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Buy, Buy, Buy
TownHall.com ^ | March 4, 2003 | Larry Kudlow

Posted on 03/03/2003 11:36:46 PM PST by FairOpinion

The fog of war has enshrouded everyone and everything. But we must soldier ahead. And that means investors, too.

The economy looks good, despite the gloomy forecasts of those who can't see the positive indicators through the fog of pending military action against Iraq. In fact, with the economy so promising and share prices so inviting today, we might be looking at one of the best windows for investing in a very long time.

The latest report on gross domestic product was twice as strong as expected. When you take out the reverse algebra of trade-balance accounting, domestic GDP is up nearly 3 percent. Capital-goods investments by businesses have increased three straight quarters at an average 9 percent gain. Inflation is less than 1.5 percent, a miniscule amount. And both the money supply and commodities -- including aluminum, copper, steel, tin and zinc -- are rising, meaning that some of our cash-strapped businesses are getting back in the money.

Fourth-quarter profits were up 14 percent. Durable goods retailers (automobiles, trucks and office/business equipment) were up 10 percent, the health-care sector was up 18 percent, telecoms were up 16 percent, and airlines were up 39 percent. There is no way we are heading into a double-dip recession.

Is there a temporary oil shock? Yes. But the oil futures curve is inverted, meaning prices are summiting the hill and will soon be headed back down. Oil is now $36.50 a barrel. That price will be $33 in June, $30 in September, $28.60 in December, and all the way down to $23 and change in 2005.

Here's another point on oil: Yes, the recent rise in oil and gasoline and home heating-fuel prices may pinch consumers temporarily. But in constant dollars, today's $36 a barrel oil price would equate to $50 a barrel on the eve of the Persian Gulf War and over $90 in 1980. The current oil shock is actually less shocking when put in perspective.

We learned during the first Gulf War that Wall Street can quickly shake off the fog of uncertainty and turn in an impressive rally. Not only will that rally take place when Saddam and his henchmen are removed from power, but it could be even more impressive than the market spike 12 years ago.

Economic conditions are a lot better today than they were on the eve of the first Gulf War. Real GDP was 1.8 percent then, now it is 2.4 percent. Inflation was 4.3 percent, now it is 1.7 percent. The 10-year Treasury note was 8.5 percent, now it is below 4 percent. And the banking system is much healthier today than it was in 1991.

On the economic-policy front, Washington is currently much more stimulative than it was over a decade ago. Back then, the Federal Reserve was tight with the cash. Now, it is loose. Back then, Papa Bush was suckered into a tax hike. Now, Bush the Younger is cutting taxes everywhere he can.

As the booming '90s came to a screeching halt, we learned that investors cannot always bank on the promise of capital gains -- or shareholder returns based only on rising equity prices. But they can bank on a dividend check from those companies that pay them. The same holds for a corporate-bond coupon check. If stock prices rise and capital gains occur for investors, then all the better. But if the investor dividend tax is abolished in Washington, shareholders will be rewarded with a steady flow of real money from corporate America.

This is why investors should focus on cash-yield plays. It's almost a Dogs of the Dow strategy, centering on dividend yields and corporate-bond coupon yields -- not, however, on Treasury yields. There's been a mini bubble in Treasury prices, and they are way overvalued today.

Last year, the S&P 500 had an earnings per share of $45.80. This year, with 3 percent economic growth and 12 percent corporate profits, earnings per share could be $51.90, a 13 percent gain. With the humongous stock market correction of the past three years, the S&P 500 is now back to its long-run trendline growth of 7 percent per annum since 1969.

Cyclical stocks, big-cap techs, commodities, industrials and consumer discretionary stocks are all ripe for the picking today. And so are corporate bonds with juicy coupons, especially non-callable bonds and even high-yield junk bonds. These are all good plays for investors.

And here's one more comparison with 1991 that should get investors moving: Our high-tech, precision-bomb military capabilities are gargantuanly better today than they were for the first Gulf War. Saddam is history. America knows it, Bush knows it. Saddam may not know it, but he will soon learn it. Investors must believe it, too.

There may be more than a two-week time horizon for investors to get active again. Is it time to buy? Yes. Buy, buy, buy.


TOPICS: Business/Economy; Editorial; News/Current Events
KEYWORDS: economy; iraq; market; stockmarket
Well, I hope Kudlow is right.
1 posted on 03/03/2003 11:36:46 PM PST by FairOpinion
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To: FairOpinion
I am a former investor, I did very well for myself over the last several years. I'm not planning on owning equities ever again. I have totally and completely lost confidence in Wall Street. I don't believe anything anybody connected with Wall Street says anymore. I don't believe CEO's are telling the truth about their earnings or their liabilities, I don't believe the SEC is acting to enforce the law, and I don't believe anything is going to change anytime soon.

When I see some of these corporate criminals who have stolen billions of dollars spend the kind of hard time someone busted for drug possession or not paying child support would spend then maybe I could begin to believe in the system again, but as of now I would feel more confident putting my money down on a roulette wheel in Vegas that I would putting my money in Wall Street equities.
2 posted on 03/03/2003 11:43:16 PM PST by Billy_bob_bob ("He who will not reason is a bigot;He who cannot is a fool;He who dares not is a slave." W. Drummond)
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To: FairOpinion
Here's another point on oil: Yes, the recent rise in oil and gasoline and home heating-fuel prices may pinch consumers temporarily. But in constant dollars, today's $36 a barrel oil price would equate to $50 a barrel on the eve of the Persian Gulf War and over $90 in 1980. The current oil shock is actually less shocking when put in perspective.

Beg pardon, are the ratios reversed? Factoring in inflation translates to a lower price in the past, not a higher price.

3 posted on 03/03/2003 11:49:44 PM PST by HiTech RedNeck
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To: Billy_bob_bob
I can certainly understand how you feel.

But I also think you just confirmed that this IS the bottom, and that hopefully Kudlow is right. Precisely when many/most people feel exactly the way you do is usually a signal for the bottom. Just as in hindsight, it's very clear that when everyone thought stocks can only go up, and your barber was giving you stock tip, was the top.

Hindsight is always so accurate...
4 posted on 03/03/2003 11:50:31 PM PST by FairOpinion
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To: FairOpinion; Mudboy Slim; Liz
Kudlow is the man.

Those who hate America and the rest of us will be buying gold as it ticks up and then plunges down when Soddomite loses his head or runs to Russia to live.

The pure indexes should be good investements as they have a self purifying system that purges the losing companies.

The Dow is not a pure index and too much political correctness goes into deciding which companies make up the dow. It should be a pure index with the top companies to keep the PC Bravo Sierra out of the selection of companies.

SPY, QQQ, and MDY are simple and easy ways to play the index market. You can set up sell and buy orders based on your goals. Index mutual funds are not as flexible as you can only sell or buy them after the closing of the markets.
5 posted on 03/03/2003 11:51:26 PM PST by Grampa Dave (Stamp out Freepathons! Stop being a Freep Loader! Become a monthly donor!)
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To: FairOpinion
Sell cheap cheap cheap and I will buy buy buy! LOL
6 posted on 03/03/2003 11:53:49 PM PST by A CA Guy (God Bless America, God bless and keep safe our fighting men and women.)
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To: Billy_bob_bob
I'm not planning on owning equities ever again

Trade index futures. I made 8% on my portfolio today...ONE day. Not unusual...average is 3.5% per day. The bigger the daily range the larger the potential profits.

7 posted on 03/03/2003 11:55:52 PM PST by montag813
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To: FairOpinion
Hype and nonsense. Sure, give this guy your hard earned money. Tell him to make you rich. LOL !

Best to not make any really serious moves yet. Dibble and dabble. Be careful, very careful. Timing is all, but this market is shot full of holes.

Frankly I believe Warren Buffett is right. There will be Hell to pay, and the BIG investment houses are shaking in their boots.

Have a very good friend worked with me at one of the Big Wall Street firms. He had a heart attack. It resulted in a huge Golden Parachute for him. He is suing them on top of everything, for major bucks. When it is all over he will be worth more than all of his bosses put together. Andhe is still a young man.

All the bosses 401(k)s melted down to ashes and rubble. Thousands of high fliers were forced to quit the biz. How do you make payments on the two million dollar house, small yacht and the fancy cars when you are out of work ?

8 posted on 03/03/2003 11:58:02 PM PST by ex-Texan (primates capitulards toujours en quete de fromage!)
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To: montag813
"The bigger the daily range the larger the potential profits."

----

OR the potential loss.

There is this little detail, you have to get the direction and timing right, no small feat. If you can do that reliably, that is magnificent!
9 posted on 03/04/2003 12:04:25 AM PST by FairOpinion
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To: FairOpinion
If market bottoms were measured by popular sentiment, then I would agree that you could be right. I'm old fashioned, I keep looking at P/E ratios, and then I conclude that we have quite a ways yet to go before we hit a bottom. Believe me, I hope I'm wrong.
10 posted on 03/04/2003 12:14:06 AM PST by Billy_bob_bob ("He who will not reason is a bigot;He who cannot is a fool;He who dares not is a slave." W. Drummond)
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To: Billy_bob_bob
I'm not planning on owning equities ever again. .

I have always invested and will continue to do so. Where I have lost, I have made some up in real estate. Investing is long term, not a quick "day trading" adventure for those seeking quick returns in a fundamentally unsound market. The signs were there, but no one wanted to see them. Now everyone pointing fingers, needs to take some resposibility for their own unsound and unsafe trading practices. GREED! So called "investors" able to buy on line, invested foolishly during the dot coms -- a monkey could have invested and made money then. One could buy a stock at $2 on Monday and the following week sell at $22. Then buy it over again at the dip and repeat the process. No one cared what that company made and more often, it had no income; but it was a dot com, so everyone wanted in. The market was moving on speculation, pumps and dumps.

What a few CEO's did should not reflect on others running financially sound corporations. Invest in companies with money in the bank, no debt, a stong P/E. There are plenty of those out there.

You don't buy a stock because some analyst touts a stock on MSNBC. Now analysts must disclose whether they own the stock or not. Before they usually owned what they pimped and sold when you bought. Pick up the book "Trading with the Enemy" and see one of your worst enemies..Creamer who still sits on MSNBC. Read how he manipulated stocks in his funds. He bought on rumor or made the rumor and sold on news or played short. Average investors were taken to the cleaners everytime. What goes up must comes down and usually did.

Some stocks rode the storm. If one had (KKD) Krispy Kremes,for example, they wouldn't be singing the blues. (HOTT) Hot Topics, for example had strong sales before, during this downturn and hopefully may continue to do so. (I don't own either)

The evidence of a dangerous bubble was rampant in everything from lofty valuations and soaring margin debt, to the price of a seat on the New York Stock Exchange and the record number of investment clubs being formed. But no one on Wall Street wanted to rock the boat in 1997-99.(And you wonder why I don't trust Greenspan) No one in control-neither the Federal Reserve or Exchange officials- wanted to take responsibility for ending the party.

Buffet says it best: "If you wait for the bottom, it will be too late." Invest in the future of this country. There will be some new young millionaires out there in 10-20 years, and if you are a wise investor, do your due diligence, spread your investments around, who knows you might be one of them.

God Bless America, Entrepreneurs and Capitalism!

11 posted on 03/04/2003 1:04:24 AM PST by fight_truth_decay (Occupied)
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To: FairOpinion
"The economy looks good, despite the gloomy forecasts of those who can't see the positive indicators through the fog of pending military action against Iraq. In fact, with the economy so promising and share prices so inviting today, we might be looking at one of the best windows for investing in a very long time."

If you plot the US Economy (GDP, whatever) and filter out the noise since WWII it has basically been one upward curve.

9/11/2001 changed that.

Now, if the economy has bottomed out and starts to trend upward again, the terrorists need only release anthrax in Philly, or a dirty nuke in Seattle, and down she goes again.

Thus, for the first time in history, our economy is in the control of terrorists. We know it. They know it.

What is the cause for optimism?...None, AFAIK, until every last terrorist and terrorist-supporting nation are gone.

That will take a while.

--Boris

12 posted on 03/04/2003 2:29:49 AM PST by boris
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To: Grampa Dave
I like Kudlow, too, although I thought his Pat Riley hairstyle went out with the 80's...LOL!! I agree that Wall Street will enjoy a steady runup as soon as Soddom'sInsane's MISTified later this month, and the runup will become more pronounced as soon as the TaxCuts are accelerated and Capital Gains are indexed fer inflation!!

Buy!! Buy!! Buy!!

FReegards...MUD

13 posted on 03/04/2003 6:26:22 AM PST by Mudboy Slim (The A.N.S.W.E.R., my FRiends..."KorruptKlintonKlan DemonRATS LOVE Terrorists!!")
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To: FairOpinion
WHAT WORRIES WARREN

Avoiding a 'Mega-Catastrophe'

Derivatives are financial weapons of mass destruction. The dangers are now latent--but they could be lethal.

FORTUNE

Monday, March 3, 2003

By Warren Buffett

http://www.fortune.com/fortune/investing/articles/0,15114,427751,00.html"That dismal fact is testimony to the insanity of the valuations reached during the Great Bubble. Unfortunately, the hangover may prove to be proportional to the binge," he writes.


14 posted on 03/04/2003 6:34:17 AM PST by fight_truth_decay (Occupied)
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To: FairOpinion
Well, I hope Kudlow is right.

Buffett puts out two stories at once? One to buy ,buy, buy and the other :"Warren Buffett is poised to issue his most doom-laden forecast for the state of the world economy yet, including a damning verdict on the derivatives industry he fears could cause a global financial crisis-doomsday." I trust Fortune (Monday, March 3, 2003, By Warren Buffett ) and Money. Telegraph(Filed: 04/03/2003) over this Kudlow, whom I pay no attention.

Fortune

15 posted on 03/04/2003 6:50:52 AM PST by fight_truth_decay (Occupied)
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