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Navellier & Associates was founded by Louis Navellier in 1987 and since then has guided thousands of investors by applying our disciplined, quantitative investment process to a broad range of equity products. Every day, investors hire Navellier to manage their assets in a private account,... More
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  • Watch What Central Bankers Do, Not Just What They Say

    The S&P 500 declined a little (-1.07%) last week as nervous investors misinterpreted central bankers' words rather than watching their actions - i.e., their continued pump-priming to boost economic growth. I oftentimes view these occasional pullbacks as new buying opportunities, especially for some companies that aggressively buy back their existing shares. And now, after a brief Memorial Day pause, the market will likely continue rising, based mostly on improving second quarter sales and earnings trends.

    Political Distractions Can Be Good for Stocks

    Last week, most U.S. stock indexes fell by over 1%, while gold gained 1.6% and crude oil fell by 1.9%. This is a case of money "sloshing around" from one market to another, which is usually an encouraging sign. In particular, last week's nervous financial markets resulted from traders overreacting to headlines - selling stocks before bothering to digest the details of the news. In addition, trading volume was light on Friday, due to the advent of a major U.S. holiday when traders tend to take off early in the afternoon.

    There was also a media circus going on in Washington, DC, diverting attention away from the economy and stocks. The media spin on the Benghazi tragedy, the IRS targeting of conservatives, and the Associated Press/Fox News wiretap scandals suggest that the White House either knew nothing or it was guilty of wrongdoing and/or cover-ups.

    The "know nothing" defense and the resulting "outrage" within Congress essentially means that some scapegoats must be found and sacrificed. The media, which used to love the White House, now seem outraged that reporters were wiretapped by the Justice Department, so with the news media now on the warpath, some heads will have to roll. Congressional hearings might last for the next several months.

    Ironically, these scandals seem to help the stock market. While the government investigates itself, the U.S. economy can prosper with potentially less government interference over the next few months.

    Chairman Bernanke Tells Congress That QE is Still in Full Force

    With chaos reigning in the White House, the most powerful person in government appears to be Fed Chairman Ben Bernanke who became a bit testy in his Congressional testimony last week. Even though the Fed has carefully laid the groundwork for more quantitative easing (QE) in the upcoming months, pundits have recently concentrated on the possibility of the Fed scaling back or ending QE sometime this year.

    Fed Chairman Ben Bernanke rattled financial markets last Wednesday when he warned Congress that "a premature tightening of monetary policy could lead interest rates to rise" and "carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further." In these blunt words, he implied that if the Fed curtails QE prematurely it could hurt the stock market and sabotage economic growth, potentially resulting in a deflationary spiral. Using an unusually curt tone, Bernanke also warned that economic growth could come to a grinding halt if the Fed ended its bond buying plan too quickly.

    On the same day (Wednesday), in the official release of the minutes of the last Federal Open Market Committee (FOMC) meeting, we learned that a growing number of FOMC members want to slow the Fed's asset purchases, but this would not likely occur for at least 4-5 months, and only then if we see improving economic data. Specifically, many FOMC officials want to see continued progress in job creation (i.e., over 200,000 new jobs per month) and improvement in other key economic indicators.

    Even though the Fed's $85 billion-per-month money pump remains in force, the stock market fell last week based on traders' overreaction to their fear that the party might end sooner than they once thought.

    No Fed Chairman wants the economy to blow up on his watch. Since Bernanke's current term ends next January, I fully expect he will keep the Fed's money pump primed through at least the end of 2013.

    Stat of the Week: April Durable Goods Orders Rose 3.3%

    The Commerce Department announced last Friday that April's durable goods orders rose 3.3%, much better than economists' consensus estimate of a 1.5% gain. The biggest increase came from commercial aircraft orders (+18.1%), as Boeing* received orders for 51 jets. Also, orders for new cars and trucks rose 1.9%, while core capital goods rose 1.2%, a good indicator of a potentially rising second-quarter GDP.

    On Thursday, we got two more pieces of good news. First, we learned that new jobless claims fell from 363,000 in March to 340,000 in April. (The four-week average was also 340,000.) Also, new home sales rose from an upwardly-revised 444,000 annual rate in March to 454,000 in April, well above the consensus estimate of 425,000 and a huge (29%) gain from 352,000 in April 2012. Median prices were up 14.9%, year-over-year, while inventories of new homes remained at a lean 4.1 months' supply.

    Europe started to show some signs of life last week. On Thursday, Markit reported that its PMI for the euro-zone rose to 47.7 in May, a three-month high, up from 46.9 in April. Germany's PMI rose to 49.9 in May, up from 49.2 in April, while Germany's Ifo business-climate index rose from 104.4 to 105.7.

    The news from China is not so good. On Wednesday, HSBC said its preliminary Purchasing Managers Index [PMI] for China fell to a seven-month low of 49.6 in May, down from 50.4 in April. Inventory buildup around the world, especially in the U.S., seems to be the primary culprit for the latest decline, but I expect this inventory bottleneck will be short-lived due to improving U.S. economic growth.

    Also on Wednesday, the Bank of Japan sparked a major selloff in Japanese stocks after it merely left Japan's monetary policy alone. Specifically, BOJ Governor Haruhiko Kuroda made it clear that Japan's impressive 3.5% annual GDP growth rate meant that no additional monetary stimulus would be needed. This simple (and logical) statement caused a 7.3% correction in the Nikkei index Thursday. That turned out to be an overreaction. The Nikkei rebounded on Friday and is still up by over 40% so far in 2013.

    Disclaimer: Please click here for important disclosures located in the "About" section of the Navellier & Associates profile that accompany this article.

    Disclosure: I am long BA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: economy
    May 29 9:03 AM | Link | Comment!
  • The "End Of The World" May Come Tomorrow…or In 10 Days

    The Mayan calendar ends tomorrow. Millions believe that a huge rogue planet named Nibiru will collide with Earth tomorrow. Astronomers with telescopes tend to disagree. But don't be too apathetic. If the world somehow lasts until the weekend, the Fiscal Cliff is just 10 days away. And if we dodge all three of those threats, then a year ending in "13" is about to start. Is mankind's luck finally running out?

    My hunch is that nothing special will happen tomorrow except a lot of last-minute Christmas shopping and a winter solstice that will be followed by gradually longer days until next June 21. But what happens on January 1, 2013 is of immediate concern to most investors, so let's take a closer look at that "threat."

    What if the Coming "Cliff" Turns out to be a Minor Speed Bump?

    What if January 1, 2013 turns out to be no more eventful than January 1, 2000 (Y2K)? What if all our worries of higher tax rates and mandated spending cuts turn out to be a minor speed bump, not a cliff?

    First off, we're liable to see some kind of compromise in the next 10 days, which could spur a big market rally. Economist Ed Yardeni said that the fiscal cliff is "likely to be the latest apocalypse-postponed scenario. If so, that should set the stage for yet another relief rally." Ever since this bull market began on March 9, 2009, he said, "we've seen a series of such rallies following corrections triggered by apocalypse now panic attacks." He also reminded us that the S&P 500 is now above where it was on Election Day.

    But what if Congress and the President continue arguing in public and fail to compromise before January 1? What's so bad about a return to the Clinton-era tax rates and the Clinton-era spending restraints?

    Do you remember the Democratic National Convention, when speaker after speaker (including former President Clinton) wanted us to vote for Obama so that we could go back to the Clinton-era tax rates and Clinton's prosperity? Well, that's what the "cliff" represents: A return to the Clinton tax rates, before the Bush tax cuts of 2001 and 2003. Why would Democrats fear a return to the 1990s, a prosperous decade?

    According to the President, the Bush tax cuts reduced middle class taxes - only he didn't quite put it that way. President Obama said that the middle class will suffer if we repeal the Bush tax cuts. Here's one example of his recent rhetoric: "A typical family of four would see its income taxes go up by $2,200… less money for buying groceries, less money for filling prescriptions, less money for buying diapers." So the President is saying that the Bush tax cuts created a massive windfall for the middle class, isn't he?

    So let's do it, Democrats. Let's go over the cliff and get back to the good old Clinton years once again. Bill Gale of the Brookings Institution says that going over the cliff would raise about $2.8 trillion over the next 10 years: "Going over the cliff is the only way to get the economy on a good long-term budget path with a deficit-reduction package that balances revenue increases and spending cuts."

    But What about those Draconian "Mandatory Spending Cuts"?

    The other half of the fiscal cliff scare story is the sequestration (or lowering) of expenditures, but that's no more scary than going back to the Clinton tax rates. Cutting expenses means we'd go back to the Clinton "spending rates," a time when Clinton said "the era of big government is over." Congress should like that.

    You may not be aware of the latest trend in federal spending, but after two years of progress in reducing government hiring and spending, the federal government has increased spending since last July. From June to November this year, America created 847,000 new jobs of which 621,000 were government jobs (73% of new hires). The budget deficit for October and November (the first two months of the new fiscal year) came in at 24% above the federal deficit in the same two months of 2011, and in September, the food stamp rolls increased by over 600,000, the largest gain in 16 months.

    Cutting costs sounds difficult, but it just takes some resolve and honesty. Any spending "cuts" are really just smaller increases ("cuts" from a bloated base-line budget). Cutting costs is like going on a fiscal diet.

    Last August, I began a new diet. Over the years, I failed on several previous diet plans, so I decided to move outside of my comfort zone and go without food entirely for one day per week - something like a diet cliff. Fasting reduced my appetite the other six days. Fasting was uncomfortable at first, but now I look forward to my starving day of water and rest. I've lost 35 pounds since August. The federal government can go on a diet, too. All they have to do is nothing - pass no laws - simply go over the cliff.

    Disclaimer: Please click here for important disclosures located in the "About" section of the Navellier & Associates profile that accompany this article.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: economy
    Dec 20 4:14 PM | Link | Comment!
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