Riding Existing Positions
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Paul Rabbitt
Rabbitt Analytics.com |
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We would not add new positions now and would prune
issues slightly by reducing positions in stocks that have traded outside normal
trends. We still favor stocks as an asset class over real estate of bonds. Bond
rates rose nearly 30 basis points in recent weeks. It will take another half
percent rise before bonds begin pulling capital away from stocks.
Stocks have been consolidating since gaining three
percent immediately following Katrina. For the eleventh time in 15 months,
again the Fed has again raised interest rates. We believe they have achieved
"neutral" and may be close to stopping the pattern of steady rate
hikes. With Alan Greenspan retiring in a few months, it would be
plausible that he had wanted to hand the new Fed chairman a rate policy finely
balanced. This would give the freedom to the new Chairman to either raise
or lower rates, depending on their perception of the nation's monetary needs
and risks.
At the meeting Tuesday one voting member dissented
from voting to raise rates, probably weighing the slowing effect of
Katrina. With estimates running $200 billion, Fed officials still look
for a slight dip in the economy by year-end followed by a reconstruction-driven
recovery next year. The Fed will continue watching the filter-down effect
on inflation as oil prices impact manufacturing and transportation costs. Bank
prime lending rates climbed to 6.75% making more expensive to borrow on
floating rate loans tied to the prime.
Meanwhile, OPEC is hesitating to pump more oil,
fearing global refining can't handle the additional supply. Oil prices closed
below $63.
With regard to
stock-picking techniques, momentum indicators have become very powerful in the
past month suggesting investors should ride gainers and sell losers. relative
strength has been very strong indicator. Earnings acceleration and
earnings revision/surprise have been excellent performers while earnings
consistency has not been profitable. This means investors want growth and are
not interested in safety and stability. The shunning of high earnings
consistency stocks is counter to strategists who are suggesting investors seek
stable earnings companies due to the pending economic slowdown caused by
Katrina. We believe it is evidence investors are looking beyond the storm
damage to the rebuilding efforts.
Paul Rabbitt
will be available to take your questions until Thursday, September 29. Please use the form below to submit your questions. |
