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Don't trust Dow 10,000

The stock market is supposed to be a leading indicator, predicting what happens next. But the rally doesn't mean the nation's economic woes are over.

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By Chris Isidore, CNNMoney.com senior writer

Last Updated: October 15, 2009: 3:47 AM ET

NEW YORK (CNNMoney.com) -- As the Dow closed above 10,000 for the first time in more than a year Wednesday, economists cautioned that the blue-chip average shouldn't be seen as giving a green light to the economy.

The stock market is what is known as a leading economic indicator, as investors place bets on how strong they believe company results and the broader economy will be in the near future.

Lately, there has been a growing consensus among both investors and economists that the battered U.S. economy hit bottom and turned around earlier this year, and is now in a recovery.

The Federal Reserve said economic activity has "picked up" in its statement after its Sept. 23 meeting, and about 80% of leading economists surveyed by the National Association for Business Economics agreed in a survey earlier this month that the recovery has begun.

But even economists who agree the economy is in recovery say that growth will be slow and difficult, with continued job losses, tight credit and further declines in home prices. And even some who believe that the current Dow 10,000 level is justified say there's still a significant risk that the economy will take a step backward.

"One of the great challenges is whether consumers and small businesses come along with this recovery," said John Silvia, chief economist with Wells Fargo. "If they don't, you either sit at 10,000 or slip back to 9,500. To sustain another double-digit (percentage) gain to Dow 11,000 is asking too much from this economy and the risks we still see out there."

0:00 /3:36Earnings don't point to recovery

There are also economists who question whether the economy is truly in recovery, given that it continues to lose about a quarter-million jobs a month. They say the more than 50% rally in the Dow since it closed at a low of 6,594.44 on March 5 is only a reflection that the fear of the economy toppling into a full-fledged depression has abated.

"We're not at Armageddon anymore, so of course you should have some kind of rally," said Rich Yamarone, director of economic research at Argus Research. "But I think there's a bubble-like atmosphere going on here in the rush back to 10,000. Caution should rule the day. We're not out of the woods yet."

Several experts point out than many of the relatively strong earnings reports helping to lift the markets in recent days are being driven by cost cuts, rather than strong revenue growth that would be a better indicator of consumers and businesses being willing to spend again. If businesses keep cutting costs to make the numbers that Wall Street wants to see, that can only put more downward pressure on jobs and wages, and result in weaker economic growth or another downturn.

"The companies are cutting fat, and in many cases cutting bone and muscle. There's no organic economic growth there," said Yamarone.

Barry Ritholtz, CEO and director of equity research at Fusion IQ, said that despite their reputation as a leading indicator, the stock markets do a terrible job forecasting the economy.

"Beware of economists pointing to the stock market," he said. "The rallies tend to be false starts because it's a reaction to what came before. The sell-offs tend to be overdone because, as they gain momentum, they lead to panics."

Ritholtz said comparisons of current earnings to those of a year ago or stock levels to the lows of earlier this year greatly exaggerate the strength even the market sees in the economic outlook.

"It's like saying the Detroit Lions have better year-over-year comparisons because they're no longer winless," he said about the football team that went 0-16 in 2008, but has won one of five games so far this year. "But they're still in last place and they're not winning the Super Bowl."

Another reason that comparisons to Dow levels of a year ago are risky is that two of the more troubled components -- General Motors and Citigroup (C, Fortune 500) -- were dropped and replaced by stronger companies such as Cisco Systems (CSCO, Fortune 500) and Travelers Cos. (TRV, Fortune 500) in June.

Without those changes the Dow would be almost 100 points lower now than it is with the stronger companies, although precise comparisons are difficult since GM shares are no longer traded on the New York Stock Exchange.

"You take out the worst, put in the best, and by definition you'll get better numbers," said Yamarone.

First Published: October 14, 2009: 1:49 PM ET

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15-Oct-2009 21:37

SIA / A380 A Great Way to Fly

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morale of the story?

don't work for a company! Be ur own boss..

then u can wine n dine in A380 everyday..

pharoah88 ( Date: 14-Oct-2009 11:26) Posted:

A380 is JOKE....

A380 is corporate exuberance....

Company Executives fly SIA when on business trips....

But fly Budget Air when on personal trips....

Company Executives fly SIA First and Business Classes when on business trips....

But fly Budget Air Economy Class when on personal trips....

Company Executives eat business meals at 5-STAR Hotels and Restaurants....

But eat personal meals at foodcourts and hawker centres....

OPEN your EYES and SEE CLEARLY....

This is the Other People's Money Syndrome [OPMS]...

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15-Oct-2009 18:59

GLD USD / Gold going up this year?

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Gold Giving Another Strong Buying Signal

by Claus Vogt 10-14-09

In my September 9 Money and Markets column I showed you this gold chart:

Gold chart
Source: www.decisionpoint.com

On that date, I said, “This breakout of a huge triangle is a clear technical buying signal.” I added that the minimum price target of this triangle formation was roughly $1,100. This was well above major resistance in the $1,000 area, thus hinting that another major breakout and buying signal would take place soon.

Well, that’s exactly what happened last week!

Gold Hit 1,059 …
Triggering Another Major Buy Signal

Take a look at the weekly chart below. It gives you a good perspective of how important this breakout to new high ground actually is. As you can see, it signals the end of a medium-term correction that began in March 2008 and the beginning of the next medium-term up trend of a secular bull market that started in 2001.

Gold chart
Source: www.decisionpoint.com

The minimum price target of this huge consolidation pattern is $1,300. And I believe much larger gains are certainly possible.

Also consider this: Four weeks ago the Hulbert Gold Newsletter Sentiment Index (HGNSI) stood at 25.2 percent. Now, four weeks later and gold nearly $100 higher, the HGNSI has actually fallen to as low as 18 percent! A rising market accompanied by a declining number of bulls is a rare development. And it’s clearly bullish.

Longer Term Fundamentals
For Gold Are Very Bullish, Too

Gold Bars

There are many fundamental reasons to own gold.

Besides the technical buying signals I’ve given you today, I want to repeat the major fundamental arguments for owning gold:

As a consequence of the current financial and economic crisis, government debt is going through the roof — not just in the U.S., but all over the world.
Worldwide central banks are printing money like there is no tomorrow.
Gold demand is rising due to wealth creation in emerging economies where gold still plays a large role as a store of value.
Gold demand is even rising in the West as more investors doubt the wisdom of central banks and governments.
Gold supply is stagnating or even slightly shrinking — despite the metal’s price rise since 2001. This is because it’s getting ever more difficult and expensive to get gold out of the earth.
Finally, central bankers who were eager to sell government gold at much lower prices a few years ago, are getting increasingly reluctant to keep doing so. Emerging market central banks are even buying.

As long as most of these catalysts for higher gold prices remain in place, I expect the long-term bull market to continue. And much higher highs are very likely.

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15-Oct-2009 18:26

Ezra / Ezra

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October 15, 2009, 5.47 pm (Singapore time)

Ezra's Q4 net profit surges

By JAMIE LEE

Ezra Holdings posted fourth quarter net profit that was more than four times of earnings posted a year ago, due to absence of non-recurring losses registered in the previous year.

Ezra said net profit for the three months ended August 31, 2009, rose to US$27.1 million from US$6.59 million a year ago.

The company recorded operating income of US$6.12 milion in the fourth quarter, reversing from a US$9.86 million operating expenses in the same period a year ago.

Quarterly revenue fell 22 per cent to US$93.5 million from US$119 million.

The company proposed a dividend of 1.5 Singapore cents per share.

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15-Oct-2009 15:40

Midas / Midas

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touched 90..hope can close above 90c :)

ozone2002 ( Date: 15-Oct-2009 14:32) Posted:

accumulation/collection @ 88.5

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15-Oct-2009 15:10

Citic Envirotech / United Envirotech

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40.5 :)

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15-Oct-2009 14:32

Midas / Midas

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accumulation/collection @ 88.5

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15-Oct-2009 13:55

Midas / Midas

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on route to $1 baby!

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15-Oct-2009 12:47

Others / Novena

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Novena is creepin up slowly..

OHL still has stakes in this coy.. :)

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15-Oct-2009 12:43

Citic Envirotech / United Envirotech

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vested again @ 39c..

technicals are poised to turn +ve..expecting them to make crossovers today with the upbar and gd vol

vol at half time surpassed yesterday's total vol..

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15-Oct-2009 12:38

SwingMedia / 5 star Multi-bagger !

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Swing Media: New Business, New Fortunes? (BUY\S$0.07\Target S$0.105)
James Lim (62323892, james.lim@dmgaps.com.sg)
Terence Wong, CFA (62323896, terence.wong@dmgaps.com.sg)
Initiate coverage with BUY; Target price at S$0.105.
one of the sexiest business around, given that it is a highly matured industry. But ironically, the
intense competition has killed off many of the bit players over the past five years, benefiting the
larger ones like Swing Media. It should continue to ride on the rising demand for DVDs, particularly
in its key market China. In addition to its core business, Swing Media is also targeting new solar
business to spur its growth. Currently looking undervalued at 0.5x FY10 P/B, we believe that it has
the capacity to trade up to its historical average of 0.7x P/B. Initiate with BUY recommendation and
target price of S$0.105.Manufacturing DVDs may not seem like
China-focused optical storage medium maker.
video cassettes and computer peripherals as well as engages in the trading of chemical dyes and
stampers from its plants in Hong Kong and Taiwan. Its primary product is the DVD-R while its main
export market is China, which had accounted for 62% of its total revenue in FY09.Swing Media manufactures DVD-Rs, CD-Rs,
Positive macro outlook.
Asia-Pacific entertainment and media industry is expected to grow at 4.5% CAGR to reach
US$413b by 2013, demand for optical storage medium is poised to rise. Furthermore, current
forecasts are gunning for global DVD-R shipments to increase by over 1b discs (+11.7%) from
2008 to 2011. Coupled with industry consolidation, Swing Media is thus well-positioned to grow its
market share.As China is anticipated to be one of the fastest growing nations and the
Move into green energy may boost earnings.
diversifying into the green energy field with the acquisition of a China-based specialist in the
installation of solar energy systems in petrol stations. If this project takes off, we estimate that
earnings may rise by 4% in FY10 and 36% in FY11.Swing Media just announced that it will be
FYE Mar (HK$m) FY07 FY08 FY09 FY10F FY11F
Turnover 450 .2 527 .4 634 .9 705 .3 777 .2
Net Profit 33.5 37.0 38.1 40.1 44.5
% chg YoY na 10.5% 3.1% 5.2% 11.1%
EPS (S¢) 1.96 1.73 1.50 1.34 1.16
DPS (S¢) 0.28 0.20 0.10 0.10 0.10
Div Yield 4.7% 3.3% 1.7% 1.7% 1.7%
ROE 10.0% 8.2% 7.6% 7.0% 7.4%
ROA 5.0% 4.6% 3.9% 4.1% 4.4%
P/E (x) 3.6 4.1 4.7 5.2 6.0

P/B (x) 0.3 0.4 0.4 0.5 0.4

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14-Oct-2009 19:40

Straits Times Index / STI to cross 3000 boosted by long-term investors

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so are they hedging their position? keke

HLJHLJ ( Date: 14-Oct-2009 18:14) Posted:

I think rally has begun! Psychological barrier 2700 broken!! Hurray!! I think the bull is warmed up for further rides...
Read Fundsupermart. They are betting on 50k for STI to reach 3600 in 2yrs. If not reached, will donate to charity. If reached, will donate the invested profit to charity as well. Interesting!

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