Latest Research

May saw the T-bond market come down into our buying zone and we are buyers in this issue. We expect 7% on T-bonds before 1986 is over (now 8.50%) and maybe lower. The stock and bond markets do not have to move together as May clearly demonstrated.

The Case for Australian Government Bonds: On a relative basis, these bonds look better to us today than in August of 1985. The Real Estate Game: The real estate glut has now spread across almost all of the nation. Still, a number of pension funds and insurance companies continue to put up more buildings. Does this really make investment sense?

The work continues to indicate the stock market should be approached with a great deal of caution. I think we must at least entertain the possibility that the cyclical bull market is in the 8th or 9th inning.

From a sector standpoint, perhaps the most notable development of the past thirty days was the strong action of many smaller technology stocks. This strong relative performance has also carried over into the first few days of May.

Here again are some of the client queries we have had over the last month.

The current 1974-1986 secular bull market period is similar to the 1949-1962 period (not 1921-29) in a number of ways. In this study, we compare earnings and dividend trends, as well as price action. If the 1949-1962 script is playing over again, the P/E expansion may be about over, with a non-economic bear market due.

With the market in a growth stock atmosphere, many don’t think dividends are important, but some of us do.

April was a consolidation month and we think there could be weakness in the last half of May, carrying T-bonds to the 8%-8.25% level. However, we look for 7% before 1986 is over and possibly even 6%.

Earnings estimates for the market as a whole are coming down, but not nearly far enough. Clearly the first quarter will be below expectations.

Our second Interim Memo of 1986 was sent out in the third week in March saying, “EARLY WARNING WORK SAYS, ‘WATCH OUT!’” Nothing has occurred in the last two weeks to moderate that warning.

Among the sectors we regularly monitor, the big winners in March were Medical Technology, Shelter and Ethical Drugs. High Tech sector issues and the Oil Patch sector were down on the month while the popular averages scored 5%-7% gains.

Some of you liked this last month so we will do it again, but I will answer no more questions concerning Evel Knutson.

This may put today’s stock market in better perspective. Quarterly P/E’s based on normalized earnings are presented over a 57-year period, broken down by deciles and also presented in graphic form.

The furniture stocks have been hot recently, but we have a hunch you ain’t seen nothin’ yet. There are going to be a lot of upside earnings surprises over the next twelve months.

Incredible action again in March. Long T-bonds are beating stocks year to date. Short-term and long-term bonds look higher and don’t ignore the possibility of a “return to normalcy” (6%) in 1986. It seems unlikely, but it could happen sooner than even we had imagined.

Cold Winter in the Farm Belt: Farmland may be closer than we thought to bottoming out…it Just might be buying time. The IRA Temptation: Now that many IRA accounts have grown to meaningful size they are in increasing danger of being mismanaged.

A few “experts” who haven’t learned about percentages yet called the February surge “unprecedented,” the largest monthly move in history. Well it was hardly that, but it was a very strong market.

This publication monitors and regularly charts twenty market sectors and only six of these managed to beat the DJIA in February.

Let’s get some recent client questions out of the way, questions I suspect other readers might also have.

How does the market stand today in terms of historical ranges? Overall, it is above the historical medians for these intrinsic value measures, but not yet extremely overvalued. Clearly though, for the first time in twelve years, the stock market is no longer cheap.