Despite high profile news items such as the bail out of Ireland (and soon to be other nations in the Euro zone), the monetary tightening occurring in China and the high profile campaign to attack our country’s monetary policy, the stock market was as flat as a pancake last week which did not sit well with the many prognosticators calling for a significant pullback.

 

 

 

 

 

 

As the charts above illustrate, neither the Dow Jones Industrial Average nor the NASDAQ Composite showed much movement last week despite the news flow, which suggested otherwise.

The Markets & Economy

Last week we saw quite a bit of news on the so-called “macro” front. Little seemed to be market friendly. After all, the Euro zone is once again proving to be a concept that the global economy would be better off without.  The weekend’s bailout of Ireland has not even been formally announced and yet this morning the Euro is under pressure as the Irish government appears doomed to fall and the pressures on Portugal and soon Spain and Italy are not far behind.

These problems of government debts and banking problems are a continued warning to the United States that we must obtain sanity in our spending and taxing policies or face future consequences. Thus the passage of the first week of the lame duck session in Congress without an agreement on simply extending the tax rates for all Americans, which have existed for ten years, could be construed as disappointing. Have no doubts, raising taxes is not the answer. Cutting spending dramatically is the only way out of our nation’s primary ailment, which is an economy that is growing too slowly - if at all.

Speaking of which, the Financial Times over the weekend previewed the upcoming forecast of economic growth from the Fed, which is now expecting slower growth and a higher unemployment rate far into the future. This is simply a statement which serves as the basis for its so called “quantitative easing” policy.

As I have said many times, this policy seeks to stave off deflation by acting to keep asset prices (think stock prices) higher. Whether or not it, in turn, will help create jobs is another matter. To create jobs businesses must have an incentive via the corporate tax rate and banks need to have an incentive to lend via making profitable loans.

Currently, our government policy has a confiscatory rate of taxation and the pressures on the banking industry from a regulatory and legal point of view remain enormous. In other words, our Federal Reserve Board is attempting to solve our slow growing economy policy issues with a policy that does not really focus on the problems of growth in the economy, but rather is focused upon the results of bad policy - namely high unemployment and falling asset prices (homes primarily).

Thus the lame-duck Congress should do the minimum possible and get out of town. We held elections and let’s see if the New Year brings about the needed policy changes to improve the situation.

What to Expect This Week

Earnings reports will be sparse, although Brocade reports tonight. The debate about the growth in the economy will continue, as tomorrow will bring about the GDP report for the third quarter. The expectation is for slightly over 2% annualized growth.

I mentioned the Fed’s new outlook for the future. This slow growth is confirmed by the numbers coming out of the Economic Cycle Research Institute (see chart next page). The year over year number has improved to minus 4.5%. This is much better than six months ago, but it still implies that growth next year will be lackluster and thus the political landscape will continue to be hotly debated over what to do. Ultimately, of course, the answer will not be obtained until the results of the 2012 election. What you see is what you may get for a couple of years. This is good news for investors, but lousy news for the country.

 

 

Finally, of course, this week is a holiday shortened one in observance of Thanksgiving. The stock market will be closed on Thursday and have an abbreviated session on Friday.  We wish everyone a HAPPY THANKSGIVING

and will update you again in two weeks rather than the usual one-week interval.

 

                                                                                                   SYMBOL:  BA

 

Shares of Boeing have been under pressure the last couple of weeks after a test flight for the 787 Dreamliner were halted due to an electrical fire in the cabin.  The Company is doing a full investigation into the fire and most investors believe the launch of the 787 will be delayed once again.  This uncertainty about the 787 has caused the selloff, although we do believe the planes will eventually get in the air. This offers an attractive buying opportunity.

We expect to hear from the Company once they have completed their investigation and until then we don’t know how long the planes will be delayed.  Speculation has been anywhere from a two-month delay or possibly up to a few years.  We believe the delay will be on the short side and expect the shares will rally sharply once a timetable is announced.

While this is clearly a disappointment for shareholders, demand for Boeing’s aircrafts remains robust.  The Company has booked 484 commercial aircraft orders already in 2010, which compares to just 263 in all of 2009.  We will continue to monitor this closely and expect an announcement from the Company shortly.  We believe this is a buying opportunity and believe the Company’s share price will reach $85 within the next 12 months, especially if the Company is able to deliver the 787 within the next year.

Three-Month Chart

 

(c) McIntyre, Freedman & Flynn

www.mcintyreinvestments.net