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By Gary D. Halbert
June 17, 2003


1.  Analyzing America As If It Were A Giant Corporation.

2.  USA, Inc. Continues To Surprise On The Upside.

3.  What To Do Now That The Market Is Up 25%.

Introduction – Would You Buy Stock In America?

The US economic recovery is still struggling along, with good months and bad months.  Given that, we have the usual dichotomy of those who believe things will get better, and those who think things will get worse, and of course, we can’t leave out the gloom-and-doom crowd for whom the sky is always falling.

All sides have supporting statistics and research to support their case.  You read the bulls, and you think you agree.  Then you read the bears, and you also think you tend to agree.  Even some of the gloom-and-doomers seem credible at times.  So, what’s the real story?

This week, I will attempt to give some perspective by analyzing the current situation as if the United States of America was a stock – USA, Inc. – and whether or not we would want to buy shares in it.  Would we want it as a long-term holding in our investment portfolio or our retirement fund?  Let’s play like stock analysts and take a close look.

USA, Inc. – The Biggest Corporation In The World

In many ways, the US economy is like a giant corporation.  In this analogy, President Bush is the current Chief Executive Officer (CEO).   Congress is the Board of Directors.  Alan Greenspan is the Chief Financial Officer (CFO).  The population represents the shareholders.  The different sectors of the economy could represent separate operating divisions. 

Even though USA, Inc. is the strongest and most powerful corporation in the world, it has experienced some severe shocks in recent years, and its share price has plummeted from its record heights just a few years ago.  The first telltale shock came in March 2000 when the bubble in USA. Inc.’s high-flying Technology Division (Nasdaq) finally burst.  Not long after, the entire Corporate Division (Dow, S&P 500, etc.) rolled over into a major bear market that would see most share prices tumble by 40-60%.  Simultaneously, another shock occurred: a mild economic recession unfolded in the first three quarters of 2001.

Then came the terrorist attacks of September 11, 2001 that left thousands of innocent shareholders dead and the rest in a state of shock.  CEO George W. Bush announced that the corporation would launch a global War On Terror (WOT), which continues to this day.  The initial act in the WOT was the war in Afghanistan which ousted the Taliban and Osama bin Laden.  The second act was a hostile takeover of a foreign country (Iraq) that was believed to possess WMDs and assisted terrorists.  There remains some political fallout from the war, but a ruthless dictator was removed from power.

This string of major events over the last several years has affected the company’s performance (GDP) and bottom line (federal deficits), and shareholders have been understandably very nervous and skeptical (consumer confidence) about the outlook, at least until very recently.

Many high-profile analysts (Wall Street) who have traditionally always been very bullish on USA, Inc. turned surprisingly bearish on the company’s outlook in 2002.  For the most part, they recommended that investors sell their equity shares of USA, Inc. and move into the supposedly safer USA notes payable (Treasury bonds).  Investors did so in droves and this, along with unprecedented monetary stimulus from CFO Greenspan, drove yields (interest rates) to the lowest level in more than 40 years.

So, in just a few years, USA, Inc.’s outlook went from one of unbridled optimism to a growing pessimism that the company was headed down the same path as Japan, Inc. has been on for the last decade – economic abyss, with a deflationary depression to follow.  The gloom-and-doom crowd has been having a field day in recent years.

Yet USA, Inc. Surprised On The Upside Once Again

Yours truly cautioned often in 2002 and earlier this year in these weekly E-Letters that USA, Inc. was not in as much trouble as the pessimists warned, and I suggested that the company could once again surprise on the upside.  In addition, I frequently quoted my very best forecaster of economic trends – The Bank Credit Analyst – who predicted that the economic recovery would continue as it has.

In late January, February and early March of this year, I wrote a series of three articles in these pages entitled, “The Mutual Fund Merry Go-Round,” all of which were designed to help investors know how to get back into the market.  You can go to my website ( CLICK HERE) and read those timely reports.

Also in March of this year, I specifically recommended that investors get back in the equity markets prior to the start of the war with Iraq.  In the March 4 issue of this E-Letter, I wrote:

“The equity markets are very oversold; consensus opinion is quite bearish now; and thus the markets are ripe for a turnaround.  As I have stated for weeks, I believe this will be the best buying opportunity of the year…”

USA’s share price bottomed in mid-March (March 12, specifically).  The market bottom on March 12 came at roughly the same level (7,500 in the Dow) as the two previous lows in August and October of 2002.  In my March 18 E-Letter, I emphasized the significance of the “triple bottom” in the equity markets:

“The stock markets bottomed last week at almost the exact same spot as they bottomed last October and last August.  Assuming this rally continues, we have made what is known as a ‘triple-bottom.’  This is a strong technical signal… 

If the war goes well, consumer confidence should improve and if so, the economy should expand at least modestly in the remainder of the year.  How far stocks could rally is anyone’s guess, but don’t under-estimate the markets and the economy should the war be won quickly and decisively.”

The war with Iraq began on March 20.  Like most people, I expected the war to go well for our forces, and it did.  In my March 25 E-Letter, I wrote:

“I continue to believe that the stock market lows on March 12 will hold, and that the equity markets will continue to trend higher - IF the war goes well.   I believe there will be many more good days in the war than bad ones.  If this is true, the stock market could surprise on the upside, at least for several months.”

This has since proven to be the case.  The Dow Jones and the S&P 500 are up apprx. 25% from the March 12 low.   The Nasdaq is up apprx. 30% from the low.   Wall Street analysts, who always have short-term memory, are now back on the bullish bandwagon.  The gloom-and-doomers are stunned.

Am I Singing My Praises? – NO – Just My Good Sources

I don’t point out the above as a way of saying, “I told you so.”   No way.  Believe me, I have been wrong on more occasions than I would like to admit over the last 25 years in the investment business!  As I have written in previous issues, I subscribe to various research and analytical publications, several of which are very expensive, as well as a host of financial/investment newsletters and magazines.  My views and recommendations are a reflection of what I conclude from reading all of my sources.

If you have read this E-Letter for long, you know that I rely heavily on The Bank Credit Analyst, which I consider to be the best of all my sources for predicting major trends in the economy and the financial markets.   As noted above, my outlook on the economy late last year and earlier this year has been in-line with BCA’s.

The fact that I have been correct about the economy continuing to recover, albeit slowly, and correct about the stock markets bottoming before the war and surprising on the upside, is much more a reflection of my good sources, rather than my own conclusions.

Is It Too Late To Get Back In The Market Now?

I don’t get the impression that many of you reading this E-Letter took my advice before the war and got back into the stock markets.  Why do I say this?  Because in recent weeks, we have received countless e-mails from readers who admit they didn’t get back in earlier this year when I recommended they do so, and who want to know what they should do at this point.

Back in April, I suggested that the stock market was probably in a broad trading range of around 7,500 to around 9,500 in the Dow.  Today, I would suggest that the trading range is probably more like 8,000/8,500 to 10,000/10,500.  I don’t see the market going above Dow 11,000 any time soon.  These projections are simply my opinion, and I could certainly be wrong.

As this is written, the Dow is trading around 9,300.  That puts it roughly in the middle of new the trading range I suggested above.  Here are my thoughts, specifically:

1.  If you bought stocks or mutual funds before the war, as I suggested, I would hold them for now as the markets appear to have more upside potential; and

2.  If you did not buy before the war but are still looking to get in, I would wait and see if a better opportunity (correction) comes along, or consider a professional market timing program.

[3.  As a follow-up, I continue to recommend reducing exposure to Treasury bonds, which could get hit hard as the economy recovers.]

The equity markets have moved virtually straight up since the lows on March 12.  As a result many investors failed to get back onboard.  I’ve spoken to many people who have been waiting for a significant pullback to get back in, or add to their positions, but so far it hasn’t happened.   Even if there is a correction, many people will not know when to pull the trigger and get back in.

Consider Professional Money Management

I believe that most people would be better off if they use professional money managers to direct their investments, or at least most of them.  For years, studies have shown that the average investor who self-directs his or her equity portfolio consistently and significantly under-performs the major market averages.  If you would like more information on this fact, one place to start is with Dalbar, Inc. (

I have been in the investment business for over 25 years, and even I don’t manage my own investments.  With the exception of a couple of real estate interests, all of my investment portfolio is directed by professional money managers.  Using their time-tested systems, they select the stocks, bonds and/or mutual funds to be in, and they determine when to be in the market and when to be out.

As most of you know, my company specializes in tracking and monitoring a large number of professional money managers.  If they pass our scrutiny, we recommend them to our clients.  We have several Advisors who specialize in equity mutual funds and others who specialize in bond funds.

If you have missed the latest move in the stock markets, maybe it’s time you consider placing a good portion of your portfolio under the direction of one or more of these experienced professionals, or others who may be out there. 


Back to our original question: If the United States was a stock, would you buy it?  USA, Inc. has once again surprised on the upside, despite the naysayers.  The economy is recovering, albeit slowly.  I expect the recovery to continue, barring any major negative surprises.  So the answer is, yes, I would buy stock in USA, Inc.

USA, Inc. could be a good investment for the rest of this decade, and maybe even longer.  The economy should continue to grow, although not without an occasional recession here and there.  I do not believe we will see a return to the boom times of the 1990s, but USA, Inc. should remain the strongest economy in the world, generally speaking.

The company does have some long-term structural problems that will have to be dealt with at some point.  Those include: 1) budget deficits and the national debt; 2) the retirement of the Baby Boomers and related Social Security and Medicare concerns; and 3) a falling dollar – just to name a few.    However, these problems should not prevent the economy from growing, generally speaking, until at least the end of the decade.

As noted above, during late January, February and early March I emphasized that a great buying opportunity was coming in stocks, specifically before the war with Iraq.  Based on the e-mails we receive, many people didn’t take advantage of that opportunity.  Now the stock markets are significantly higher, and it is much more risky to get in at this point.

The only way I would consider getting in now would be under the direction of a proven professional money manager.  For the record, all of the equity managers I recommend are significantly higher so far this year.  I have also repeatedly advised this year that you consider moving away from Treasury bonds and into an outstanding corporate bond timing program that is up almost 15% this year alone.  (Past performance is not necessarily indicative of future results.)

If we can help you, please don’t hesitate to call us at 800-348-3601 or visit our website at

Wishing you well,

Gary D. Halbert

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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc. Gary D. Halbert is the president and CEO of Halbert Wealth Management, 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, Halbert Wealth Management, 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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