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Self examination can be good for the soul, so each year time is taken to look back over the preceding year or so, critically reviewing the significant studies, portfolio shifts and recommendations appearing in this publication. Including the good...and the bad.

As I recall, at one time I checked out the accuracy of this stock market folklore and it seemed to work pretty well. I think it will prove true again in 1991.

With no strong evidence of an economic rebound, an increasing number of professionals are having second thoughts. Maybe the recession is not over. Maybe 1992 will feature a second leg down. More than anything, I believe these “second thoughts” are the root cause of the current correction.

A performance rundown for our equity market sectors (and other measures) ranked by November 1991 performance.

Snow Emergency Declared At The Leuthold Group...Holiday Wishes To All...Polling The Pro's (Leuthold Clients)...Northwest Airlines Battle Rages On...Mike Hamilton Frequent NWA Flier And Constant Skeptic Of NWA's Financial Aid Package

While operating earnings may even now be on the road to recovery, an accounting rule change could produce a virtual earnings wipeout in fourth quarter reported earnings.

On an aggregate basis, third and fourth quarter reported earnings will be below even what pessimistic prognosticators are projecting. However, looking at earnings momentum on the basis of individual companies presents a very different picture.

The long bond market edged to a marginal new high in mid-November but sagged in the last half of the month. On the other hand, short rates fell sharply. Once again it has been demonstrated that long and short rates do not have to move together.

As this publication projected, the stock market in 1991 made it through October without being blitzed, sacked, or otherwise traumatized. It turned out to be a pretty dull month with an upside tilt.

We have been finding it hard to visualize a strong economic recovery developing in 1992. Would you be surprised to see 1992 produce one or two quarters of 5% real GNP growth? Well my friend, economist Peter L. Bernstein, would not be at all surprised to see this occur.

A performance rundown for our equity market sectors (and other measures) ranked by October 1991 performance.

While we currently believe small cap and secondary stocks will be superior performers in the foreseeable future, we have no idea how long this phase might last. Don't pay any attention to this seven year cycle hogwash.

Where Do We Go For Good Investment Returns Now?... Polling The Pro's For Our Client's Current Stock Market Attitudes...Taking Another Look At The New S&P Midcap Index

In late October, clients were sent an Interim Memo containing a preliminary list of “bounce” stocks to consider buying in early November. This is the first of our two stage 1991 bounce strategy.

We normally present our Earnings Momentum study in the Appendix on a monthly basis. Because of the current impressive results of this work and the implications for the economy and the stock market, we have decided to emphasize the study by highlighting it in the “X- rays” section this month.

Even though higher quality long bonds stalled in October, short rates continued to decline in anticipation of yet another cut in the discount rate. Once again it has been demonstrated that long and short rates do not have to move together.

September was a dull narrowly mixed month (best sector +6%, worst sector -6%). But as a whole, the third quarter of 1991 was not bad.

October drama…Interest rates and stocks may be uncoupling…Is it too soon to see a bear market?...What could break the back of the Bull?

A performance rundown for our equity market sectors (and other measures) ranked by September 1991 performance.

It is likely that third quarter and possibly fourth quarter earnings will be disappointing, although year over year comparisons may not look so bad.