It's a pity that Steve Leuthold doesn't let everybody read his research. I know, I know . . . I frequentlyhis opinions. But that's because he is interesting. Value in temperment and quantitative by training, Leuthold's researchers put out the most interesting stuff each month in their so-called Green Book.
Here is a fund fact to know and tell, Leuthold's group says: "In the 17 midterm elections since 1942, the stock market over the next 200 days has gone up 100% of the time, with an average gain of 18.3%."
"I [money manager Steve Leuthold] found this rather astounding and have yet to hear a really convincing explanation. But Eric Bjorgen’s table and chart clearly track this phenomenon. See the September Green Book “Of Special Interest” section for more details. Currently his study is indeed 'Of Special Interest.'”
(Full disclosure: I have a small investment in the Leuthold Core fund, LCORX. It is down by almost 4 percent this year versus the Dow, which is up about 4 percent.)
In his View from the North Country letter (Leuthold is based in Minnesota), Leuthold writes: "The U.S. Stock Market: Currently my personal opinion is at odds with our disciplines (Major Trend Index). I am bullish for the remainder of 2010, but the Major Trend Index, though improved significantly in the last two weeks, remains negative with the ratio of negative to positives currently at 0.91. Caveat: To repeat our credo: The disciplines of our numbers are more reliable than opinions, including my own. Net Equity exposure in our asset allocation portfolios is 47% currently, compared to a normal maximum of 70%. In my CC Fund LP net equity exposure is currently 42%. I wish it were higher.
"I would not be at all surprised to see the S&P 500 test, and perhaps break above, its 2010 April
peak. Hedge funds and other pros must put some points on the board by year end to hold
investors. Market liquidity is thin, so the market can move up easily. Technically, breadth is
good, while public skepticism is high which is a good contrary indicator. I also expect significant
High Frequency Trading reform, which I see as a positive. Last, historically after midterm elections
there has often been a strong market surge.
** The U.S. Economy: There will not be a double dip, but the current expansion may be relatively
short. A good guess might be three years or so. Economic growth (GDP) may average a modest
3% or less in 2011.
** Foreign: At least 50% of equity assets should be invested outside the U.S. Asia (ex.
Japan) and perhaps Eastern Europe and South America will provide stronger economic growth
and superior stock market performance than the U.S. and may also serve as a hedge against dollar
weakness. My largest holding continues to be China.
"Don’t ignore 'Old Europe' or Japan. By our measures, these markets are cheaper than the U.S. in
terms of Intrinsic Value benchmarks. A histogram elsewhere in this issue demonstrates the U.S.
market (S&P 500) is only modestly undervalued and certainly not cheap.
"Fixed Income Markets: In the U.S. interest rates are going up. It is only a matter of time. You
will lose money in most longer term U.S. bonds, particularly in Treasury issues over a two
year time horizon. Globally it is also slim pickings in terms of better quality bonds, although
Brazilian Government Bonds (8%-10% yields) are interesting.
"Higher yield, better quality common stocks, both in the U.S. and abroad, probably make sense if
your income returns run 5% or better. We also own a package of higher yield REITs (6% or