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THE ECONOMY, STOCKS & THE OTHER GARY HALBERT

FORECASTS & TRENDS E-LETTER
By Gary D. Halbert
October 21, 2003

IN THIS ISSUE:

1.  Leading Economic Index Fell Slightly In September.

2.  Jobs Disappearing Around The World, Not Just U.S.

3.  The Stock Markets – Is Dow 10,000 The Ceiling?

4.  The “Other” Gary Halbert Gets Into Trouble.

The Latest On The Economy        

The Commerce Department reported on Monday that its widely-followed Index of Leading Economic Indicators (LEI) fell by a modest 0.2% in September.  The LEI has risen sharply since March of this year, signaling that the economy was in a relatively strong recovery.  Advance estimates of the LEI report indicated it would be about unchanged from the previous report for August, so the actual number was slightly weaker than expected.

The LEI decline in September has served to diminish expectations for 4Q economic growth but not for the 3Q.  Macroeconomic Advisors LLC, a St. Louis forecasting firm, surveyed economists and found that, on average, economic growth is expected to have been a blistering 6.1% annual rate for the 3Q.  Separately, a Bloomberg survey of economists found growth was just slightly under 6% for the 3Q.  The government’s first estimate of 3Q economic growth will not be released until October 30.  

Macroeconomic Advisors surveyed economists just after the LEI report on Monday and found that most expect 4Q growth of 3.8% on average.  This is down slightly from earlier surveys indicating 4Q growth of 4-5%.  The latest survey of CEOs of the nation’s largest companies found that they expect 4Q growth of 3.3% on average.

While the LEI report was a bit of a disappointment, most other economic news continues to be favorable.  Housing starts, which hit a 17-year high in July, rose another 3.4% in September.  Industrial production climbed 0.4% in September.  Factory output jumped 0.7% in September, fueled by an increase in auto production.  As reported last week, the news on unemployment is finally beginning to improve.  Yesterday, the University of Michigan announced that its Consumer Sentiment Index climbed in October. 

All in all, the data suggest that the economy is on solid footing, and that the recovery should continue well into next year. 

American Jobs Going Overseas?

Over the past two years, the media has continually told us that the roughly two million factory jobs that have been lost in the US were due to companies moving production offshore.  Meanwhile, our soaring trade deficit means that Americans are consuming more foreign products than ever before.  All of this would suggest that while US employment has declined over the last two years, foreign employment should be soaring.  Not so, according to a new study.

The investment house Alliance Bernstein recently studied employment trends in the world’s 20 wealthiest nations, and some interesting findings emerged.  Most importantly, the study found that the loss of factory jobs has been just as bad overseas as it has in the US.

According to the Labor Department, the US has lost 1.95 million factory jobs, apprx. 11.2% of our total factory workforce, since 1996 at the peak.  During the same period, the 20 wealthiest nations – including China and Mexico - lost 22 million factory jobs, also apprx. 11% of their total factory workforce.

Manufacturers around the world have learned to do things better, cheaper and with fewer workers.  How?  Productivity has soared by over 30% during the same period that factory jobs fell by 11%.  This is largely due to the quantum leap in technology in recent years.

While this is bad news for those who have lost their jobs, it is good news in the long-run.  Higher productivity means cheaper goods, and better ones.  Workers who have skills and education will see more opportunities, not less.

The point is, the media would have us believe that the loss of US jobs is almost entirely due to US manufacturers moving production offshore.  While that is true in some cases, the employment trends are affecting almost all of the wealthiest nations.  The technology revolution is to blame in the short-run, but it will be a good thing in the long-run.

Stocks – Is Dow 10,000 A Ceiling?

The Dow Jones Index is within 200-300 points of the 10,000 mark as this is written.  Analysts are wondering, once again, if the Blue Chip index can climb above what is at least a psychological hurdle in the weeks just ahead.  The Dow first closed above 10,000 in March 1999.  It went on to a record high of 11,723 in January 2000.

We all know the story after that.  The Dow fell over 30%, the S&P 500 fell 45% and the Nasdaq plunged over 70%.  Unfortunately, many investors came late to the stock market party and rode it most or all of the way down before getting out with huge losses.  But that’s another story for another day.

The question is, does the 10,000 mark represent a ceiling?  The answer is, maybe in the short-run but not in the long-run, at least in my opinion.

There is an interesting parallel in history.  The Dow flirted with the 1,000 mark for almost 20 years before breaking out decisively above that point.  The Dow industrials actually closed just above 1,000 on 30 different occasions between 1972 and 1982, but each time the market fell back afterward.

Not until August 1982, on the 31st try, did the Dow close above 1,000 and stay above it.  That, by the way, marked the beginning of the greatest equity bull market in history.

Most of my best sources, including The Bank Credit Analyst, remain optimistic that stock prices will move generally higher over the next six months to a year.  If such forecasts are correct, then the Dow should manage to rise above 10,000 in the coming weeks or months.  I expect it will.

However, we should all keep in mind that the Dow has huge overhead resistance in the 10,000-11,000 range.  While I reserve the right to change my mind, I don’t see the stock markets going to new, all-time highs in this cycle.  While it has been a very nice run since the markets bottomed in March, I suspect we will be in a broad trading range for quite some time.  

Most investors do not do well in trading range type markets, and I am certainly no exception.  This is why I have the bulk of my equity portfolio (90%+) managed by professional Investment Advisors who can exit the market from time to time if need be.  You can CLICK HERE to see the actual performance results of two professional Advisors who manage money for my clients and me.

The “Other” Gary Halbert Gets Into Trouble

I have struggled for years to combat the confusion between myself and the “other” Gary Halbert, one Gary “C.” Halbert, who also runs in certain investment circles.  I’m Gary “ D.” Halbert and am NO relation to him.  I have never even met him.  If you search Google for “Gary Halbert” you will not find a link to me until you get about 40-DEEP into the Gary Halbert links; the previous links are all about Gary C. Halbert.

[Warning: should you go to Gary C. Halbert’s website, which I do not recommend, be prepared to see some profanity.]

Well, the Securities & Exchange Commission has recently initiated litigation against Gary C. Halbert and his son, Bond Halbert, for “possible violations of the federal securities laws” related to a stock trading system they have been promoting.  Here is the SEC press released on Tuesday, September 23:

QUOTE: “U.S. Securities and Exchange Commission
Litigation Release No. 18359 / September 23, 2003

SEC Files Subpoena Enforcement Action against Gary C. Halbert, Cherrywood Publishing, Inc. and Others

Securities and Exchange Commission v. Gary C. Halbert, et al. (United States District Court for the District of Massachusetts, 03-MBD-10284-RWZ)

The Securities and Exchange Commission today filed an action in Massachusetts federal court to enforce investigative subpoenas against Gary C. Halbert, Bond Halbert, Cherrywood Publishing, Inc. ("Cherrywood"), and John Doe (a/k/a Cherrywood's Keeper of Records"). The Commission alleges in its application filed with the court that Gary C. Halbert, Bond Halbert, Cherrywood, and Cherrywood's Keeper of Records failed to comply with administrative subpoenas requiring them to produce documents and testify in connection with an investigation to determine whether they and others may have violated the antifraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. In its application and supporting papers, the Commission alleges that, on August 12, 2003, the Commission issued a formal order of private investigation entitled In the Matter of Cherrywood Publishing, Inc., File No. B-01967 ("Formal Order"). The Formal Order directed the Commission staff to undertake a private investigation to determine if there were violations of the federal securities laws. According to the Commission's court papers, the Commission staff is investigating possible material false statements concerning a stock trading system made by or on behalf of Gary C. Halbert and Cherrywood in newspaper advertisements that appeared in USA Today and on a website purportedly operated by Gary C. Halbert. According to the application, the Commission staff issued subpoenas to Gary C. Halbert, Bond Halbert, Cherrywood, and Cherrywood's Keeper of Records on August 12, 2003 and issued a second subpoena to Bond Halbert on August 20, 2003, requiring them to produce documents and testify concerning matters relevant to the investigation. As of September 23, 2003, the Commission alleges that the parties have not produced the responsive documents and have not testified as compelled by the subpoenas.” END QUOTE.

If you would like to read more about the SEC’s investigation into Gary C. Halbert, you can click on the following link:

http://www.sec.gov/litigation/litreleases/app18359.htm

It is interesting reading.  In it you will find that Mr. Halbert has apparently left the country. 

If any of you have wondered if I was the same Gary Halbert, or if I am related to him, I trust this clears the matter up for you.

Best wishes,

Gary “D.” Halbert

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Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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