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July 29, 2003


1.  Wall Street Journal Survey On The Economy.

2.  Is The Strong Rally In Stocks Just About Over?

3.  Has The Bond Bubble Been Popped?  (Yes.)

4.  Politics: Bill Clinton Comes To Bush’s Aid.

5.  Gennifer Flowers’ Lawsuit Against Hillary.

The Latest Wall Street Journal Survey On The Economy.

The latest Wall Street Journal survey of 54 leading economists shows a significant improvement in their outlook over the last survey conducted in January.  In January, the 50+ economists forecasted economic growth of only 2.7% on average for 2003.  In the latest survey, the economists forecast growth of 3.7% over the next 12 months ending June 2004.  Specifically, they predicted, on average, 3Q growth of 3.5% in GDP and 4Q growth of 3.8% (annual rate).  These predictions are quite similar to those of The Bank Credit Analyst, which I provided in the July 8 issue of this E-Letter.

Separately, a new survey of Chief Financial Officers of large corporations found that 70% are optimistic about the economy today, versus only 25% who were positive in March of this year.  Most of the economic reports we’ve seen in July have been positive.  Home sales remain very strong; retail sales were up nicely in June; durable goods orders were up; and the Index of Leading Economic Indicators has risen for three consecutive months.  All of this indicates that the economic recovery will continue as I have been suggesting all year.

The bears and the gloom-and-doom crowd continue to point to the manufacturing sector which is still struggling.  The latest Institute for Supply Management Index shows that manufacturing improved from a reading of 49.4 in May to 49.8 in June.  However, anything below a reading of 50 indicates that manufacturing is still in a recession, although a very minor one at this point. 

The pessimists also argue that the current unemployment rate of 6.1% is likely to go even higher.  While this is a possibility in the near-term, the latest WSJ survey of 50+ economists suggests that unemployment is likely at its peak for this cycle, and they predicted (on average) that unemployment will fall to 5.7% over the next 12 months.

The bottom line is that the recession occurred in March-November 2001, and it was the mildest recession in the post WWII period.  This was reported recently by the National Bureau of Economic Research, the nation’s arbiter of such data.  Since then, the economy has been in a very slow recovery, also the slowest rebound in the post WWII period.

My best sources, along with the latest WSJ survey of economists, believe the recovery will continue, and that the economy will be growing at a rate of 3-4% by the end of the year.  As discussed at length in the June 3 issue of this E-Letter, if we reach growth of 3½-4%, unemployment should begin to fall modestly, and people will then begin to feel much more confident.  All of this assumes, of course, that there are no major terrorist attacks or other major negative surprises over the next year.

While I am optimistic about the economy over the next year or so, keep in mind that I am very concerned about what will happen whenever we hit the next recession.  As discussed at length in my July 8 E-Letter, The Bank Credit Analyst believes the next recession could be very severe, along with a major bear market in stocks.

The Markets – Stocks Rise, Bonds Crater

Stocks have trended strongly higher since just before the war in Iraq.  The Dow is up 24%, the S&P is up 25% and the Nasdaq is up over 35% since early March before the war.  This month, I have been getting increasing numbers of calls and e-mails from clients and readers of this E-Letter asking me what they should do now.

In late January, February and early March, I wrote a series of these weekly E-Letters entitled “The Mutual Fund Merry Go-Round.”  Those E-Letters were written to better educate readers about how to invest in mutual funds.  If you were a reader back then, you will recall that I strongly recommended increasing your equity holdings prior to the start of the war in Iraq, preferably managed by professional market timers.  Hopefully, you took that advice.

So, the question is what to do now.   If you have most of your equity holdings with successful professional Advisors (preferably with market timers), then the answer is – you don’t need to do anything.   Leave it to the Advisors, assuming they have done well this year.  The equity managers we recommend at my company are all up nicely this year.  (Past results are not necessarily indicative of future results.)

If you bought stocks and/or equity mutual funds on your own when I recommended it in March, I trust you are very happy!  But the question is, should you hold on, or should you take profits?  As does The Bank Credit Analyst, I believe stocks will be higher a year from now.  Maybe not dramatically higher, mind you, but probably enough higher to warrant holding on.

On the other hand, the markets have moved sharply higher in a relatively short period of time.  Based on the calls and e-mails I’ve received recently, some of you who took my advice in March (and manage your own money) are now anxious to sell and lock-in those nice profits.   You’re nervous that the market might go back down just as fast as it went up.   Well, here’s my advice: take profits now and put that money with a professional Advisor(s) that has a proven market timing program.  You can call us at 800-348-3601 for more information, or you can visit my website (CLICK HERE ).

Has The Bond Bubble Burst?

I believe the answer is YES, especially the Treasury bond market.  Bonds have declined significantly in recent weeks for two main reasons.  First, it is becoming clearer that the economy is recovering and is not going to fall back into recession anytime soon.  A stronger economy suggests that interest rates will rise.  In fact, they already have.  Second, the bond market has been expecting that the Fed would intervene in the market by buying T-bonds outright to keep long-term rates very low.  But the Fed has not done so and recent remarks (or lack thereof) by Alan Greenspan seem to indicate that the central bank is not going to directly prop-up the bond market.

The result is that the yield on the 30-year T-bond has risen from a 50-year low of 4.1% to 5.1% in just over a month.  Bond investors have been hammered!  As with all bubbles, many investors came late to the party.  Hopefully, you were not one of them.  At the same time I recommended buying stock mutual funds in the first three months of this year in this E-Letter, I also recommended that investors reduce their exposure to bonds, especially T-bonds.  Specifically, I recommended a professional bond timing program that uses high-yield bond mutual funds.  I am happy to report that this program avoided the latest carnage in the bond market and is nicely profitable for the year.  (Past results are not necessarily indicative of future results.)

The latest rout in the bond market is probably overdone.  However, I expect bonds will be in a broad trading range for the next year or longer.  This, too, argues for a professionally managed market timing strategy.  High-yield bonds, while not suitable for everyone, should benefit as the economy continues to recover.

Politics:  Bush’s Aces Trump Dems’ Uranium Joker

In the June 10 issue of this E-Letter, entitled “Can The Democrats Save Themselves?” I argued that the Dems are moving to the left at a time when most Americans are either conservatives or moderates, not liberals.  But since then, the Democratic presidential hopefuls, led by Howard Dean, have continued to move left, and they have become even more strident on the issue of Bush’s handling of the war in Iraq.  While Bush’s approval ratings have dropped to the mid-50s, the Dems have done nothing to improve their own ratings with the public.

The last few weeks have been dominated by the Niger/uranium story.  The Dems were sure they finally had an issue on which to gain traction.  Never mind that Tony Blair – the source of the information – still stands behind his intelligence.  Amidst the howling from the Democrats, the Bush administration trotted out CIA Director George Tenet to take the blame for the questionable 16 words in Bush’s State of the Union speech, even though Tenet said he never actually saw the speech beforehand.  So a few days later, the Bush administration identified Stephen Hadley, an NSA assistant to Condoleeza Rice, as the culprit.  No one has been fired over it at this point. 

In my view, this was all a big mistake by the Bush administration.  They should have never caved on this one, especially with Tony Blair standing behind it.  But they did.  Not only did it not work, it also damaged Bush’s credibility.  It remains to be seen if Bush’s approval ratings rebound, especially with the latest flap over the 28 redacted pages from the congressional report on 9/11.  It looks like the Bush administration has bungled this one, too, although it is too early to say for sure (see Special Articles below).

Anyway, the flap over the uranium statement is waning as of now.  It appears that the killing of Saddam’s two murderous sons – Uday and Qusay – two of the “Aces” in the Bush administration’s deck of cards, has trumped the Dem’s outcry over the uranium issue.  I watched replays of the Sunday morning talk shows, and the uranium issue was hardly mentioned, except by Sen. Bob Graham (a presidential wannabe) who called for Bush’s impeachment over it.  The following may explain why the uranium issue is going away.

Bill Clinton To Bush’s Rescue – Why?

Just when the Democratic wannabes thought they had George W. on the ropes, who but Bill Clinton comes to his aid?  On Larry King Live last week, Clinton had the following to say about Bush’s now infamous 16 words on Iraq and uranium:

“We should be pulling for America on this. We should be pulling for the people of Iraq. We can have honest disagreements about where we go from here, and we have space now to discuss that in what I hope will be a nonpartisan and open way… [In] this State of the Union deal they decided to use the British intelligence. The president said it was British intelligence. Then they said on balance they shouldn't have done it. You know, everybody makes mistakes when they are president... You can't make as many calls as you have to make without messing up once in a while. The thing we ought to be focused on is what is the right thing to do now.”
There are those who believe that Clinton was sending a message to the Democratic hopefuls that their attack on the president was not resonating positively with the American people.  Clearly, Clinton was suggesting that the Dems should back-off from bashing Bush over Iraq and the uranium issue as well.

There are many who believe that Hillary Clinton has her eyes on the White House in the 2008 election.  I happen to be one of them.  In my June 10 E-Letter, I raised the possibility that the Clinton’s and DNC boss Terry McAuliffe may privately prefer that Bush is re-elected this time.  It would be very difficult for Hillary to unseat a Democrat incumbent for the nomination in 2008.  Perhaps this is why Bill Clinton came to Bush’s aid last week.  I wouldn’t rule it out.

Hillary In 2004… Revisited

In my June 10 E-Letter, I predicted that Hillary will not run for president in 2004.  However, with Bush’s approval ratings down significantly, and with the current group of Dem wannabes doing so poorly, there is increasing speculation that Hillary may jump in the race if Bush’s numbers continue to fall. There are even rumors that Al Gore may be reconsidering his decision not to run, especially if Bush’s numbers were to fall significantly more.

But there may now be yet another reason why Hillary will not run in 2004, even if she wants to.  Remember Gennifer Flowers who is widely believed to have been Bill Clinton’s lover for over a decade in Arkansas?   Well, she is back in the news – sort of.  The mainstream media largely ignored what follows.

Flowers is suing Hillary, James Carville and George Stephanopoulos (two former Clinton advisors) for defamation and conspiracy as a result of their alleged efforts to smear her back in the early Clinton years.  On Monday, July 21, U.S. District Judge Philip Pro granted a motion by Hillary to dismiss the defamation claims against her personally, but he allowed Flowers’ claim that Mrs. Clinton conspired with the other two defendants to stand.  So the case is now set to move forward.

According to the Las Vegas Review Journal, Judge Pro found that “Carville and Stephanopoulos acted as the ‘instrumentality’ of Hillary Clinton” when they falsely claimed that Flowers had fabricated her account of a 12-year affair with Mr. Clinton.

In a lawsuit filed by her attorneys at Judicial Watch, the early Clinton whistle-blower contends that the former first lady organized and directed a conspiracy to defame her that included false statements made by Carville and Stephanopoulos.

The biggest news following the court ruling was the announcement by Judicial Watch that they intend to depose Mrs. Clinton in the case, as well as her two former aides.  “Ms. Flowers is quite pleased that she finally has the opportunity to hold Ms. Clinton and her minions Carville and Stephanopoulos accountable in court,” Judicial Watch President Tom Fitton said in a press release last week.

While the mainstream media largely ignored this latest court ruling, it is very likely to gain more attention, especially if Hillary and the others are deposed and certainly if they have to testify in court.  Plus, the case is almost certain to drag into 2004.  This doesn’t bode well for a Hillary run in 2004.

Still, there are others who believe she may jump in the race anyway.  After all, she continues to lead the Democratic wannabes by a wide margin in the polls. We’ll see!

Kindest Regards,

Gary D. Halbert


The good news coming out of Iraq.

Iraqis’ greatest fear is that the US will cut and run.

Bush administration bungles another one?

Democrats sink to new low over Iraq uranium issue.

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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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