Saturday, September 19, 2009

More on 1982 or 1974/Barclays Raises GDP Forecast/ Zions

1. Zions: Zions sold 450 million in five year senior notes, up from a planned 300 million, at a yield of 11.25% which is pretty steep for a five year senior note. The coupon rate was 7.75%, reoffered at 86.888% of the original principal amount, resulting in the 11.25% yield. Free Writing Prospectus S & P rated the issue at BBB- and Fitch at BBB. Reuters One concern among many about this bank is the sheer volume of maturing debt. Search Results This debt issuance, along with some common stock sales, alleviates that concern somewhat.

2. Barclays Raises its GDP Forecast/Jim Grant Optimistic?: Barclays raised its forecast for 4th quarter 2009 U.S. GDP forecast to a 4% annualized rate. The estimate for the 1st quarter of 2010 was increased to a 5% annualized rate. Reuters I also read Jim Grant's upbeat article in the WSJ about a greater than anticipated GDP growth coming out of this last recession. With the usual caveat that the future can not be predicted, I do not mind giving a forecast that is more in line with Grant than David Rosenberg who said last week that he expected GDP growth in 2010 of 1 to 2%. Barrons's & David Rosenberg I am going to predict 4.41% for 2010, with a 5.2 % spurt in the 1st quarter, 5.4% in the 2nd quarter, and ending the year with 2.4% in the 4th quarter. The third quarter would be whatever number produces the 4.41% rate for the year, something like 4.6%. I am not very good at math. If I turn out to be closer to reality than Rosenberg, does that make be a guru or just a better guesser?

3. 1974 or 1982: Since I am playing with my crystal ball this week, I thought that I would add a few additional predictions to the earlier post, where I guessed that the current rally will be more like the cyclical bull rally between 1974 to 1976 than the start a new secular bull market lasting 15-16 or so years circa 1982 or 1950. 1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market?/Zions/ No one can seriously question that the period between 1974 to 1976 was nothing more than a cyclical bull market of short duration, occurring after the awful cyclical bear move in 1973 to 1974. Both moves were within the confines of long term secular bear that I date as starting in 1966, as does an investment manager, Vitaliy N. Katsenelson, in an interview in Barron's this weekend. What can you say about that kind of movement except that it is a wrenching experience. If you rode the market down from an S & P high of 120 in January 1973 to 62 in October 1974, and then back up to 106 in July 1976, without making any changes, you may have been disgusted and/or worried but you would not be any better or worse off after 3 1/2 years. That is the characteristic of a bear market. You look back, fifteen or more years, and you have not increased you net worth, though there were numerous ups and downs during that 15 year period. Katsenelson calls that a range bound movement, to be contrasted with the secular bull pattern, and he distinguishes those bear periods from the Great Depression. I would not do that. The Great Depression was just a longer range bound period lasting more than the usual 15 to 16 years, more like 20 or 21. We could have fallen into that same range bound period of 20 or so years without the massive intervention to save the world's financial system. Now, I suspect that we are back to the normal bear cycle of 15 or 16 years which I start at 1997 for the same reason that I start the prior bear cycle in 1966 rather than 1968. The range bound movement started in 1966 and ended in 1982. I would postulate that the current range bound period will start from the highs reached in 1997 before the Asian contagion. I would expect some movement both above and below the range. Even after the rally off the March lows, the S & P 500 is at the same level as in March 1998: ^GSPC: Historical Prices for S&P 500 INDEX,RTH

Two of the charts above show what I mean by a long term secular bear market, a long term range bound movement with a number of cyclical bull and bear shorter term cycles. This is to be contrasted with a long term bull market cycle chart, also shown above, which covers the period from August 1982 to October 1997.

So, maybe we continuing going up for a few more months into 2010, maybe reaching 1250 or even 1300 briefly, then come back down to 900 as something upsetting starts to happen in 2011, possibly something like a clamp down by the Federal Reserve in response to rising inflation and a weakening U.S. dollar.

What will kick off the next bull cycle? It may be a combination of factors, with the two most important being the return of the American consumer, after another three years of balance sheet repair, joined this time by the burgeoning middle class in countries like China, Brazil, and India, along with technological advances that will continue to lower costs and to increase productivity of workers. One such area may be a crossover in cost effectiveness of solar energy production (possibly wind also) compared to coal fired generation, where it becomes significantly cheaper to produce solar energy than to build large and expensive base load generating plants. I am not making a prediction since it is always impossible to predict the pace of technological change.

I know that I am not capable of picking winners in the alternative energy field, so I will stick with adding to my positions in ETFs such as Claymore's Solar Index ETF, which I already own: TAN - Claymore/MAC Global Solar Energy Index ETF - Summary After trading in a 25 to 30 dollar range in early 2008, TAN fell to as low as $5 in March 2009, before roughly doubling in price to Friday's close of $10.56. (see disclaimer) I just did a nibble of 30 shares and have been thinking of rounding that odd lot to 100, which shows how cautious I become around something that I do not really understand. I have read some articles recently about how the cost of solar generated power has been falling with improvements in the technology.

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