What Kind of Bear Market?

Q2 has just ended,and earnings reports will soon be rolling in,so investors are wondering what lies in store for them.Analyst Phillip Roth of Miller Taback notes that we just completed a bear market in May,and we're on the way down again.It's an average bear market,which means going down to 1175 on the S and P 500 Index.It's not a killer bear like the market of 2000-2002,but the commodity markets haven't weakened at all.It could take a while before long term rates drop,which is the condition for a new bull market.If we get down near my target and we see no break in long term rates,I'm going to lower my target,Mr.Roth promised.In a bear market,there may be good days interspersed with the legs down.

Leading Firm Predicts Trends

Global Insight,a leading consulting firm,has issued its forecast for 2008:1.The U.S. will come close to a recession.2.Global growth will slow.3.China will continue to grow rapidly.4.Oil prices will remain high.5.U.S. inflation will drop.6.The Federal Reserve will keep cutting interest rates.7.U.S. housing will bottom out.8.The U.S. trade deficit will improve.9.The U.S. dollar will strengthen.10.The U.S. economy will be vulnerable to shocks.In its weakened state,a shock such as a spike in oil prices or deeper subprime losses could tip it into recession.Phillip Roth of Miller Tabak,another prominent firm,says we are in the middle of a bear market.It is only an average bear,not a killer bear.We will take another hit in the first half of 2008.There will be cyclical leadership again,such as industrials,energy and agriculture.The market is adjusting to slower economic growth.You should have more than your usual amount in cash,so you can take advantage of opportunities that will arise in spring.Professionals didn't want to raise their cash levels,so we are stuck for now.They kept reinvesting their cash,and so there is little available to start a rebound.There seems to be a consensus that the first half of 2008 will see more of the same financial trouble,but we may hope for some improvement by the end of the year.Until then,one possibility for cash is a Charles Schwab(SHWB) no-minimum checking account,which is paying 4% and comes with a no-minimum brokerage account.Shares of Charles Schwab increased in value by 32% last year,leading the brokerages.

Analysts See Red

Despite the euphoria which earnings season can spark,many analysts see trouble around the bend.Bill Fleckenstein of Fleckenstein Capital says he is on red alert.Turmoil in the junk bond market may halt the buyout boom and hurt stocks.Richard Bove of Punk Ziegel is sure of his bearish scenario.The underwriting of both corporate bonds and mortgages has been very poor.This definitely trickles down to buyout bonds.With banks only willing to loan 60-70% of buyout costs,rather than 90% as formerly,deals will have to be pulled.They will slow to a trickle,and so will the boost they give to stocks.Phillip Roth of Miller Tabak sees a ragged,maturing trend in this cyclical bull market.A stock market decline will ultimately come because of higher interest rates.The tip-off will be an unexpected financial event.Zachary Oxman of Wisdom Tree Investments would avoid large equity allocations.He sees the subprime mortgage crisis peaking in late 2007-2008.Tech stalwarts such as IBM and Intel(INTC) are still worth considering,as are industrials such as Honeywell(HON) and General Electric(GE).Their global exposure makes them better prospects than companies strictly tied to U.S. consumption.