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Experts Looking in the Rear-View Mirror

Wednesday, 28 May 2008 02:04 PM

In typical Wall Street fashion, many of the so-called experts appear to be looking in the rear-view mirror in regard to the financial markets and their outlook for the economy. Some of those experts also appear to be analyzing the wrong data.

For example, T. Boone Pickens told CNBC last Thursday, "85 million barrels of oil a day is all the world can produce, and the demand is 87 million. It's just that simple. It doesn't have anything to do with the value of the dollar."

Although I have great respect for Mr. Pickens, the facts don’t match the legendary oil speculator’s comments.

For example, according to the Energy Intelligence Group, 87 million barrels per day of crude oil inventories were available, on average, during the month ended April 30, while the market consumed (demanded) only 85 million barrels per day — just the opposite of Pickens’ claim.

While data from the Energy Information Administration reveal that crude oil inventories did in fact decline during the week ended May 16, that decline was the first decline in oil supplies over the past five weeks. Meanwhile, the demand for oil continued to fall more than available supplies.

Pickens’ comment about oil prices having nothing to do with the decline in the value of the U.S. dollar is pure nonsense. Given that oil is priced in dollars, anyone can easily reason that oil prices will rise whenever the value of the dollar declines substantially. By the way, the value of the dollar has fallen 12 percent against a broad basket of other world currencies over the past 12 months and 15 percent against the euro.

In other economic news, the U.S. Department of Commerce reported yesterday that sales of new homes fell 42 percent in April, as compared to the same period a year ago. Although I expect to see only a modest improvement in sales of both new and existing homes over the next 12 months, my research indicates that the sharp decline in home sales over the past 18 months may be coming to an end.

My research also indicates that the sharp decline in new home construction that began in February 2006 may have ended in March, with this leading economic and stock market indicator rising 8.2 percent in April, as compared to the prior month.

Several other leading economic indicators also suggest that the worst may be over for the economy.

For example, the Conference Board reported on May 19 that its index of leading economic indicators rose for the second straight month in April, while the spread between short-term interest rates and long-term rates rose for the fourth month in a row. Meanwhile, my research suggests that business spending may improve somewhat in the months ahead, due to the low levels of goods inventories on the shelf.

Although my investment models have not yet given a buy signal — meaning that a preponderance of economic statistics has not yet improved significantly — those models indicate that stock prices may have already bottomed.

In light of the fact that stocks have historically performed well during presidential election years, I urge you to ignore the negative news that is just now being spread by the Wall Street experts. Keep in mind that most of those “experts” are always late in their analysis — most money managers and Wall Street economists tend to “warn” investors about a supposedly impending economic and stock market collapse only after the collapse has already occurred. I, on the other hand, always look forward in my analysis.

By the way, those of you who have regularly read my commentaries over the past 12 months may recall that I began warning readers about an approaching bear market on June 28, 2007 (in an article titled “Sliding Profits to Trigger Falling Stocks”). In addition, I recommended for subscribers to my investment newsletter, The ETF Strategist, to aggressively sell-short stocks last September, while the majority of Wall Street experts began telling the world that “stocks are cheap” and that investors should be adding to their stock market portfolios.

Those short recommendations (in the ProShares Ultra Short Russell 2000 and Ultra Short Consumer Services ETFs) generated returns of 15.4 percent and 20.5 percent, respectively, for our subscribers in the ensuing six-month period, while the S&P 500 lost 7.6 percent (including dividends). Click here if you’d like to try a trial subscription to The ETF Strategist.

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DavidFrazier
In typical Wall Street fashion, many of the so-called experts appear to be looking in the rear-view mirror in regard to the financial markets and their outlook for the economy. Some of those experts also appear to be analyzing the wrong data. For example, T. Boone Pickens...
david,frazier
732
2008-04-28
 

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