Latest Research

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.

The High-Tech Thirty index was introduced last month and fostered considerable interest. We have done additional work, providing more back history, and drawn a new chart. “Let’s Get Competitive” was introduced in a special feature last month however, because of timing considerations, we have not yet started building a major portfolio holding in this area. But maybe we should stop trying to get so cute and get on with it.

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 current correction has carried to our buying zone and we are continuing last month’s new buy program in long T-Bonds.

Capital spending to improve manufacturing and industrial productivity may be much higher than anticipated over the next three years. Management confidence is growing, and attitudes are changing: “Yes, we can compete with our overseas rivals.” Here are the stocks and industries that should be the major beneficiaries of this projected development.

Inflation Watch - Will inflation accelerate significantly in the next 12 months? Some indicators are again looking more ominous. Gold for Pension Funds? We have been long-time believers in individuals holding gold as a form of insurance protection against possible future hyperinflation. Why not for pension funds, too?

The current cyclical bull market exploding in the summer of 1982 is no longer so healthy. The Major Trend Index is still positive but deteriorating. The expected intermediate correction is upon us and could be greater than most now think. The duration could be as long as 2 months.

An index has been constructed out of 30 of 1983’s favorite high-tech stocks. Through August 8, the index is down 19% from the June 24 peak, following a 63% 1983 advance. The decline is right in line with expectations and the “bloodbath” may be less than half over.

July and early August were quite unpleasant. T-bonds led the parade on the downside with yields rising over 100 basis points since our last issue. Damage in the quality corporate sector was not quite so severe, and the lower quality junk bonds only lost a few points.

The stock market is maybe half or two-thirds of the way through a secular bull move beginning in 1974. But the current cyclical bull market is no longer so healthy. Mutual fund mania continues - factoring in the May ICI statistics over the last twelve months, net cash flow into equity oriented mutual funds is now up 10.8% of assets, equaling the previous high-water marks of 1955-1957.

In this “In Focus” feature, 103 years of common stock dividend yields are compared. Today’s prevailing yields are put in historic perspective. Then various future stock market models are constructed, employing a variety of future earnings and dividend growth rates. Considering dividend yield history, the “super bulls” target of DJIA 3000 before the end of the decade seems close to impossible.

Long-Term Capital Gains Pressure: In the last month or so several have commented that the stock market will be subjected to significant selling pressure in late summer, early fall. Inflation Watch: Things are looking better. The possibility of any significant uptick in inflation in the last half of 1983 now looks very remote. However, 1984-1985 is another matter.

The May issue of this publication featured a month-by-month comparison of all bull markets in this century. Per reader request, we’ve updated the comparison.

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, maybe much lower on a secular basis. The current correction might run to 12%-12.5% for T-bonds, but we are tempted to start a buying program before that.

The popular market averages recorded little net change over the last five weeks even though the unweighted price indices have continued to move higher. We continue to believe the market is on pretty shaky ground near term.

An updated graphic and statistical comparison of the current bull market with bull markets of the past. It still appears the current inflation complacency will be upset in coming months. The public is clearly stampeding back into the equity arena, to a large degree via mutual funds.

In recent weeks the municipal market has been relatively weak compared to other fixed income markets. Long municipal yields are now 89% of long T-bonds, back up to about the levels where we recommended our unorthodox move in early February. It looks like a great opportunity.

Buying the Worst-Managed Companies: An addendum to our feature of a few months ago. This time we look at Fortune magazine’s best-managed and worst-managed selections. Guess which have performed best in the market? Do You Know Your Banks?: Do you know all the new bank names? If you do you might win a prize in our new contest.