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Bob Brinker Shadow Stock Market Timing Model "Five Root Causes of a Bear Market" A Special Report by Bob Norton for the Bob Brinker Fan Club | Highest CD Rates |
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If you want updates on what Brinker is saying on Moneytalk delivered to your email box, often within 24 hours after Sunday's show, then send us a note at TalkAboutMoney@gmail.com and ask to get on our mailing list. ==> Highest Yield CDs with FDIC <== |
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May 23, 2008: Article by Bob Norton. ECs (Editor's Comments): by Kirk Lindstrom See Post #1384 to read the original and post #1394 to read the corrected version.
Bob Brinker LT Shadow Stock Market Timing Model Update for May 23, 2008 The Shadow version of Bob Brinker's "Five Root Causes of a Bear Market" is in favorable territory as we move toward the Memorial Day Weekend. Back in 2000, Kirk Lindstrom pointed out that Bob Brinker made his bear market or "unfavorable" call with not all five causes flashing BEAR. Bob's ultimate call was partly subjective. For this exercise, I prefer to change the title of Rapid Growth to "Growth/Too Rapid or Recession". Tight Money = BEARISH M2 expansion has deteriorated to the point where it is practically non-existent. From the latest edition of Barron's, 7654/7228 = 5.89 - 3.90 = 1.99. For the benefit of new readers, the Market Lab section of Barrons and other sources provide information on the weekly and monthly changes to the money supply. The calculation above just takes the percentage increase and adjusts for the CPI inflation number.
Rising Rates = BULLISH Short rates are low and yield curve looks healthy. No worries here for now. The 10 year bond is standing at 3.82% and has remained stable within the vicinity of 3.75% for some time. Although latest indications from the Federal Reserve are that they may be finished lowering rates, they are widely viewed as holding steady for signs of economic recovery in the 2nd half of the year.
High Inflation = BULLISH The CPI is now running at 3.9% year over year, down from the prior reading of 4.0. Core CPI is at 2.3%, down from 2.4%. We will need to monitor the slowing economy to check the effects of the credit crisis/housing market implosion on the inflation trend. Over-Valuation = BULLISH
With the recent lowering of S&P's earnings estimate to 89.43 and
Evergreen Investments electing to maintain their $85, I am lowering my
median to $87. The S&P p/e (15.97) is reasonable based upon the
present level of 1390 and my median earnings estimate.
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Growth/Rapid or recession = NEUTRAL. 2008 1st quarter advance GDP number was 0.6%. Using the standard definition of a recession, we have yet to register the first negative growth quarter.....unless the revision to the 1st quarter gives us a surprise to the downside. Wachovia Bank has revised their economic forecast:
"Our forecast is now slightly more optimistic than it was a month
earlier. We are no longer looking for real GDP to decline during the
second quarter and also expect the economy to eke out modest gains for
the year as a whole."
Bob Brinker sees the health of the stock market as positive for the intermediate term (6 to 9 months out), If the eventual revision to the 1st qtr GDP number stays positive, I may change the rating on the economic component to bullish. From Evergreen Investments:
"We continue to project flat earnings ($85.00) for the full year and
would consider the S&P 500 to be fairly valued within the range of
1450 by year end. High returns on equity, low costs of capital, and
plenty of money on the sidelines (Sovereign Wealth Funds, private
equity, and high money manager cash positions) could very well push
the market above these levels during the course of the year, yet given
our previously mentioned fundamental concerns about next year, we do
not believe the market could hold those gains for a sustainable period.
The twin tailwinds of monetary and fiscal policy in 2008 are likely to become headwinds next year, and we reiterate our warning to investors about the possibility for a double-dip recession in 2009." The key to this statement is that although Mr. Market could appreciate beyond the fair value level, such an advance may be prudently viewed as an opportunity for investors to check their appetite for stock market risk. Sustained high oil prices ($135 per barrel currently) make me nervous about inflation in the months ahead. It will be interesting to see the PCE and Core PCE release at the end of this month.
Bob Norton EC:
Thanks Bob for another excellent
analysis.
Summary: Bob Norton's Shadow of Bob Brinker's "Five Root Causes of a Bear Market" has 4 indicators bullish and 1 neutral. What do you think? Post your thoughts on our Bob Brinker Discussion Forum at Facebook's Investing for the long term group. BTW, if anyone wants to see what my monthly newsletter sentiment update looks like, then check out this PDF file: "Take Profits & Sell Sentiment Indicators from The Market Top." The page of my newsletter is from last year with the markets near an all time high at 1540. The S&P500 was at 1540 when I said take profits in my monthly newsletter shortly after we had all five of the indicators say BUY on a correction. In March I added SPY to my newsletter explore portfolio at $130.61 and today it closed at $141.11. I don't know what the short term hold for the market but if we continue higher, then I will again take profits when my indicators and asset allocation tell me to do this. Subscribe NOW to "Kirk Lindstrom's Investment Newsletter" and get the May 2008 issue FOR FREE TODAY! If you want updates on what Brinker is saying on Moneytalk delivered to your email box, often within 24 hours after Sunday's show, then send us a note at TalkAboutMoney@gmail.com and ask to get on our mailing list.
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