My Thoughts on the DJIA's 13,000 Mkt Milestone

To begin with, positive earnings & huge stock buybacks so far have managed to push the blue-chip index above 13,000 for the first time. The bulls were crushing the bears, literally. 25 of the 30 Dow stocks are higher. Meanwhile, bidding war for one of Europe's biggest banks also added to the upbeat mood. My banker friends in ABN AMRO should be happy.

The Fed's Beige Book report portrays a sluggish economy, but the market was shrugging off the conclusion of the Fed's report that its member banks were seeing "only modest or moderate expansions." Manufacturing is sluggish, and housing is weak, the report said. But Wall Street was cheered by the report's comment that "retail sales across the Districts were generally positive."

To me, it's all form without foundation. Housing remains in a secular bear market, & I believe it won't end soon. U.S. auto sales continue to sag with unemployment levels in that industry soaring. Do you know that, together, housing & automotive comprises about 18% of U.S. economy's output?

But let's suppose the market has already discounted the worst of the housing & the auto industry's woes. Well, there's more bearish data & it should raise investors' concerns. Corporate capital spending continues to decline since Q12007. This suggests that companies aren't positive on economic growth & future earnings. Instead, companies pour hundreds of billions of dollars into stock buybacks &, to a lesser extent, raise dividends to shareholders. In addition, I think the consumer looks increasingly fragile. Most retailers also looked like they are off their best highs already. The Conference Board's index of leading indicators dropped below its level of a year earlier, which is a very bearish signal since a negative reading has accurately predicted every recession since 1967. Finally, corporate earnings as measured by the S&P 500 Index have declined to the mid-single digits from double-digits just12 months earlier.

I hate to spoil the party, but I think this rally is mostly fluff. If you strip-out share buybacks & massive private equity trading from this market, we have a flat or down market in 2007. Period. The only positive trend for earnings remains a weak dollar, which is a boon for U.S. MNCs. Here is my forecast: Expect a brutal stock market correction this May or Sept 07. That happened, load-up on stocks again in late October. The worst time to be invested in the market is from May to September. Remember this, or forever hold your peace. And don't say I didn't say hor, for I said it here already.

FYI, May is just next week. Need I put up the picture of a bear again?