/E ratios. However, if one believes that the Japanese economy will rebound, then there is less need for investors to reassess the "quality" of the Japanese financial markets. Thus, as the Japanese equity market has rallied, the U.S. long-bond has sold off. Obviously, one could point to a flow of funds issue here (selling U.S. treasuries to buy Japanese stocks), but the "quality" issues helps to explain why the funds are flowing. ML `s view on Japan is that they will see higher long-term interest rates and lower P/E multiples over the next several quarters and/or years. In addition, earnings growth does not yet appear to be strong enough to counter any potential P/E compression. Thus, ML remains wary of Asia, wary of Technology (buy the highest quality), and still stand behind the U.S. T-Bond as is shown by their 60/30/10 allocation.