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Special Report On Market Timing

FORECASTS & TRENDS E-LETTER

By Gary D. Halbert

December 10, 2002

IN THIS ISSUE:

1.  Special Report On Market timing Now Available.

2.  Why Now Is The Time For Market Timing.

3.  Stratfor’s Economic Forecast For 2003.

SPECIAL REPORT On MARKET TIMING

As promised last week, we have completed our new Special Report on Market Timing.  You can download the 12-page Report on our website at www.profutures.com.   You will see it on the homepage.  I believe this Special Report – written in our usual easy-to-understand style – will be extremely timely and useful to anyone considering market timing today.

I will tell you that for some of you reading this, much of the information in the new Special Report may not be new to you – especially long-time clients who already have money in one or more of our market timing programs.  The new Report is an educational paper that was envisioned and written primarily for investors who have never considered or put money in market timing programs.   In other words, it’s “Market Timing 101.”

I suggest that everyone reading this take a look at the Report, especially those who have not embraced market timing up to this point.  But some long-time clients may prefer to give it to a friend or relative who is new to this investment strategy. 

Which reminds me to remind you that you are free to share the Special Report with others that you feel may benefit from it.  The Report does have our copyright disclaimer on it to protect it from others, but our clients and subscribers have my permission to reproduce it and/or send other folks to our website.

Many People Don’t Know About Market Timing

As compared to traditional money managers and asset allocators, market timing Advisors make up a small slice of the market.  Many people have never heard of market timing strategies, and even among those who have, most haven’t tried it.  But that’s changing.

With the stock market about to record its third consecutive losing year (which many said would never happen), market timing is growing rapidly in popularity.   Even many of the big brokerage houses are now touting market timing as the “new” strategy.  But as many of you know, I have been recommending market timing since 1995.

In any event, I think you will find the new Special Report to be a thorough introduction to market timing, and I encourage you to share it with others.  Referrals are a BIG part of our business – I don’t mind to admit – and we greatly appreciate your help in this area.

A Different E-Letter For Our Clients & Subscribers

As you know, a large investment publishing company recently (September) started sending these weekly E-Letters to its audience of more than 1,000,000 supposedly affluent e-mail addresses.  As I have told you previously, our clients and subscribers are NOT a part of that larger database.  Your weekly E-Letters are sent out from our office on Tuesdays, and the larger group doesn’t receive it until Wednesdays.

From time to time, I will send a partly or completely different E-Letter to our clients and subscribers than I send to the publishing company.  This week is such an example.  The E-Letter to the larger crowd this week included a lot of very basic info about ProFutures and what we do, that would have been boring and redundant to long-time clients.  However, I have included some excerpts below that I think you will find useful.

I have also included a reprint of Stratfor’s latest economic forecast for 2003, which appears later on in this E-Letter.

But first a few highlights from this week’s “other” E-Letter to the larger audience.

We Advise, But You Decide

Some investment firms insist that you give them control, or discretion, over your money.  Not at ProFutures Investments!  We do not have discretion over any client accounts.  In fact, we don’t even hold your money.  All of our clients’ assets are held at third party custodians such as independent trust companies, mutual fund families and/or brokerage firms we use.

As noted above, we are a no-pressure firm.  We only want to help you with whatever part of your money that you determine is appropriate.  You may only be looking for a professional money manager to help you with your equity mutual funds selection and timing.  We can do that.  Or you may only be looking for a professional to oversee your bond investments, and help you get out of the market when interest rates turn higher.  We can do that, too.  Then again, you may want professional assistance with your full portfolio, and we have the experience and resources to develop a customized financial plan to help you meet your goals. 

We Don’t Follow The Herd

Virtually any financial planning firm or large brokerage firm can put you into a buy-and-hold selection of stocks, bonds or mutual funds, and they will say you are diversified. However, we've seen plenty of examples, especially in the last few years, when stocks and bonds went down together. Many buy-and-hold portfolios have been hammered over the last two years, and many investors have bailed out due to large losses.

At ProFutures Investments, we are different because in addition to traditional financial planning and asset allocation, we also offer alternative investments such as market timing.  We can also direct you to hedge funds and other proprietary funds - I will discuss this more in upcoming E-Letters. 

I believe that market timing and other alternative strategies are critically important today because the stock markets have fundamentally changed over the last couple of years.  Clearly, the “go-go” days of the late 1990s, when a buy-and-hold strategy made 20-30% returns in back-to-back years, ARE OVER, at least for the next few years.

I believe that proper diversification includes not only diversifying among various asset classes (stocks, bonds, etc.), but also among various investment strategies.  Buy-and-hold is one such strategy, but market timing and other alternative strategies and funds are also a critical part of a well-diversified portfolio in today’s challenging market environment.

If the market action of the last two years is any indicator, there will be times when you will:  1) want a portion of your equity holdings to be able to exit the market and move to the safety of cash (money market); and  2) want to be invested in alternative strategies and/or funds that have little or no correlation to the equity markets.  We can help you achieve this level of diversification.

* I believe the advice above is appropriate for all investors with the capital to pursue such levels of diversification.

STRATFOR.COM’s Latest Economic Forecast

“Global Economy: U.S. Poised for Growth, Other Powers Will Struggle

Dec 02, 2002

Summary

The United States appears set for solid economic growth in December and in the first quarter of 2003, while Europe will backslide and Japan will continue its downward spiral. This disparity will funnel more trade toward the United States, particularly as the dollar strengthens against the yen and euro. Rather than derail this trend, a war with Iraq actually should reinforce the shift in trade flows.

Analysis

Recent statistical reports indicate that the U.S. economy will continue to grow in December and in the first quarter of 2003. Even a war with Iraq is not likely to impede this course, but in fact could have an overall positive effect. The same, however, cannot be said for the world's other economic powers.

This global economic forecast assumes a U.S. war on Iraq of about two months' duration, fought sometime in the first quarter. As events progress and the endgame becomes clearer, Stratfor will revisit this forecast to look beyond the Iraq war.

Psychologically for Americans, the fourth quarter of 2002 seems to be shaping up as the turning point for the U.S. economy. Consumer confidence as measured by the University of Michigan finally has registered a sharp increase, while the October-November period logged the largest two-month gain in the Dow Jones Industrial Index since 1975. New unemployment claims have dropped to levels not seen since before the 2001 recession, and the retail consultant ShopperTrak RCT pegged U.S. retail sales for the first two days of the holiday season at 11 percent above those of 2001. More important for the future, U.S. inventories -- both retail and warehouse -- remain low. Even the West Coast labor disputes that could have created a recession seem to be reaching resolution.

If U.S. holiday sales hold their current pace, the first quarter of 2003 likely will see a manufacturing boom, with positive impacts on employment, business confidence and investment. And with interest rates at a 41-year low of 1.25 percent, it will be a boom from which nearly every American can benefit.

Across the Atlantic, the picture is not so bright. Unemployment remains high, albeit stable, but a European Commission survey indicates that EU consumer confidence is at its lowest since 1997. Germany, France and Italy each registered third-quarter GDP growth of 0.3 percent or less over the second quarter; the United States is growing at more than three times that rate.

Members of the Bundesbank have warned publicly that Germany, by far the largest of the European economies, is likely to re-enter recession in the fourth quarter of 2002 and first quarter of 2003. Given that the EU's Stability Pact restricts spending that could kickstart growth, the new German recession probably would both deepen and spread. Of the major European economies, only the United Kingdom is performing near par, but it has not yet proved insulated from the overall European slowdown.

In Japan, the new developments are following the same old pattern. Industrial production continues to fall, according to the Ministry of Economy, Trade and Industry, and unemployment ticked up to 5.5 percent in October, the Ministry of Public Management, Home Affairs, Posts and Telecommunications revealed. That is only part of the story, however. Ministry spokesmen admit that since Japanese unemployment data reflect only those who are looking for jobs, the actual figure likely is closer to 10 percent.

Meanwhile, the Japanese government has released yet another supplementary budget to cover its revenue shortfall. Like many before it, the new budget will be just enough to keep the economy from tanking but not enough to spark a recovery. And since the new $34 billion budget is funded entirely with deficit spending, it will only add to Japan's mammoth national debt, which now stands at 150 percent of GDP. In this light, it is not surprising that international ratings agency Fitch again downgraded Japan's sovereign credit rating on Nov. 21.

For the rest of the world, how well one fares in these next four months will depend largely on one's relationship with the United States. Strong trade links with China, Singapore, Korea, Malaysia and Australia will help these economies ride U.S. coattails. African and Central European economies, however, will be limited to bootstrapping as their traditional trading partners stagnate. Latin America, despite its geographic proximity to the United States, remains locked in its debt trap and will continue to flirt with financial ruin.

This mix of Yankee brightness and Euro-Japanese gloom gradually will reshape the global economic landscape as trade flows re-orient toward the economic action. During the last three weeks of November, the dollar gained steadily against both the euro and yen. This trend will intensify as the buying power that made the United States the world's economic engine during the late 1990s re-emerges. The effect will be far more pronounced in regard to Japan, which has been shrinking as a global -- and indeed, regional -- economic power for more than a decade. Meanwhile, in 18 months, the EU will absorb 10 new states. Those states will be plugged steadily into the union's economic zone until they join outright in mid-2004.

Even an Iraq war likely would entrench this pattern of U.S. ascendance. Most obviously, increased defense spending will boost U.S. growth rates. Since Europe and Japan will be on the sidelines, they won't feel any of that boost.

But the primary driver will be energy prices. If a war starts, most Iraqi production probably will go off-line. Although the market already has written off Iraqi oil supplies -- past Iraqi embargos have had negligible effects -- the hostilities will inject a large measure of fear and uncertainty into the market. The unavoidable price rise in turn will dampen global economic prospects for countries that don't export oil.

The fallout will be very different in the three economic power centers. An oil shock certainly will take a bit of the wind out of the United States' sails, but Europe's already are slack and Japan is foundering. Given that Japan is locked in deflation, energy inflation -- indeed any inflation -- might help stimulate some economic activity. It would be going too far to say that high energy prices would help Japan, but the effects will not be entirely negative.

Europe might be starting from a better position than Japan, but it is constrained by the European Monetary Union. According to EU law, the European Central Bank is not supposed to lower interest rates if inflation tops 2 percent. Eurostat, the EU's statistical arm, rates November inflation at 2.2 percent. Without lower interest rates, it will be difficult for Europe to manage a recovery without hitching itself more tightly to the chugging U.S. economy.”  END

I find it very encouraging that both Stratfor and The Bank Credit Analyst, two of my very best sources, believe the US economy will continue to expand next year.

Many thanks to our good friends at Stratfor.  Let’s hope they are right!

Best Regards,

Gary D. Halbert

SPECIAL ARTICLES

Bush looks to set tax cutting agenda.

Iraq's empty dossier (interesting, considering the author).

Iraq report details attempt to build nukes.

 

 


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Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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