Joe Battipaglia

» Rande - 12/11 Joe:

12/11 Joe:

http://www.gruntal.com/research/joeb.html

One vote. That may ultimately be the difference in this election should the U/S/ Supreme Court rule shortly with a 5-4 decision. Closure is key for the investment community – the sooner the better.

Meanwhile, in last week’s “Weekly Perspective”, I said that investors should look to several key dates as providing near-term catalysts for the markets. These dates include the December 12th deadline for the Florida legislature to appoint all of it’s 25 electors – a process made clear, hopefully, by way of a Supreme Court ruling today. By December 19th, I expect the Federal Reserve to adopt a neutral policy bias toward monetary policy and will seek to ease credit conditions further in the new-year through a series of interest rate cuts and increased liquidity through the use of normal open market operations. Lastly, I expect that by December 25th, the consumer will again come through in full force as consumers again choose to spend despite a difficult year for the stock market. In this regard, I am encouraged by last week’s Beige Book survey that suggested retailers had experienced an “unexpectedly strong rebound in sales over Thanksgiving weekend” despite a slow start to the month of November. The survey also noted that most retailers throughout the country “expressed a general sense of optimism about the remainder of the holiday season”. This would seem to corroborate recent data from the Federal Reserve that showed the level of consumer credit expanding by a healthy 7% versus the year ago period.

Inventory levels remain somewhat higher than ideal, however, and sales of personal computers and automobiles continue to grow at a somewhat less than expected rate. As a result, businesses will aggressively seek to clear out excess inventory in the coming months through a combination of increased incentives and a modest cutback in production schedules. Since inventory levels remain low relative to overall sales, and since businesses are responding quickly to excess stocks, I expect that the coming inventory adjustment will be short lived and have no severe or long lasting impacts on the economy. As inventories return to leaner levels, companies should find it easier to again exceed already lowered growth expectations in the coming quarters.

Businesses have already begun to address short-term imbalances by reducing the length of the workweek and laying off temporary or part-time help. Most businesses have stopped short of traditional layoffs, however, since skilled employees remain hard to find. According to last week’s employment report for November, the unemployment rate rose fractionally to 4% from 3.9% in October. The manufacturing workweek grew shorter, however, as the average number of hours worked fell to 41.1 hours – the shortest workweek since January, 1996. The Federal Reserve’s most recent Beige Book survey also sited a slight easing in the labor market for “information technology” workers as the result of a number of recent dot-com failures. The report also noted that the shakeout in dot-com businesses has raised the supply of previously scarce IT workers and has discouraged many IT workers from leaving traditional companies for start-ups. Previously, the Federal Reserve voiced concerns over the shrinking labor pool, but it now seems as if some of this pressure may be abating.

Lastly, I am encouraged by the reaction of investors to negative announcements by both Motorola and Intel. In each case, the stock prices remained relatively unaffected despite further announced shortfalls – a marked departure from the reaction to previous warnings. This relatively strong performance in the face of more bad news suggests to me that the market may have completed the process of adjusting expectations to reflect the slowing economy. With multiples already compressed in many cases, I expect to see better relative performance by technology companies in the weeks and months ahead as tired expectations are re-energized by surprisingly good results.

-- posted by Rande

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» Rande - Weekly Joe:

Weekly Joe:

http://www.gruntal.com/research/joeb.html

This year’s election drama ended as all the others – with a concession speech and the victor’s commitment to lead. Investors wasted no time turning attention to recession fears that snuffed out any post – election rally. While the electors vote on December 18th, it’s the Federal Reserve’s turn to speak on the 19th.

This will be a particularly important meeting given the pronounced slowdown in activity across many sectors of the U.S. economy. This slowdown began to evidence itself last spring in the form of a mild rise in jobless claims for factory workers. At the time, I argued that the Federal Reserve should adopt a neutral policy stance given the historically exceptional degree of price stability in the economy. Nonetheless, the Federal Reserve chose to pursue a policy of tight credit setting the level of real short term rates between 4½ to 4¾% - the highest level since the fall of 1998 and late 1999. Last week’s announced profit warnings from Microsoft, Chase Manhattan Bank, JP Morgan, United Parcel Service and Black and Decker raised new fears of a “hard landing” scenario. When global software companies, banks, delivery companies and consumer cyclical companies like these seem to be stumbling, it is hard not to take notice. Nonetheless, this sort of thing has happened before and the recession scenario quietly slipped off the table while the major stock market indices marched on to new records.

The problems facing banks and other financial institutions have received particular attention of late. Among the primary concerns are widening credit spreads for lower quality debt instruments and spotty problems regarding syndicated loans. These do not indicate an emerging credit crunch. Widening credit spreads for high yield issues do not automatically signal the start of a recession. This market, roughly $300 billion in size (according to Goldman, Sachs estimates), remains relatively small and has struggled since late 1998. Given the relatively small size of this market, a wide array of industry specific issues and the long duration of the market’s downturn, present performance is not a good indication of future growth in the economy. Similar concerns have been raised about non-performing syndicated loans. In fact, non-performing loans remain at historically low levels. Based on Federal Reserve statistics, loan charge-offs remain below 1% of the outstanding stock and the percentage of delinquent loans remains near 2%. Both of these measures are at the low end of the range for this economic cycle. In the early 1990’s, for example, it was common to see charge-offs running between 1 and 2% while delinquency rates ranged from 4 to 6%. With lending standards having already been tightened and inventory adjustments already underway, I believe that a true “credit crunch” scenario remains highly unlikely. As the Federal Reserve eases credit, expands liquidity and businesses move quickly to purge excess inventory, the chances of a “credit crunch” induced recession will grow more remote with each passing month.

Analysts have already slashed their expectations for these companies and many others according to recent data from First Call. For the first quarter of 2001, earnings growth estimates have been cut to just 8.6% from 16.6% last summer. The full year growth estimate has fallen to 10.7% from almost 16% during the same period. While these expected growth rates are significantly lower than we’ve become accustomed to in the last several quarters, they are not “recession” type growth rates. In the first quarters of 1990, 1991 and 1998, for example, S&P 500 reported earnings actually fell -21.7%, -7.8%, and –1.7%, respectively. But as estimates continue to fall, now is the time for the Federal Reserve to signal an end to tight credit and implement two rate cuts in the first half of next year. Given several months of confirmation from friendly inflation data, more moderate energy prices and new signs of easing in the labor markets, I see no reason for the Fed not to undertake such an action at this time. Judging by the tone of the Fed chairman’s comments on December 2nd, I believe we are about to hear from a “kinder, more gentle” Federal Reserve.

Should the Federal Reserve choose to do the right thing in the coming months ahead, I believe the roadmap for 2001 should involve the following:

- A brief period of inventory adjustment lasting into the spring where companies will briefly sacrifice margins to eliminate unwanted inventory. Inventories continue to run a little higher than ideal, but are far more manageable than in earlier cycles.

- Heavy discounts and incentives will help the CPI move even lower than the current 2.6% year-over-year rate. The PPI has taken the early lead in this regard with the core rate falling to just a 1% year-over-year pace in November.

- Energy prices ease and the Dollar finally takes a rest.

- The yield curve begins to flatten as the Fed initiates at least two rate cuts by the end of the first half. Credit spreads for lower grade corporate debt begin to narrow.

- By the end of the second quarter, most inventories have been adjusted and earnings expectations will be easily beat since today’s expectations are extremely bearish. 2001 should be yet another year of record earnings for most companies.

I recently introduced my 2001 price targets and although this year fell short of expectations, the factors mentioned above form a good basis for favorable equity market performance in 2001. My year-end 2001 price targets are 12,700 for the Dow Jones Industrial Average, 1,650 for the S&P 500 and 4,300 for the NASDAQ composite.

-- posted by Rande

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» Kirk - Joe on TV

Joe is giving a VERY good interview on CNBC

He says a diversified portfolio might be down 8-12% (as my expereince says also)

They hammered him for being bullish all year:
He says it is quite normal for the NASDAQ or technology go have 40, 50 or even 60% corrections and that is sure hurting that portion of his portfolio, but THAT is why he recommends a diverse portfolio to begin with. He says OTHER areas he recommends are doing very well (same with my portfolios!).

Those with higher tech have higher ups and downs...only natural.

Sees very good valuation NOW in technology and thinks the gains there will be huge next year.

-- posted by Kirk

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» JackSwanson - Re: Joe on TV

And Jack says Dunderhead Joe is no better at reading and interpreting economic date than say, the average drunk on the street. He wasn't diversified. He was totally loaded in tech and telecom. Thats all he ever talked about, maybe a financial here and there, but Joe looks like a complete idiot, then, and now.

Cap'n..I'm with you. The naz won't set new highs for four years, and Dunderhead thinks it will happen a lot closer than that.

An even worse Dunderhead would be Michael Murphy. I'm still seeking performance numbers on him. You know he won't post them himself. But his picks, just since labor day have been a disaster.

-- posted by JackSwanson

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» Kirk - Wrong Jack

In response to message posted by JackSwanson:

You and many others got excited with the gains made in technology and put all your eggs in one basket. The basked was dropped and some eggs broke.

Read Joe's site
http://www.gruntal.com/research/joeb.html

He has had an asset allocation mix posted since the beginning.

The WHOLE IDEA of these firms is to under and over weight sectors so you buy and sell stocks in these sectors and pay them to help you either for more specific advice or to do the buying and sellling for you. You might have to pay them to find if "over weight technology" means 35% rather than 30% but by no means were they saying "Jack, put 99% of your assets into technology stocks".

Part of your "learning process" is to take responsibility for your mistakes, to learn that guru's are there to get on TV and sell their products and they do this by having good information they give away for free in the hopes you pay them for more. This is an age old process... Give away free samples. It works for drug dealers, CostCo and Financial Products to name a few. This even works for me as many have hired me after reading what I write here, on Silicon Investor and in my newsletter. Exposure works. In the old days, you join a Rotary Club but now we have TV and the internet to go with the old, person-to-person networking.

-- posted by Kirk

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» KLR - No Excuses for Ol' Joe...Just Add Some More Companies...

Look for 2001 to be a year of positive surprises. We are adding transportation companies to our "outperform" rated sectors alongside financials, pharmaceuticals, and technology. Our 2001 year-end targets remain 12,700 on the Dow (INDU: news, msgs), 1,625 on the S&P 500 (SPX: news, msgs) and 4,300 on the NASDAQ (NASDAQ: news, msgs).

http://cbs.marketwatch.com/archive/20010...