Media Appearance: Kudlow & Company (10/03/06)

Kc128x88

Back in the studio for the regular appearance with Kudlow tonite, at 5:00 – 5:25pm.

The topics will be Dow Rally, The Economy, Sentiment, and Earnings. Guests include the erudite Stephan Abrahms (Trust Company of the West), the insaneley bullish J.J. Burns (of the eponymously named firm), and my latest contrary indicator, Joe Battapaglia (Ryan Beck & Company).

A few random thoughts about this market:

• The Narrowness of the rally continues:

ice All time high Date of high Recent high % off all time high
Dow 11,750.28 (1/31/00) 11647.69 0.25%
Tran 5,013.67 (5/31/06) 4433.34 11.57%
SPX 1,552.87 (3/31/00) 1333.7 14.11%
Nasdaq 5,132.52 (3/31/00) 2258.3 56.00%
NDX 100 4,816.35 (3/31/00) 1656.07 65.62%
Russell 784.62 5/31/2006 729.94 6.97%

The Dow has only 10
stocks
above their January 2000 highs, and of those 10, four are responsible
for dragging the index higher – Boeing, United Technology, Altria and Caterpillar.

• Despite the recent move towards big cap and tech, be aware of the pundits who have been advising you of this for the past 5 years have
been very, very wrong. (We made the suggestion to shift to big caps over the summer).  The Nasdaq 100,
for example, is still down an eye-popping 65% from its 2000 highs.

• The 3 bullet points above are why most investors are not
feeling like they are at 6 year highs; Unless they hold only Dow stocks – or the
4 mentioned above – most investors portfolios remain far below their 2000 peaks.

• Cash has outperformed the Dow since January 2000; Even
considering reinvested dividends; cash STILL out performs the Dow.

• The Dow’s Real (inflation adjusted) performance, even with dividends reinvested, is significantly below breakeven.

• Lastly, see this for Why the 1994 Goldilocks scenario is so unlikely.

Should be a gas . . .

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Kass on the Soft Landing

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"We do expect an adjustment in home prices to last several months, as we work through a buildup in the inventory of homes on the market. …This is the price correction we’ve been expecting — with sales stabilizing, we should go back to positive price growth early next year."

– David Lereah, economist, National Association of Realtors
The New York Times, September 2006

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 I am out of pocket most of today, but I wanted to reference something of Doug Kass’s from some time ago.  Doug
discusses the details of his debate with NAR’s chief economist last
year (CNBC’s "The Real Estate Boom") and what it might mean going
forward:

"Back in April 2005 (on the CNBC special), Lereah and the managements of Hovnavian (HOV) , Prudential Realty and LendingTree were fully convinced (you might say glib) that the housing market was destined for a long boom. They saw a new paradigm of uninterrupted, noncyclical growth. One month later, Lereah was quoted as saying, "We simply don’t have enough homes on the market to meet demand."

Forgive my preoccupation with the housing markets, but it has had a disproportionate role in economic growth since 2000 (and maybe before). This merits a continued discussion as to the possible slope of the decline, and the nature of the inevitable recovery. The housing cycle, among other variables, is a key influence on aggregate economic activity.

I expect a hard landing, and I have roughly quantified my expectations as to when the housing market will bottom (2009). It is folly to think that an unprecedented rise in home prices (in real and nominal terms) will be over in relatively short order. Yet this has been suggested by Lereah and others.

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