Wednesday, September 5, 2007

Income Investing with Max Whitmore

Whitmore: Buy — Buy — Buy!

Last Friday at about 8:15 am, the stock markets of the world were hit by a lighting bolt! The Fed lowered the discount rate without warning. The S&P, trading on the Globex markets (a 24 hour market) went straight up 72 points in less than 1 minute! Is that unusual you ask? Well, in all my 40 years in this business, I have never seen ANYTHING, and I mean ANYTHING like it!!

I do remember in 2003 when the Fed intervened (of course they denied it, but the charts proved otherwise) and the S&P rallied for over 32 points in 25 minutes. I had never seen anything like it at that time, either. It was engineered to hurt the bears who had taken nearly total control of the market direction.

And hurt it did. It took two more such Fed interventions over several months, but the bears finally gave up. Those bears realized that the Fed had more money and time than they did. The four-year rally from 7100 to 14,000 was the huge upshot of that Fed action.

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The Charts Still Say "Up"!

I have been telling you in my columns for months, often in the face of severe opposition, that the charts DID NOT say it was time to bail out. They DID NOT say that the credit problems overhanging the market were a crisis. A problem, yes, but a crisis, absolutely not!

And the charts further said that we had, as of last Wednesday, still a long way to go to break this huge uptrend that began because of the Fed action in 2003. I put it all in the column last week, plus my Super Chart Keyline to show you why I held my position so firmly.

Now, look, I am just an average guy that over the years has specialized in the creating and reading of stock charts. Like a landscaper, plumber, or painter, I have learned a craft and learned it well. But, I also learned that in any profession you had better know who the masters of the art are. And, I further learned, if they were in positions of power that could affect your work, you better listen carefully to what they say.

Well, in my business, there is only one individual with honest to gosh, real, true power. That individual is the Federal Reserve Chairman, whoever he or she might be. The Fed Chairman is, without a doubt, the most powerful and thus influential person in the world of finance today. And we all live in a world of finance today, don't we?

Bernanke Knows These Waters

Over 17 months ago, Alan Greenspan, then the retiring Fed chairman after 18 years at that post, turned the reins over to a much younger man, a one Dr. Ben Bernanke, Ph.D., a professor by trade, but a proven monetary genius, in fact.

Now, I don't recall if I have ever written that someone is a genius in any column before this. I don't think so. That word can so easily be misused. But, I do not hesitate to tell you that Dr. Ben is just that. I have read his incredible thesis on what is today called the "Great Depression" and not only does he dissect it into understandable segments, but he then critiques those segments and shows exactly what caused the Great Depression. It was the Fed!

Now, I won't bore you with all the details, you can get his book and read it for yourselves. But, stripped down, he pointed to the real estate collapse of 1927 as the initial shock that lead to the final shock called the "Crash of '29." He pointed out that the entire mess could have been AVOIDED!

[Editor's Note: Bernanke Reveals Fiscal Crisis Ahead.]

The problem was that, after the stock market crash in '29, the Fed dropped the money supply level — after all, the economy was slowing down and no one needed the money, did they? And for the entire decade of the 1930s, until a war forced them to do otherwise, the Fed held the money supply in tight rein. It nearly killed the economy, not to mention the country.

I have never for an instant doubted that the strange coincidence of a housing problem in our day, with the possibly of it leading to our own present-day market collapse, was NOT lost on Dr. Ben.

He has been pumping in enough cash to the economy in the last year to choke a horse, as they say. U.S. money growth is running at roughly +12 percent year-over-year, and today this money is providing the grease to clearly restart the frozen credit markets.

But, Dr Ben saw that was not enough. Confidence was being threatened. And if confidence failed (Dr. Ben wrote about this danger years ago in his thesis) then everything might just collapse.

So, last Friday, he stepped in and lowered the bank discount rate by a half percent and said in effect that the Fed was absolutely ready to do all things necessary to keep the wheels of commerce humming, including the housing market sector.

Still Calling Dow 12,500 Bottom of This Correction

When I wrote last Thursday, "I believe that the 12,500 area will hold up as the key support over the next 4-6 weeks," I had in mind that the Fed had a true genius at its helm.

It was no minor thing that Dr. Ben decided to take the step he did on a Friday. Had he waited, the weekend might have generated a financial disaster on Monday. He understands that timing is everything in the markets and the time to cut off a disaster was ripe.

He wrote years ago that confidence lost is only very, very slowly regained. Better to step in now, I figured he would reason, not later. He did. I expected this or something like it from reading his book!

Okay. The deed is done, but what does it mean? Well, it means this: Every major investor in the world knows that the U.S. is 37 percent -38 percent of the entire world's economic activity. That is just a short 12 percent from being HALF of the entire world's economic activity!

We remain, by far, the biggest gorilla in the china shop, and when the most powerful economic individual in the most powerful economic country speaks and says "Enough!" absolutely everyone is carefully listening and starting to make major appropriate adjustments.

Looking Forward Six Months

Here is what I expect to happen over the next 5-6 months. Europe will begin to DROP their interest rates. We will drop our interest rates to at least 4.25 percent, possibly even 4 percent by year end.

The dollar may slide a bit more; making us even more competitive in world markets with our products (I told you weeks ago that I am firmly convinced its drop is an "engineered" move).

[Editor's Note: Cash in on Dollar Slide. Make 25% to 50% in Six Months.]

And I expect the manufacturing sector of this country will begin to rapidly rise like the potential colossus it is in response to its new position as lowest price, best quality supplier of all sorts of goods. Read the headlines all over the world. Quality is now as important as price to just about every buyer!

I expect that the outcome of the lower rates, higher export environment for the U.S. to set off the coming huge three to four year rally I told you about in an earlier column (see my column of May 18 in archives for more details).

This rally, I believe, will carry us to the 19,000-20,000 Dow level. When we look back, we will find the rally's takeoff level began right in this time period.

I expect that the international markets, up until now threatened with higher rates, will begin to respond to their lower rates, just like ours. In short, today's Fed action has been a "sea change" that will result in one of the biggest economic worldwide booms we have ever seen.

But, what about the "crisis" in housing and credit you ask? I believe time will show that this problem, while no small potatoes, proved to be only a blip on the radar screen of the huge coming boom.

Don't misunderstand me, however. There will be some pain for many in the markets in the next three to four months, especially for the ones responsible for its creation. That is as it should be.

But, it will quickly fade. If you lived through the 1987 "crash" you know by looking back at the long term chart that that "crash" is but a blip on the charts, despite all the pain it caused at the time.

The bottom line today is that, like the 1987 crash and even the savings and loan problems in the early 1980s, this "subprime" problem will also be quickly forgotten in the light of the coming huge expansion.

[Editor’s Note: Sir John Templeton Was Right. Get His Latest Insight on Housing and Markets.]

What You Should Do Now

My advice to you is to quickly, say over the next two to three months, develop a strategy for your portfolio that will take advantage of this coming boom. Understanding that the growth I am talking about is at least 50 percent in the Dow, find those industries you think will benefit most and get on their coattails fast.

Be wise in your choices by recognizing how much risk you can tolerate because of retirement needs and family obligations, but be a BUYER!! This is going to be a really fun ride. Not straight up, of course, nothing is straight up, but up nevertheless, BIG!!! BUT . . .

Oh, yeah. And what if I am wrong? Well, I won't be so long as we do NOT break the Whitmore Weekly Super Chart Keyline to the downside (See the Keyline chart in last week's column, which is available in the archives).

That line is now at the Dow 11,895 level as of the close on Friday (Aug. 17). Hold it and we make our Dow 20,000. Break it and all bets are off and I will tell you what needs to be done if that unlikely event were to occur.

But, it is still an 8 on my 1-10 scale that the Keyline holds all the way to the Dow 20,000 mark. But, so long as my Keyline holds, by 2010, I expect to see Dow 20,000! As Phil Rizzuto used to say, Holy Cow!!

Well, hope your coming investment week is a good one. In the meantime you keep in touch. I do! See you next week.

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