Latest Research

The new computer screen produces 49 candidates for purchase and a new quantitative evaluation formula tells us “buy the numbers” which are “best.” Two of these “best” were added to model portfolio this issue, Walgreen and Alberto Culver.

55 members of Congress are double dippers, getting a government salary check and a government pension check each month. Some think it's unethical, but it's all legal. Names and numbers included. Also, the CPI may soon be understating inflation, but not because a rental equivalent will be substituted for home prices and mortgage costs in January 1983. PPI, however, is understating price declines.

Skittishly Bullish best describes our attitude. June was disappointing, significantly eroding our analytical work even though the popular averages drifted only slightly lower. The time is coming for the Natural Resource Disaster Area and the Super Sick Cyclicals. It's still too early, but we are sharpening up the timing tools.

The DJIA certainly has its problems as an analytical tool. Sometimes a close examination of this relatively small sample of stocks can be enlightening.

Leuthold Group “Interim Memos” are usually unusual, perhaps three or four per year. But, in the last month, two were sent. We know this has produced some confusion with clients. Herein, an attempt will be made to better explain this publication's current attitude. And, for readers interested in the market trend analytical disciplines, some questions will be answered.

The crowd is not always wrong and being contrary is not always right. However, maintaining the ability to step away from the crowd is crucial. Our once lonely positive stance toward consumer stocks seems to now be consensus, but that in itself is not reason to now abandon the thesis. It does, however, put us on guard.

Down more than expected in May but the Major Trend Index remains decisively bullish. Early Warning Index at +10, -3, combined with sentiment and momentum work leads to a conclusion that current decline may be about over, with market rallying again later in June. Advise accumulation.

It’s time to start looking but too early to start buying. In this issue the groundwork is laid for being ahead of the crowd in timing a potential move back into the traditional inflation hedge stocks. A new conceptual stock grouping is introduced (The Inflation Resurgence? Index) and the current status of some inflation monitoring tools is reviewed. If a re-entry can be timed well, a profitable tactical move may be in store sooner than most now expect.

Last issue’s feature on farmland prices and home prices seemed to generate considerable interest. At the risk of seeming excessively provincial, we will again focus on farm problems, including new Department of Agriculture land price data and the reasons why the intrinsic value of farmland may actually be depreciating.

A recent visit to Washington D.C. prompts some thoughts concerning the insularity of the city and the unresponsiveness of government and politicians to the wants and desires of the electorate. The apparent lack of political interest in the flat tax is an excellent, timely example of this.

The stock market looks great. The Major Trend Index continues to substantiate the new cyclical bull market case. The Early Warning Index of market tops is a cool and comfortable +13, -3.

While a move of 15%-20% more from current levels would not be surprising, all things considered, we have decided not to partake of this “opportunity.”

A historic look at farmland prices and home prices helps put today in proper perspective. Farmland price levels look especially vulnerable. Considering the high level of leverage now employed by some land owners, the high interest rates and the low cash flow, auction hammers may soon echo through rural America. Home prices are not as vulnerable but declines of 20% in nominal and real dollar values would not be surprising.

Several clients have requested more information concerning the “Early Warning” Indices, employed by us to provide insight into developing market tops and bottoms. Here is most everything you might have ever wanted to know about that work, and more, including all “signals” since inception.

The stock market appears to have made a cyclical bear market low. The Early Warning Index of market bottoms, which turned Positive last issue (Feb. 26) has been confirmed by a move from Neutral to Positive by Major Trend Index. Equity earmarked funds should be put to work now.

Combining historic P/E multiple levels based on various inflation environments, with “normalized” earnings for S&P 500 and DJIA, twelve-month potential for DJIA could be 1177, 151 for S&P 500. More realistic level might be 1115 for DJIA and 143 for S&P 500. However, Bonds might well provide even greater total return.

Spring has come to Minnesota (kind of) and The Leuthold Group finds it has made some errors in one of its historic inflation charts. A corrected version in included.

Federal debt and its close relationship to inflation is tracked from 1791 to date. Clearly the two are intertwined. Unless some fiscal sanity prevails in Washington, the nation may be in a hyperinflationary mode before the decade is past, regardless of the current cyclical downtrend.

The stock market is in the process of making a cyclical bear market low. The Early Warning Index for market bottoms has turned Positive. The Major Trend Index is Neutral. It is time to start buying stocks again with cash reserves but hold long bond positions for now.

Energy market weight now down to 20%, from 32% in late 1980. Historic weighting has been 17%. The worst part of the “round trip” may be close to over. Good rally expected in the next 90 days, but new long-term leadership is not in the cards.