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The Bank Credit Analyst, Terror, Politics, Etc.

By Gary D. Halbert
August 3, 2004


1.  New Forecasts From The Bank Credit Analyst

2.  You’re Going To Need Our Professional Managers

3.  New Terror Alert For US Financial Institutions

4.  Did Kerry Get The Convention Bounce He Needed?

5.  Will Bush Get A Bounce From The Republican Convention?


This week, I bring you the latest forecasts from our old friends at The Bank Credit Analyst.  I have not written about BCA’s latest thinking in a while because their forecasts and their recommendations haven’t changed in a while, until their current August issue.  You may recall that I consider BCA to be one of the most accurate forecasters of major economic trends, equity market trends and interest rate trends.  I have been a continuous subscriber to BCA since 1977.  Their research is quite expensive but well worth it.

We also look at the latest terrorism threat.  One can only wonder just how real these threats are, but now, for the first time, we have specific targets.  I can only imagine what the Americans who work in these buildings must be thinking.

And finally this week, we’ll look at the latest polls to see if John Kerry and John Edwards got the bounce they had hoped for in the polls following their convention last week.  It’s tough to tell.  Next, will Bush get the bounce he needs from his convention this month?  Bottom line: no one is watching.

The Latest From The Bank Credit Analyst

Since the beginning of this year, BCA has maintained the following forecasts:

1.  The economy would continue to rebound, perhaps surprising on the upside.
2.  Inflation would turn higher, but not by enough to be overly concerned.
3.  The Fed would nudge short-term rates up in the second half of the year.
4.  Equity prices would trend modestly higher, especially in the second half.
5.  Treasury and other long-term bonds are overpriced and are not advised.

With the exception of equity prices not rising to this point, Martin Barnes and his fellow editors at BCA got it pretty much right as usual. So what do they think now?

First of all, the BCA editors believe the economy will continue to grow by 3-4% for the next year, absent a major negative surprise such as another serious terrorist attack on our soil.  They believe that inflation, as measured by the CPI, will settle in the 2-3% range.  They also believe the Fed will continue to nudge short-term rates up, such that the Fed funds rate is 4% or higher by the end of next year (2005).

After having recommended “above-average” holdings of equities over the last year, the BCA editors downgraded their recommendation to only “average” holdings in their latest August issue.  They say:

“The stock market was due for a period of consolidation after rising 45% [S&P 500] between March 2003 and February 2004, almost without a break.  However, what should have been a ‘pause that refreshes’ is turning into a larger affair.  There is still a chance that prices will resume their upward advance in the second half of the year given still decent earnings growth and low interest rates...  The conditions for a major decline in stocks do not exist. 
…However, there needs to be a catalyst to trigger renewed investor confidence [in the market].  Investors are weighed down by a long list of concerns including oil, geopolitics, rising interest rates, the sustainability of the economic expansion and the outlook for earnings.”

As noted just above, the editors at BCA still believe the stock market may have some meaningful upside potential, but they also recognize that the markets could continue in a broad trading range.  In fact, their latest most likely scenario would have equity prices rising only about 5% over the next year.  If true, that will be a major disappointment to millions of investors.

The BCA editors also expect the equity markets to continue to be quite volatile.  They once again advise investors to consider traditional market timing strategies and sector rotation.  They say:

“In a low return world, market timing will become more important and this means paying more attention to short-run cycles… There will be lots of mini-cycles for nimble investors to play… Market timing and sector selection will become much more important in terms of boosting returns to more acceptable levels.” 

Right Up Our Alley

Most of the professional equity managers we recommend utilize strategies that emphasize sector selection.  Their time-tested systems attempt to identify those sectors that have the potential to outperform the market averages.  Few investors have the ability to do this successfully on their own, as I discussed last week. 

Most of the professional equity managers we recommend also have the ability to move partially or fully out of the market from time to time as conditions warrant.  Increasingly, these managers are using so-called “short funds” to hedge their long positions when it looks like the markets are moving into another downward move in their trading range.  Here, too, very few investors know how to successfully short the market during downturns.

If BCA is correct that the most likely scenario is for the equity markets to move in broad trading ranges, with a modestly higher bias, then you may want to consider active professional management for at least a part of your portfolio – even if you have never done so before.  I suggest you take a look at the successful active managers I recommend (click here).

Terror Threat To US Financial “Icons”

Homeland Security Secretary Tom Ridge warned Sunday of possible terrorist attacks against “iconic” financial institutions in New York City, Washington and Newark, N.J.  Specifically, the government named these buildings as potential targets:

The Citicorp building and the New York Stock Exchange in New York City.
The International Monetary Fund and the World Bank buildings in Washington.
The Prudential building in Newark.

Ridge said the government's threat level for financial institutions in just these three cities would be raised to orange, or high alert, but would remain at yellow, or elevated, elsewhere.  Ridge said a confluence of intelligence over the weekend pointed to a car or truck bomb:

“The preferred means of attack would be car or truck bombs.  That would be a primary means of attack (as opposed to chemical or biological or dirty bombs).”

The Associated Press story released on Sunday after Secretary Ridge’s news conference described the latest terror intelligence as follows:

“The government provided a wealth of detail that it had picked up in the past 36 hours, but a senior intelligence official described it only on condition of anonymity. The official described "excruciating detail" and meticulous planning "indicative of al-Qaida.
The official said the intelligence included security in and around these buildings; the flow of pedestrians; the best places for reconnaissance; how to make contact with employees who work in the buildings; the construction of the buildings; traffic patterns; locations of hospitals and police departments; and which days of the week present less security at these buildings.
To illustrate the level of detail obtained, the official cited these examples: midweek pedestrian traffic of 14 people per minute on each side of the street for a total of 28 people; that some explosives might not be hot enough to melt steel; and that the construction of some buildings might prevent them from falling down.
The official said he had not seen such extraordinary detail in his 24 years in intelligence work. ”

Secretary Ridge said the government took the unprecedented step of naming particular buildings because of the level of specificity of the latest intelligence. “This is not the usual chatter. This is multiple sources that involve extraordinary detail,” Ridge said. He said the government decided to notify the public because of the specificity of detail it had obtained.

Ridge acknowledged that protecting these buildings, located in heavily populated areas, would require additional security measures, especially because thousands of cars and trucks travel through these cities daily.

Will The Terrorists Attack Before The Election?

There are three schools of thought on what the terrorists may be planning.  One is, they want to attack the US before the November election so as to unseat President Bush, their enemy.  It worked in Spain when, after the train bombings, the liberal candidate was elected.  But would it work in the US?

The second is that another major terror attack on US soil before the election would bolster Bush’s chances in the November election, as Americans would rally around the president. I happen to agree with this line of thinking.  In this scenario, if the terrorists have such flexibility, perhaps they wait.

The third scenario is that the terrorists will strike whenever and wherever they can.  They do not have the flexibility to wait.  It has nothing to do with politics.  This could very well be the reality.  If so, an attack is totally unpredictable.

Yet if this last scenario is correct – they will strike whenever and wherever they can – then we have reasons to be optimistic.  If the terrorists will strike whenever and wherever they can, that means that our heightened security measures around the country have been successful, so far, in thwarting any new terrorist attacks.

Finally, along this line, might it then be possible that the terrorists deliberately leaked the names of the specific targets in the US – Citicorp, the NYSE, the IMF, the World Bank, etc. – even if they have no real means with which to attack them.  Leaking this specific information, if indeed that is what happened, has served to distract police and security agencies in New York and elsewhere.  It has also served to heighten public concern in these areas and elsewhere.

Let’s hope and pray that there are no more terrorist attacks in America.

Dem’s Bounce, Or No – Clintons Still Rule

The Democratic National Convention came and went, and I was wrong.  When I wrote to you last Tuesday, I had watched Bill and Hillary Clinton speak on the opening night last Monday.  As I noted, they were fabulous, especially Bill.  I honestly thought he was at his career best.   And I thought the Clintons had set the stage for a full-blown Democratic bounce of 10-15 points, or maybe even more.  (Please note that as a conservative, I am no great fan of Bill Clinton, but I do believe he is one of the best “pure politicians” of our time.)

Yet one week later, the race is still a dead heat.  Kerry leads by 2-3 points in some polls, and Bush leads by 2-3 in others, with the Republican National Convention still to come in August.  So, what happened?

The Dem’s plan was to get Bill and Hillary out of the way early on, so they would not overshadow Kerry.  I had my doubts, as you know, but Bill and Hillary delivered everything the Kerry campaign had hoped for and more.  Then Bill left town, and Hillary hung around for another couple of days of photo ops.  Again, what happened?

I thought Tuesday night of the convention was a bust.  Teresa Heinz Kerry was dull, at least to me.  Wednesday night was John Edwards, who was energized as always and delivered a great speech, typical of a fabulously successful trial lawyer.  Yet several commentators thought he looked a little shifty, with his eyes darting back and forth at times.  Then John Kerry on the last night delivered a very good speech, but almost everyone agreed it was too long and definitely too hurried.  He had to speak over dozens of major applause moments.

In the end, they got it wrong.  The Clintons still own the Democratic party and the hearts and minds of many Americans.  They were the best of the Dem’s convention.  For conservatives like me, we are thankful for the 22nd Amendment which says no one can serve more than two terms as president.  Otherwise, Bill Clinton might now be running for his fourth term in office.

Anyway, it now seems clear to me that the Democratic strategists got it all wrong.  They should have had Bill and Hillary speak on the last night, leading up to Kerry’s acceptance speech, which should have been much shorter.  Then they all should have hugged, raised hands and given thumbs up after Kerry’s speech.  That might have given them the clinching convention bounce they dearly needed. 

But that’s just my take on it.  Here is how political analyst Dick Morris summed up the lack of a convention bounce for Kerry in his latest column out today:

“In the first three nights, Bill Clinton, Barack Obama and John Edwards made the right decision and focused on the domestic concerns. As one listened to their speeches, the issues that predate 9/11 got larger and terror got smaller as a key issue for November.
They said, in essence, that terror is something you read about in the papers or see on TV. But drug prices, health insurance, wage levels and schools are the reality you see every day in your own life. As with State of the Union messages, terror and foreign policy had a place in these speeches, but not overshadowing the rest.
Then came the uniforms. Old ones to be sure, but Kerry chose to showcase his Vietnam record to the virtual exclusion of anything else on the convention's final night. His old shipmates, Max Cleland and his salute on taking the podium all served to remind voters that we are, indeed, at war and that Kerry is running for the post of wartime — not peacetime — president.
In that one night, Kerry gave all of the gains of the previous three days back to the Republicans. (Rasmussen's daily tracking poll actually has Kerry dropping two points in the aftermath of his Thursday speech).
Kerry compounded the problem by venturing no information about his public career in the Senate for the past two decades. He did nothing to refute three months of negative ads labeling him as an ultra-liberal, big spender. He did not tell us what the Kerry Bill was or the Kerry Amendment or the Kerry hearings. As far as we know, there wasn't any.
Voters don't want a lieutenant for president. They want a commander-in-chief… Voters want a president with brains, not just guts, and all they saw was a warrior telling his old tales on Thursday night. And it wasn't enough. ”

You may agree or disagree with Dick Morris, the colorful and outspoken former political advisor to Bill Clinton, but he always makes some good points in his editorials and TV interviews.  He is, by the way, often critical of President Bush and his campaign.

Even So, It’s Still A Dead Heat 

Now the question is, can George W. Bush and the Republicans get the bounce they dearly need?  Will the Republicans be able to orchestrate a convention bounce at their convention?  Maybe, but I tend to doubt it.  As I said last week, the Republicans don’t have a tag-team challenger to the Clintons.  The TV ratings were absolutely horrible for the Democratic National Convention, and they aren’t likely to be much better for the Republicans.

So, by the end of August, this thing could still be a statistical dead heat.   Maybe it comes down to the debates.  If so, the edge might be to Kerry.  He can articulate the policy answers more eloquently than Bush, although he risks coming off as a liberal policy wonk.  The debates are not Bush’s strongest suit, but then if his handlers will let Bush be Bush (ie – forget the scripted talking points), the President resonates with rank and file Americans.  After all, Bush fared well against Al Gore in the 2000 debates.  In the end, it will probably be another close horse race.  

With all this in mind, I will watch the Republican National Convention just as closely as I watched the Dem’s convention, and I will report accordingly in the days afterward.

I don’t know if you like watching these political events as much as I do, but this year is going to be something special, with the country polarized like never before, with new terrorist threats and a race that could be a photo finish at the end on November 2.

Whatever side you are on, buckle your seatbelts!

Very best regards,

Gary D. Halbert


An in depth look at the Non-Bounce.

How Bush plans to win.,8816,674761,00.html

Teresa does it again – “four more years of hell.”



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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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