Latest Research

A little self-examination is always good for the soul, so each New Year we look back over the preceding year or so, critically reviewing the significant studies, portfolio shifts and recommendations which appeared in this publication. Where were we right and where were we wrong?

Each January we present for the preceding year what would have been, from a group standpoint, the perfect portfolios (Institutional and Aggressive). In 1983 the dream Institutional portfolio was up 56%, the Aggressive up 70%. The worst possible portfolio for 1983 was down 18%. Take a look and see where you should have and shouldn’t have been.

The last of the tactical “Oil Patch Recovery” play initiated in early 1983 has been closed out. What now? We expect oil stocks to be underperformers for at least six months. $25 crude prices would not be a surprise in 1984. And on a long-term basis, we still expect oil prices to erratically decline in real dollars for the rest of the century.

The Bond Market – 25 Years Ago: In recent years investors have been conditioned to double digit long-term interest rates, and more than a few think it will always be that way. Memories on Wall Street are notoriously short…..Equity Structure Update: Quite a few changes have been made in recent months. This feature details the current conceptual structure.

The cyclical bull market, exploding over a year ago looks healthy, but we are not sure the 1983 corrective phase is over. Our intermediate term timing work does not want to turn positive. On a secular basis, the stock market is probably about two-thirds of the way through the move beginning in 1974.

This appears regularly in a companion publication, but it has been a long time since we have explained how and why we do this exercise. It may be the most precise and carefully maintained model found in an institutional portfolio strategy publication. Models are not the same as actual portfolio management, but this comes close. All current holdings are detailed, classified by our current conceptual structure.

The bond market remains in our buying zone. We expect the summer lows to hold, and very soon a sharp upward move in bond prices. The cyclical bull market target zone is 9% yields for T-Bonds in the next 12-18 months. Maybe much lower on a secular basis.

The cyclical bull market, exploding over a year ago, looks healthy. The 4-5 month corrective phase may be over. The excesses have been worked off and the next up-leg is due momentarily. On a secular basis, the stock market is probably about two-thirds of the way through the move beginning in 1974.

Many high tech stocks have probably “had it” in terms of potential market leadership, especially the Office Tech stocks and Info Tech stocks. But we think Industrial Tech stocks have considerable potential. This “In Focus” feature explains why, reviewing market action of high tech stocks (including our High Tech Thirty Index).

If you believe drug stocks are really a play on future weakness in the dollar, you better read this study. We like the drugs, but not for this reason. Drug stocks at one time were sensitive to dollar fluctuations but over the last four years this has not been the case.

A new set of risk-reward tables has been designed, exclusively for Zero Bonds. These tables will be part of a November Special Research Study, coming out under separate cover. But one of the timelier tables is previewed here.

The bond market has backed off this last month and there is a remote chance it might even retest the lows. But it looks to me like the lows have already been made and the cyclical bond bull market is back on the track.

Big equity structure changes in the last 30 days, one of the most dramatic shifts made in 12 years. Oil Patch holdings reduced, new position in Ethical Drugs and “new” Let’s Get Competitive thesis (improving manufacturing and industrial productivity). Other small sector shifts not very significant.

In recent years health care stocks have developed a bad case of two tier-ism. Health care service issues have been hot numbers while more traditional health care issues, primarily the big ethical drug issues languished. From now on it may be the other way around.

Short-term, an October decline may be in order, but nothing serious. Most excesses have been worked off in the third quarter. The cyclical bull market, exploding over a year ago, is looking much healthier.

The bond market is in the midst of both secular and cyclical bull moves. The cyclical bull market target zone is 9% yields for T-Bonds in the next 12-18 months. Maybe much lower on a secular basis. The recent correction carried to our 12% T-Bond buying zone and we loaded up again.

The one-year diffusion index of 90 commodities is indicating a resurgence of inflation may be right around the corner. We think it is wrong. Our other tools don’t confirm. However, the past record of this tool cannot be ignored.

A 12% annual compound growth rate can be locked in through the purchase of Treasury “Zeros.” Over 23 years this is a government guaranteed 1250%+ total return. In this extended research piece, risk is evaluated and the mechanics of creating and buying Zero bonds are discussed. Frankly, we were astounded by the results of this study.

A preview of this issue’s “In Focus” feature on the relative attractiveness of “Zero” Treasury securities. Also, an Inflation Watch update: The caution flag is still up, but our monitoring tools are in no worse shape than a month ago. Actually, a few are just a shade less ominous.

Short-term, the DJIA is charging but a lot of market troops are hanging back. We are not so sure the correction is over. However, the cyclical bull market, exploding over a year ago, is starting to look healthier.