Joe Battipaglia

» JenL_2 - Joe the Bull

<img src="http://www.geocities.com/jeninvestor/bul..." width=100 height=82>

......Jen

-- posted by JenL_2

» SteveT - Joe looks for a good second half, in some sectors.

-- posted by SteveT

» Rande - Latest Monday morning cup-a-Joe:

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

Monday, August 14, 2000

Weekly Perspective

Productivity growth roared ahead in the second quarter according to the most recent data released by the Bureau of Labor Statistics. Rising output coupled with relatively stable wages and hours worked all added up to a 5.3% rate of productivity growth during the quarter. Productivity growth now measures 5.1% for the year – roughly twice the rate experienced during the past decade. I attribute much of this improvement to spending on capital equipment and technology by corporations. Such spending has grown at a 21% pace since 1995 and now accounts for roughly 20% of all spending in the economy.

The net effect of this strong growth in productivity remains stable prices (core inflation under 2%), high levels of profitability (first half, 2000 corporate earnings up over 18%), and higher levels of sustainable, non-inflationary growth (a 1% per annum growth in the labor force and a 4-5% productivity rate implies a 5-6% non-inflationary rate of sustainable GDP growth).

Additionally, the productivity data helped to dispel some of the fear regarding runaway wage gains that we heard earlier this year. For the quarter, hourly wages actually declined –0.1% - continuing a long string of highly erratic and inconclusive data on wages. The overriding positive here is that unit costs are falling thanks to stable wages and greater productivity.

Lastly, the PPI number for the month of July remained benign. During the month of July, core producer prices were essentially flat – registering a 0.1% increase during the month. These core producer prices, which exclude the effects of food and energy, are now up just 1 ½% from one year ago. There continues to be no sign of pricing pressure whatsoever at the production level at this time.

This positive news on the good state of the U.S. economy should help guide the Federal Reserve to a neutral policy decision later this month. Beyond that, I see no further action by the Federal Reserve this year. Looking further out, the next major move by the Federal Reserve should be a cut in what is already relatively high short term rates.

I continue to look for new highs on the major indices by year-end based upon favorable economic conditions in the U.S. , the end of the recent credit tightening cycle, and above trend gains in operating earnings. I am making no changes to asset or sector allocations at this time.

-- posted by Rande

» Mark_J - baby needs a new pair of shoes!

Batman 12/31/2000 Nasdaq target: 5500
Current 08/14/2000 Nasdaq level: 3849

What we need to get there: 1651 (43%)

-- posted by Mark_J

» Will_L - Well Mark

-- posted by Will_L

» Mark_J - But Will, Joe has specifically said that by the time the ball dr

He's said it. He's put it out there. So, why not take a look every so often and see how this prediction is holding up? Lets do it, just for fun!

-- posted by Mark_J

» Rande - Weekly cup-a-Joe:

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

Monday, August 21, 2000

Weekly Perspective

While the overriding concern of late remains the direction of interest rates, concerns arise from time to time over such issues as currency swings and the trade deficit as possible threats to a continued bull market. Recently, there has been a good deal of discussion regarding the U.S. trade deficit.

Despite an overall rise in the U.S. trade deficit to $30.6 billion during the month of June, export business actually picked up speed according to the Commerce Department. For the month, exports rose 4.6% to $90.6 billion and imports rose by 3.7% to $121.1 billion. The acceleration in exports should help make up for some of the slowing in consumption that is already occurring in several of the more interest rate sensitive sectors in the U.S. economy. The rise in exports supports my long held belief that ongoing improvements in overseas economies will ultimately translate into better results from the foreign affiliate divisions of U.S. transnational corporations not just through rising export volumes. Since the beneficial effects of such sales, revenue and retained earnings flow directly to American companies it is important to recognize the significance of their contribution on a macro level. Accelerating growth in foreign demand should come as little surprise, however, since many individual companies are reporting powerful earnings in part due to better demand in overseas markets.

I have built into my earnings and growth estimates an expectation for improved business conditions in foreign economies this year and next. Such an improvement appears underway and, if the improvement is sustained, should help American companies maintain good earnings momentum in the quarters ahead. At the same time, a strong dollar should help keep import prices in check and further contribute to overall price stability in the real economy.

Foreign direct investment and production has grown increasingly important over the years. According to recent data from the United Nations, direct investment in foreign countries has grown to record levels as transnational companies increasingly move production offshore to achieve competitive advantages. This trend accounts for a significant rise in sales to foreigners by transnational companies globally. Today, the value of sales by such transnational company foreign affiliates is around $11.5 trillion – roughly twice the level of world trade is running at $6.6 trillion per year. Given the size and magnitude of this shift in the location of productive resources, the data on trade should be viewed in a broader context, in my opinion. This geographic shifts in production causes data on trade to project an incomplete picture when describing true sales and profits created by U.S. companies. Further skewing the data on imports is the roughly 10% of imports attributable to volatile petroleum products, the 7-8% of net imports attributable to intra-firm trade by large U.S. multinationals and the import of goods actually produced overseas by American companies. When these factors are taken into account, the deficit shrinks accordingly.

Therefore, I do not believe that the current trade deficit represents a significant challenge to the U.S. economy. By encouraging direct investment in foreign economies by U.S. companies, foreign countries benefit through job creation and the greater availability of goods and services. And while a portion of the profits created overseas are repatriated back to the U.S., a significant portion of earnings is typically reinvested in the local economy thereby stimulating further growth through the multiplier effect. Meanwhile, U.S. transnationals gain greater access to foreign markets and reduced overall currency risk. The impact on the U.S. balance of trade, therefore, is a natural byproduct of the evolutionary expansion by U.S. companies into foreign markets.

Again, the fundamental conditions for an continued bull market remain very much intact. I believe that Tuesday’s Fed meeting will come and go without any action by the Federal Reserve. The improvement of economies overseas should help add to the excellent profit growth in the U.S. and should help lift equity markets to new highs by year-end.

-- posted by Rande

» Kirk - Joe's INDEX TARGETS

                      8/11/00  12/31/2000E  Change
DJIA                 11,046.48      12,500   13.2%
S&P 500              1,491.72       1,625     8.9%
NASDAQ COMPOSITE     3,930.30       5,500    39.9%

-- posted by Kirk

» Rande - And those year-end targets would represent the following on a ye

DJIA 8.72%
S&P 10.60%
Nas 35.16%

Pretty aggressive on the old Nas.

-- posted by Rande

» Rande - Latest from Joltin' Joe:

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

Monday, August 28, 2000

Weekly Perspective

The year-to-date performance of the major indices has certainly been unspectacular. Notwithstanding the severe correction in the Nasdaq last spring, however, the market’s recent performance is encouraging. This summer’s “stealth” rally, for example, has produced a greater number of “winning stocks” than any time in recent memory. Since May, advancing issues are outnumbering declining issues by a 3 to 2 margin. This statistic measures the performance of all issues traded on the New York Stock Exchange and the Over the Counter marketplace since May 30th. The improved breadth contrasts with last year’s narrow leadership dominated by a handful of large-cap, technology issues. For the first time in quite a while, portfolio strategies based upon individual stock selection now appear to be outperforming index driven strategies.

Once again, energy prices are misbehaving. For the third time this year, oil prices have risen above $34 per barrel. While this is the high end of the range, I expect rising supply from OPEC and other suppliers to push oil prices back into the mid-$20’s. So far, the rise in oil prices has not affected consumer and business behavior and the economy has absorbed the higher prices reasonably well. Importantly, the current high price of oil does not imply a shift toward rising expectations.

Rising productivity and corporate earnings remain the central issues for the economy and financial markets. Before a meeting of central bankers in Jackson Hole on Friday, Alan Greenspan credited the ongoing growth in productivity to lasting improvements in technology. He also noted that there was no evidence of a slowdown in the rate of growth in productivity. While this information is not new, the recognition of it by the Federal Reserve is. The important policy implication, of course, is that rising productivity suggests a higher sustainable rate of growth and a lesser need for tight money. Once again, I believe the combination of low inflation (ex-energy), more moderate growth in consumption, rising productivity and already high real interest rates suggests that the monetary tightening cycle is now complete. The next catalyst for higher equity prices should be strong earnings growth in the second half and the potential for an extended profit cycle well into 2001.

-- posted by Rande