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On The Economy, Stocks & Bush’s Big Lead In The Polls

By Gary D. Halbert
September 7, 2004


1.  The Economy – Sputtering Or Moving Ahead?

2.  The Bank Credit Analyst Remains Optimistic.

3.  Stocks – Here’s Another Buying Opportunity.

4.  Bush Pulls Well Ahead, But Can He Win?

5.  Handicapping The Battleground States.

6.  What’s Wrong With The Kerry Campaign?


The economy has slowed down from the red-hot pace of +4.5% in GDP growth in the 1Q.  On August 27, the government revised its estimate of 2Q GDP growth from 3% down to 2.8%.  Most economists believe growth in the current 3Q will be about the same.  Nevertheless, the media would have us believe that the economy is stalling.  John Kerry certainly wants us to believe that.  And the gloom-and-doom crowd promises (yet again) that we are headed into a new recession. 

Yet our good friends at The Bank Credit Analyst, who have the best record for forecasting US economic trends that I know of, remain optimistic about the economy for the balance of this year and well into 2005.  Likewise, the latest economic reports simply do not support the view that the economy is waning or that a recession is on the way.  I’ll summarize BCA’s latest thinking and the latest economic reports for you this week.

The stock markets have rallied for the last four weeks, especially as oil prices eased a bit and President Bush improved his standing in the polls.  But are we still in a downtrend?  September is historically the worst month of the year for stocks.  Yet it can also be one of the best times to buy.  This week, we’ll look at the equities markets and what you should be doing now.

Finally, we look at the latest poll numbers which show that President Bush has jumped to an 11-point lead over John Kerry in the race for the White House, as well as Bush’s jump to a 52% job approval rating in the latest Newsweek poll.  How did this happen?  Was the Republican convention really that good?  I’ll give you my thoughts at the end.

The Economy – Sputtering Or Moving Ahead?

While the economy did slow down to an annual growth rate of 2.8% in the 2Q, according to the Commerce Department, the latest round of reports does not support the view that the economy is in trouble.  Let’s take the negative reports first.  After rising sharply for most of the year, the Consumer Confidence Index fell from 105.7 in July to 98.2 in August.  The Index of Leading Economic Indicators fell slightly (-0.3%) for the second month in a row in July (latest data available).  New and existing home sales fell in July but still managed the third highest monthly totals on record.  Auto sales fell sharply in August.

On the positive side, consumer spending rose 0.8% and retail sales jumped 0.7% in July.  Durable goods orders rose 1.6% and factory orders climbed 1.3% in July, with the latter being the best in four months.  Construction spending hit a new all-time high in July.  Housing starts rose 5.7% in July, despite the slowdown in home sales.  Unemployment fell in August to 5.4% with 144,000 new jobs created.  New jobs in July were revised upward to 73,000, more than double what was initially reported.

On balance, the economy still looks to be in good shape.  Most economists expect GDP growth of around 3% for the 3Q and 4Q and expectations remain positive for the first half of 2005.  The recent drop off in consumer confidence must be watched closely, however, since consumer spending accounts for over two-thirds of GDP.  The latest encouraging employment report could serve to boost consumer confidence, as well as President Bush’s latest jump in the polls.

The Bank Credit Analyst Remains Optimistic

While the media and the Democrats drone on about how bad the economy is, the highly respected editors at BCA remain upbeat.  Here’s what they had to say in their latest September issue:

“The rise in oil prices is clearly a headwind for the economy and contributed to the recent deceleration in growth.  Yet, there is no compelling evidence of any serious distress.  Equities have continued to struggle, but other market-based indicators of the economy have stayed firm.  The economic fundamentals are generally sound: corporate finances are excellent, monetary policy remains accommodative and the majority of consumers are in good financial shape…  Real [inflation-adjusted] consumer spending should be able to grow at around a 3% pace going forward as long as income growth is sustained near its recent level.
The payroll report for August will be important in determining whether or not the July report was an aberration…  Our payroll model still predicts steady employment gains…  If employment rebounds [it did, 144,000 new jobs], then it will restore faith that the economic slowdown is temporary…  The bottom line is that the foundations for the economy are reasonably solid.”

The editors at BCA qualify their optimistic view, as does everyone, with the universal caveat that a major negative surprise, such as another terrorist attack on US soil, could prove them wrong.  Otherwise, they believe the economy will improve and that growth will average “at least a 3½% pace next year.”

There you have it from the folks who have been more accurate on balance in predicting US economic trends than any research group I have read over the last 27 years.   

Stocks & Mutual Funds – What To Do Now?

Stocks rallied in August to the highest levels since late June.  Some believe the rally has been fueled by President Bush’s much improved standings in the polls.  Still, this year has been a particularly frustrating time, both for investors in the market and those sitting on the sidelines hoping to get back in.  Even the professional money managers I recommend have had trouble gaining any traction in this choppy market.  With the major averages now just about where they started the year, many analysts believe stocks are stuck in a broad trading range. 

Historically, September is the worst month of the year for stocks.  That means you should stay on the sidelines, right?  Certainly millions of investors are still on the sidelines as evidenced by the mountain of cash still sitting in money market funds.  However, while September is historically the worst month of the year, that also means it is frequently one of the best times to buy.  This year could be one of those times.

One of the main negatives weighing down stock prices in recent months has been skyrocketing oil prices.  Yet the peak summer demand season for gasoline is now behind us, and the recent increases in oil production are now reaching the market.  Thus, there is a very good chance that oil prices have peaked and will trend lower during the rest of the year.  BCA’s latest on oil prices:  “Oil prices appear to have overshot on the upside and the odds are good that prices will fall back during the balance of the year.”

After peaking at a record $49.40 per barrel, oil prices have now fallen below $45.  If oil prices fall below $40 per barrel in the next few weeks, this could cause stocks to breakout strongly to the upside.

In addition, given that the economy remains solidly positive, the rising interest rate environment is still relatively benign and the situation in Iraq is improving (albeit slowly), I think this is another good time to invest in stocks and mutual funds, especially if we get some dips this month.  If President Bush can hold his now sizable lead in the polls and goes on to win in November, this should be yet another plus for the equity markets.

I continue to recommend that you invest in the stock markets using professional money managers that have the ability to “hedge” their positions or move partially or fully to cash should market conditions warrant.  You can go to my website to see the performance records of the money managers I specifically recommend for this type of tactical investing.

Bush Pulls Ahead, But Can He Win?

The Republican convention was a huge success for Bush.  Rudy Giuliani and Arnold Schwarzenegger are both hugely popular around the country, and their speeches no doubt swayed some undecided voters.  Zell Miller’s keynote speech on Wednesday night was nothing short of devastating for John Kerry.  Bush’s acceptance speech on the final night was arguably one of his best, but in any case it was more than acceptable.

The first two major polls taken just after the Republican convention – Time and Newsweek – both showed a sizable new lead for the President: Bush 52 / Kerry 41.  In the same Newsweek poll conducted just after the Democratic convention, Kerry was ahead by seven points, so this was an 18-point bounce for Bush in that particular poll.  In most other polls, Kerry was ahead by 2-5 points, so this was a serious bounce of 14-15 points for Bush.

Some of the specifics in the latest polls were even more devastating for the Kerry camp.  Most striking is the following: in the Time poll, on the subject of “strong leadership, it was Bush 54 / Kerry 37.  On the War On Terror, Bush soared to 57 / 36.  Even on the subject of the economy, where Kerry has consistently been the winner, Bush pulled ahead 47 / 45.  Meanwhile, Bush’s job approval rating rose to 52% in the Newsweek poll.

On Monday, the latest USA Today/CNN/Gallup poll was released showing Bush 52 / Kerry 45.  This compared with Bush 50 / Kerry 47 in this same poll in August.  Bush’s job approval rating was also at 52% in the latest Gallup poll versus 49% in late August.

Handicapping The Battleground States

The following analysis of the state-by-state races comes from, one of my favorite websites.  At this point, they believe Bush has locked-up 269 Electoral votes, while Kerry has locked-up only 228.  This is based on states which are “solid” or “leaning” toward each of the candidates.  270 Electoral votes are required to win.  At this point, they consider the following states to be “toss-ups” – New Mexico, Pennsylvania, Nevada and Wisconsin.

Here’s their latest analysis:

“2000 Results in 2004 EV's: After reapportionment, keeping the states the same as 2000 gives Bush 278 electoral votes and Kerry 260 Electoral Votes. 270 Electoral Votes are needed to win. So, in order to win Kerry has to flip 10 Electoral Votes and hold all of the Gore states. (Because ties are split by the House of Representatives Bush can probably win with 269 EV’s).
In a simplified analysis, Bush has to win both FL and OH to win. Kerry simply has to win either FL or OH. If Kerry does not win either FL or OH, he has very little chance of becoming President.
Without one of these two states Kerry can get to 268/269 by winning NH and NV, but to get over 270 he will have to carry either WV or MO. It is hard to imagine Kerry losing OH, but winning MO or WV.
Bush needs to win both FL-27 and OH-20, but if he were to lose one of the two he has a small chance of picking up the lost EV's by winning some combination of either WI-10, NM-5, MN-10, IA-7 and OR-7 (and also denying Kerry pickups in NV and NH). Unlike Kerry's second-chance scenario, Bush could conceivably lose OH and still hold on to the Presidency by flipping WI and NM and holding on to NV.
If Kerry loses PA or MI he loses. If Bush loses any one of AZ, CO, TN or AR he loses.”

While I would agree with most of Realclearpolitics’ analysis above, some interesting things are developing.  For example, New Jersey, with 15 Electoral votes, is considered a solid state for Kerry; however, the latest polls show NJ is now a “margin-of-error” state.  The same is now true of Minnesota with its 10 Electoral votes.  This is not good for Kerry.

What’s Wrong With The Kerry Campaign?

While the Republican convention certainly added to Bush’s big bounce in polls, the President was moving ahead even before the convention started.  There are countless analyses for why Bush started pulling ahead, but I think a big reason is the fact that Kerry can’t seem to handle criticism.

It’s okay for Ted Kennedy, Whoopi Goldberg, Nancy Pelosi, Michael Moore and others to lob vicious (vulgar, in the case of Goldberg) personal attacks at George Bush.  But when the Republicans fired back at Kerry during their convention, he and his spokespersons went ballistic.  This leaves some voters thinking, you can dish it out, but you can’t take it.  This is what is hurting Kerry the most in my opinion.

Now that Kerry is the clear underdog, he has shuffled his political team of advisors and brought in others (although not former Clinton heavyweights like James Carvill).  From what I read, their advice to Kerry now is, no more windsurfing photo-ops, be serious and GO NEGATIVE, big-time.  It will be interesting to see if it works.

I have maintained all year that an “Anyone But Bush” campaign would not get the job done.  The Hate Bush crowd is large but not large enough by itself to get John Kerry elected, especially after the successful Republican convention.

The Democrats’ best hope now is the presidential debates.  Kerry supporters believe their man possesses the stronger intellect and better command of the issues, and they are demanding as many debates as they can get. 

Yet let us not forget that the same things were said about Gore versus Bush in the 2000 debates.  While Gore came off as aloof, rude (sighs) and condescending, Bush remained cool as he defended himself and presented his case.  Bush may not understand or deal with nuance the way Kerry does, but he has a knack for getting to the heart of an issue.  And he has plenty of flip-flops for ammunition.

At this point, it’s Bush’s race to lose, but it will be a very interesting time between now and November 2.  Stay tuned!

Very best regards,

Gary D. Halbert


U.S. workers’ productivity sparks a strong economy.

A liberal’s analysis of the campaign and what Kerry should do.,8816,692822,00.html

William Safire analyses the presidential race.

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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc. Gary D. Halbert is the president and CEO of Halbert Wealth Management, 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, Halbert Wealth Management, 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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