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An updated list of trading stocks to buy in November-December and sell in January or February. This strategy is not appropriate for most institutions. However, we think it can make sense for your personal accounts.....Happy Bouncing and Happy Holidays To All Of You!

In November, recession evidence continued to build. War fears started to fade. November 17 came and went, and the Bush hawk began his molt. The dollar stabilized, at least momentarily. Inflation fears faded, as oil prices traded down. In this environment, the bond market marched steadily upward all month.

So we made it through October without taking a big stock market hit. The popular stock market measures ended the month about where they started, enough to reduce investor pessimism levels by a few degrees, maybe more.

This issue marks the first anniversary of the most recent Major Trend Index sell signal, transmitted to clients on Halloween 1989. Here in October 1990, this work has improved significantly from a month ago.

A performance rundown for our equity market sectors and other measures ranked by October performance (only 31% of our sectors beat the DJIA).

The two most common questions we hear from equity only managers are: “When (if ever) should we start buying secondary stocks?” and “When do you expect a market leadership shift to the cyclicals?”

Congressional Deficit Reduction Follies: The ultimate result was a cruel joke, with no meaningful spending restraints and a hodgepodge of new taxes, apparently ripe with special interest favors. Yes, it is business as usual in Washington.

For over 10 years, The Leuthold Group has been sending out a list of year end trading suggestions. In November and December we go “bottom fishing” for stocks that are overextended on the downside. When year-end selling pressures lift, these selected Issues typically rebound nicely Into January or even February.

Crude prices fell 11% in October and almost all other commodities moved lower, easing recent inflation fears. The economic numbers mostly continued to say recession, with the exception of the new GNP number. However, very few believe the accuracy of the number.

If you thought the third quarter of 1990 was bad in the U.S. stock market, think of those poor fellas in Tokyo. Of course if your universe is secondary stocks, it was worse than that.

Cyclical bear markets typically decline 25%-30%. In terms of amplitude, the bear market could be more than half over…if it’s a typical bear.

A performance rundown for our equity market sectors and other measures ranked by third quarter performance (only three of our sectors were up).

Secondary stocks were down a big 9%-10% in September compared to 5%-6% declines for the capitalization weighted measures. Year to date, secondary stocks are down twice as much as the cap weighted measures.

Stocks are now in the high 40%-45% of the historical valuation distribution range. This is not cheap, but neither is it expensive. Based on our Benchmarks work, it now appears we can expect average performance for the stock market from today’s levels over 1, 3 and 10 year time horizons.

In examining various consumer and producer price measures going back for as long as 1000 years, it was found that prices have risen about 60% of the time and fallen about 40% of the time in the Western world.

The recent “surprise” downward revision in quarterly real GNP growth served to drive the majority of investment professionals and economists from the “no recession” camp. Also, Junk Mail Busters and Ken Safian lives!

The recent improvement in the bond market is probably not the result of the politicians’ weak kneed program to deal with the deficit. Rather, it more likely stems from the lack of bad news from the Middle East and growing evidence that the economy is in a recession.

In terms of amplitude, the bear market could be about half over. Typical cyclical bear markets decline 25%-30%. This is not a prediction, only the profile of a typical bear market decline. The current version may decline more or it may decline less.

Here at The Leuthold Group, we are starting to focus on how we are going to structure our equity portfolio for the next bull market.

A performance run down for our equity market sectors and other measures ranked by August 1990 performance (only the London gold price was up).