Michael Belkin : The Belkin Report

» Normxxx - The Belkin Report

By Michael Belkin | Sept. 14, 2004

“The long-term model forecast is positive (in relative terms) for low-beta sectors like Utilities and Telecom Services -- and is negative (in relative and absolute terms) for the Tech sector. Given those forecasts, it is difficult to get excited about any tech-led rally potential. But markets can always do crazy things briefly before resuming the long-term trend. So we are wary -- still short stock indexes, but this is a testing point for our long-held scenario of a major equity market top and decline.

The forecast for the US economy is less ambiguous -- there is a distinct softening in the economic forecast. The recent downturn in retail sales growth is probably the beginning of a sustained trend. Higher fuel prices are absorbing a greater percentage of household expenditure by low and mid income consumers. Retailers are feeling the impact.

The retail sales slowdown should soon feed through to lower orders for manufacturers. That process is well underway with autos -- inventories are at an all time high and Q4 production plans at GM and Ford are down 7% year over year. Auto component suppliers like Visteon are beginning to feel the impact. This is a classic economic slowdown pattern. While we are not wildly bullish on energy prices, a collapse seems unlikely given rising global demand and Mideast instability. So pinched consumer expenditures and the retail sales slowdown are likely to be persistent themes. This sales slowdown should depress revenue and earnings results for corporate America.

If many companies are going to miss Wall Street's elevated revenue and earnings expectations – the equity market is not likely to be happy. So, while we are wary, given the conflict between model signals in different time frames, the recent stock market rally is probably just another bounce in a downtrend.”

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx