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By Gary D. Halbert
July 27, 2004


1.  Bill & Hillary Give Kerry Ringing Endorsement.

2.  The Economy Slows Slightly In Some Areas.

3.  Underlying Trend Is Still One Of Solid Growth.

4.  Economists’ Forecasts For The Next Year.

5.  What’s Troubling The Stock Markets & Why.

6.  Get Ready For The Next Buying Opportunity.


This week, we will focus on the economy and the stock markets.  But first, I must comment briefly on the opening night of the Democratic National Convention.  Last week, I said that John Kerry needed a “ringing endorsement” from the Clintons, still the reigning royalty of the party.  Indeed, Bill and Hillary delivered for Kerry in spades with their speeches.  I’ll give you my thoughts and reactions to their speeches below, and then we’ll analyze the economy.

Several of the economic reports released over the last few weeks indicate that the economy is slowing down.  As usual, the gloom-and-doom crowd is promising that a new recession is just around the corner.  What else is new?  While the economy has slowed mildly in some reports, consumer confidence soared to a two year high in June, and consumer spending remains strong.  This week, we will look at the latest economic reports and what the latest Wall Street Journal survey of well-known forecasters has to say about the future of the economy.

The stock markets are back near their lows for the year, despite an improving earnings and profits picture.  The Dow is below 10,000 once again as this is written.  The last two times the major market indices dipped to these levels (March and May), it was a good buying opportunity.  But how about this time?  In this issue, I tell you why the equity markets are moving lower and what to do about it.

Bill & Hillary Hit It Out Of The Park For Kerry

I must admit, I am one of those who believes that Hillary Clinton has strong presidential aspirations for 2008.  As a result, I wondered whether or not she and Bill would give Kerry the resounding endorsement he so desperately needs at the convention.  Now we know, the answer is YES.  Hillary gave a very good speech, and Bill gave one of the very best speeches of his career.  Word is that Bill actually wrote the speech himself.   He was at his very best!

Bill Clinton did what no other Democrat could do.  He elevated the discussion of domestic policy (and problems) to the level of the discussion of homeland security and the War On Terror.  This was critical because Kerry generally wins on the domestic issues, and he loses to Bush on the security/terrorism issues.  Clinton may have leveled the playing field, but it remains to be seen if Kerry can keep it there.

My very first thought after former President Clinton finished his speech was that the Democrats might be wise to cancel the rest of the convention, take the “Clinton bounce” and not risk making any mistakes or looking overshadowed during the days to follow.  That won’t happen, of course, and this is precisely why the Clintons were scheduled to speak on the opening night so as to put as much space between them and Kerry as possible.

All of the speakers on Monday night were very skillful in representing John Kerry and John Edwards as centrists, rather than the #1 and #4 most liberal Senators in the Congress.  Yet no matter how they try to appear as centrists, keep in mind that a Kerry/Edwards administration will be one of the most liberal in years.

Now if the Democrats don’t make any blunders (which will be a real challenge for Teresa Heinz Kerry), and if Kerry gives a good speech on Thursday (which I’m sure he will), then I expect the Kerry campaign to get a sizable “convention bounce” by the end of the week.  A 10-point bounce in the polls, or even more, would not surprise me. 

If so, this will be bad news for President Bush.  It remains to be seen whether the Republicans can generate a 10-point bounce at their convention.  The Republicans do not have the equivalent of Bill and Hillary Clinton.  And George W. Bush is no Bill Clinton when it comes to orating.  So, we’ll just have to wait and see what happens.

The most surprising thing of all about the opening night of the Dem’s convention was that almost no one watched it!  Viewership on all the major networks was at an all-time low.


3.5 Nielsen / 5% Market Share vs. 4.5 / 8% in 2000


3.3 Nielsen / 5% Market Share vs. 4.8 / 9% in 2000


3.2 Nielsen / 5% Market Share vs. 3.8 / 7% in 2000

From all the media hype, you would have thought that over half the country would have been glued to their sets, especially on opening night with Bill and Hillary back on center stage.  Yet the ratings were the lowest ever.   If Kerry doesn’t get the bounce in the polls that I expect, it will be because almost no one was watching the Clintons wax eloquent.  Re-runs had higher ratings. Of course, the same may be true with the Republican convention in August.  We shall see.            

The Economy – Slowing, But Not To Worry

On June 25, the government released its final report on 1Q gross domestic product.   In that report, they revised 1Q GDP growth down to 3.9% (annual rate) from 4.4% reported earlier.  That compared to growth of 4.1% in the 4Q of last year.  Keep in mind that growth of 3.9% is very strong, but some forecasters had suggested that growth might jump to 4.5-5% in the 2Q.  So, the media characterized the latest GDP report as very disappointing and a sign that the economic recovery is grinding to a halt.  Not so, as I will explain below.

The economic recovery has slowed modestly as indicated by several reports over the last several weeks.  Here’s the rundown.  The Index of Leading Economic Indicators edged down 0.2% in June, the first monthly decline since March 2003.  While some in the media made a big deal out of this, the LEI is still above where it was in the 1Q of this year.  We would have to see this index fall for three consecutive months to indicate that the economy is in any trouble.

Consumer spending slowed slightly in June with retail sales falling 1.1%.  Here, too, a modest decrease in one month does not suggest a trend.   Durable goods orders declined by 1.8% in May (latest data available), yet orders for non-durable goods rose by 1.5% the same month.  Durable goods orders are expected to have risen by 1-1.5% in June.

The Institute for Supply Management’s ISM Index fell from 65.2 to 59.9 in June, the lowest level since December.  The index had risen sharply for several months in a row, hitting a record high in April, so it is not unusual to see a pullback.  Keep in mind that any reading above 50 indicates that the economy is growing.

Not All Bad News

The media has a tendency to focus on the bad news.  Yet there have been several very positive reports over the last few weeks that you may not have heard about.  Perhaps the most encouraging is the Consumer Confidence Index which soared almost 9 points in June to 101.9, the highest level since June 2002.  Separately, the University of Michigan’s consumer sentiment index also rose sharply in June.  Today, the Consumer Confidence Index for July was released, showing another jump of over 3 points to the highest level in two years.  This is important because consumer spending accounts for apprx. 70% of GDP.

Sales of existing homes hit a new record high of 6.95 million units in June, despite higher mortgage rates.  New home sales hit a record in May.  So, the housing market remains very robust even in the face of higher interest rates. 

While the media made a big deal out of the latest jobs report, there are indications that hiring will increase in the months ahead.  The Labor Department reported that 112,000 new jobs were created in June, versus 250,000 in May.  While that was less than hoped for, it is still positive. 

The National Association for Business Economics conducts a quarterly hiring survey of CEOs of major corporations.  In the latest survey, 41% of respondents said they plan to increase hiring versus only 34% in the last survey taken in March.  This suggests that the rate of new job creation will increase in the second half of this year.

Finally, the latest Wall Street Journal survey of economic forecasters is very encouraging.  The Journal surveyed 55 leading economists earlier this month, asking for their predictions on economic growth.  The average estimate is for GDP to grow by 4.4% in the 2Q and 3Q and 4.2% in the 4Q.   They also predict growth of 3.7% in the first half of 2005.

So The Economy Is Fine

Despite how the media and the gloom-and-doom crowd may spin it, the US economy remains on very firm ground.  Solid growth should continue through the end of this year and well into 2005, barring some major unexpected surprise. 

Obviously, if there is another major terrorist attack in the US, then we can throw these positive forecasts out the window.  The Department of Homeland Security says there is a heightened level of “chatter” within the terrorist community, but the national threat level has not been increased.  Other than this risk, the economy will continue to grow.

Stocks Retreat To Support

As this is written, the Dow Jones is back below 10,000.  The market bottomed in May near the 9900 level.  The S&P 500 is back near 1080 where it also bottomed in May.  Now the question is, will these support levels hold once again? 

Most market analysts are surprised that the equity markets are not performing considerably better than they have in recent months.  There’s certainly been plenty of good economic news.  Corporate earnings continue to improve.  The government reported that corporate profits increased almost $21 billion in the 1Q.  Meanwhile, there is still a mountain of cash sitting in money market funds that could drive stock prices significantly higher, if investors decide to get back in the markets.  But for now, investors seem to be in no hurry.

There are several reasons why investors are worried.  As discussed above, people are worried about the threat of more terrorism in this country.   While some in the media have suggested that the recent disclosures about the increased terrorism threat were politically motivated, most investors took those warnings seriously.  They would rather be in the safety of cash.

Another big worry on the part of investors is John Kerry’s promise to raise taxes on those making over $200,000.  Kerry would repeal the Bush tax cuts for those at that income level and above.  Kerry has also said he will consider revoking the Bush cut in the capital gains tax rate and undoing the Bush cut in the dividend tax rates.

We can safely assume that most people making over $200,000 a year have some stocks and/or mutual funds in their portfolios.  As Kerry has gained in the polls, more and more investors are wondering whether or not they should consider selling some of their stocks now while the current tax rates are in place. 

This will become an increasingly key point as we move closer to the election.   As discussed above, I expect that Kerry will get a nice “convention bounce” in the polls over the next week.  This will make more investors consider selling their stocks, especially any they have held long enough to qualify for capital gains.  Investors will also be watching closely next month to see if Bush gets his convention bounce, and whether or not he can pull ahead of Kerry in the polls.  If not, we could see more selling pressure hit the market.

On another front, foreign purchases of US stocks are on the decline.  In May (latest data available), foreigners reduced their purchases of US securities by 26% from April levels.  May was the third consecutive month in which foreigners were net sellers of US stocks.  This is yet another reason why stocks have been pushed back down to earlier support levels.

With the equity markets hovering at or just above key support levels, the next month or so will be a critical time from several points of view.  If the Kerry campaign gets a larger than expected bounce from their convention, then the market could well fall below the current support levels.  

On the other hand, if Kerry doesn’t get a big bounce, and/or President Bush pulls ahead following the Republican convention, then the equity markets could rebound strongly in the fall.  The problem is, the Republican convention is still a month away.  A lot can happen between now and then, especially with the markets hovering at levels that are considered to be sensitive, as is the case today.

Avoid Investment Scams & Risky Strategies

Given the fact that market returns have been disappointing this year, we are seeing an increase in investment scams and high-risk strategies.  People who promote these scams know that investors are frustrated and therefore are more susceptible to deals which would otherwise appear to be too good to be true.  You should be ever more cautious about investing in anything with which you are not familiar, or with strangers who may call you on the phone.

Also, whenever market returns are disappointing, there is always the tendency to consider riskier types of investment strategies.  This year, for example, I have seen lots of investors try to pick the hot sectors within the market, rather than the major market indices.  This practice, known as “sector rotation,” sounds easy.  Just pick the hot sectors, ride them up and then get out and move to another sector that you expect to get hot.  But it isn’t that easy!

Most investors don’t know how to find the best sectors until they are already hot, meaning they have already made a big move.  Far too often, investors buy in just before that sector falls out of favor and declines sharply in price.   The truth is, most of us are not good at picking individual stocks or finding the next hot market sectors in advance.

Use Professionals, Especially In This Kind Of Market

2004 has been a very difficult year in the investment markets.  The Dow, the S&P, the Nasdaq and other major market indices are down for the year.  Bonds are down for the year.  But even worse is the fact that the markets have been extremely volatile.  In my view, stocks went too high last year, mainly on emotion, and now we are in an extended period of “consolidation.”  Consolidation is a market term for a broad trading range environment with choppy moves in both directions.  It has been a very tough year for anyone to make money.

I do, however, believe there is going to be another excellent buying opportunity in stocks this year.  Whether Bush wins or Kerry wins, I look for another key buying opportunity before the end of the year.  The problem is, I don’t know when.  (Of course, nobody else does either, but I admit it.)

This is precisely why I continue to recommend that you have a portion of your investment portfolio with professional Advisors who use time-tested systems that have the potential to get them out of the markets (or hedged) during downward trends, and into the markets during upward trends. 

Some years ago, a very successful money manager told me: “People think they pay us to get them out of the markets.  But that’s the easy part.   What they really pay us for is to get them back IN the market when the time is right.”  That made sense to me then, and it certainly rings true in the current market environment.

We know that millions of investors are sitting on the sidelines or are under-invested in equities today.  We know this from the mountain of cash parked in money market funds.  They are all waiting on a buying opportunity.  Yet most will not know when to get back in until the market has already moved significantly higher.  This is the way it always goes.

This is why I have a significant part of my investment portfolio with professional money managers who use sophisticated, proven systems to know when to get back in the market and move to a fully-invested position.  These Advisors have been doing this for many years, and they have enviable past performance records [CLICK HERE].

The time to get with professional money managers is NOT when stocks or bonds are soaring and everyone knows it’s a bull market.  No, the time you want to get professionals on your team is when the markets are down and difficult.  Let these professionals decide when it’s time to get back in and when to move to a fully-invested position.

We know from increased traffic on our website that many of you have looked at the professional Advisors I recommend.  You’ve probably seen their impressive performance results, and their ability to control losses during down periods in the markets.  But like millions of investors, you may have decided that now is not the time to get back in.

Yet if I am right about another key buying opportunity before the end of the year, now may be an excellent time to get started.   It takes several days to several weeks to get your accounts established, depending on how fast you want to do it.  But the point is, you have to be ready when the opportunity comes along.

So, I invite you to visit our website [CLICK HERE] or call us toll free at 800-348-3601 and speak to one of my professional Representatives.  There is never any pressure to invest.

Wishing you profits,

Gary D. Halbert



Dick Morris on how Clinton opened the door for Kerry.

Dems want change, but not with Kerry.,0,5209511.column?coll=ny-viewpoints-headlines

Kerry's wealth and lifestyle are mind boggling.

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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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