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0650 EST Monday November 21 2005

Good Morning: As we stated Friday morning, whenever Gold and Stocks go up together, we feel very comfortable being long both markets. When all the metals are soaring along with Stocks, our comfort level increases even more and when the broadest of indices are close to setting new all time record highs and again the S&P MidCap 400 did just that Friday and leading indices such as the Dow Jones Transportations are doing the same, it just doesn't get any better... And yet amazingly in fact, it actually does:

Why? Because not only did the DJTI and S&P MidCap 400 set new all time highs again Friday, but they have been joined in recent days by the Dow Jones Composite Index, which has also been soaring to new records and is acknowledged as a leading index and precursor to the Dow Jones Industrials in due course following and doing the same and most amazingly of all, just over the past few days, the elusive Banking Index BKX has done the same and sneaked up to within a hair's breadth of setting new records itself.

This is an incredibly bullish development, because in spite of the Fed raising rates as many times as it has this index has shrugged off the worst that has been thrown at it and this has in the process even annihilated Cramer's highly cautionary 'Don't Buy' or 'Sell' on the almost the entire Banking sector for fear of the Fed, which does now appear to be largely unfounded. What does this mean?

It probably means that the market has concluded as it may have done week's ago, coincidentally with the appointment of Dr Ben Bernanke, that Alan Greenspan has been quietly orchestrating riding into his retirement sunset and passing the torch to the next generation on a high note of optimism, perhaps hinting that the Fed's days of hiking of rates are numbered and that this new broom is going to sweep increasing rates right out of annals of Washington and might even start lowering rates again sometime in 2006. Just as Cramer acknowledges the power and capacity of the Banking Index to lead markets higher in post Fed rate hike mode, one thing investors simply cannot do is fight the Banking Index, because anytime this index is setting new all time record highs, it doesn't get any better and is signaling another stock boom is on the way and markets love the choice of Ben Bernanke, for now...

And, as we have stressed on numerous occasions over the past two plus years, when one index starts setting new all time record highs, especially the broadest of all in the S&P 400 MidCap index, which represents the underbelly of the economy and it is then progressively joined by more and more indices doing the same, the market is sending an incredibly powerful message that the economy is likely to get progressively stronger and this has been happening increasingly since the S&P 400 MidCap Index first hit post recovery new all time record highs in the fall of 2003 and at the same time heralded in several blowout quarters of very strong economic growth that essentially has enured to the present day in one of the most impressive economies in years, or the best ever.

As stated Friday, for all these markets to be participating in a unified advance, it signals that monetary policy is working well and that in the background the Fed is supplying the right mix of ingredients to stimulate economic growth, or as is the case right now, international investments in our Treasury markets and monetary movements in general Worldwide, including the massive re-cycling of petro-dollars back into the leading industrial economies and Gold, are fomenting the near perfect conditions that exist today.

Re-iterating our health check on the economy, vital signs have quite frankly, never been better. Back in January 2004, we christened this: "The Best Economy Ever" and with all kinds of record corporate profits and mountains of cash records being set and copious liquidity in the Banking sector, it's hard to argue against this notion, even though to many it may not feel like the best economy ever, it is. We've never had it so good. As Jack Welch, former head of GE said the other day, what this economy has accomplished since 9/11 is nothing short of astonishing. He should know. And, it really is when compared to the dismal employment numbers out of Europe, that sparked those recent problems in France. Current head of GE Jeffrey Immelt declared it was the best economy in 20 years for GE, which is another way of saying the best economy ever, because GE today is about 100 times larger, than it was a few decades ago, so comparisons with that era are perfunctory. Since GE is now the Bellwether of the Economy, recent positive guidance underscores the awesome power of the greatest economy in history, personified by high tech advances unimaginable a few years ago, giving rise to the unprecedented ultra-productive economy of today. And with stock markets around the World setting new multi-year highs to all time record highs across the Globe, the outlook remains exceptionally optimistic. And, just as we have been saying for some time now: In due course, the Emperor of all markets, the Dow Jones Industrial Average will likely see new all time record highs. Some highly respected analysts such as Mark Liebovit of the VR Trader and the Davis Fund Group seem to share our bullish views that this advance could extend a lot longer than many investors expect, who are currently in fear of a market that has essentially been climbing a wall of worry for several years now. While it's unrealistic to expect to get through 2006 without some sort of correction and perhaps some economic slowdown as well, conditions should present a near perfect entry point for '07.

Whether by accident or design, the Fed did a masterful job of setting the economy up for a late decade expansion in the mid 90's and this time around, in spite of efforts to slow economic growth, or at least place a governor on the pace of growth, the economy has delivered spectacular numbers for a great many quarters and if the stock market is any leading indicator, as it usually is, then it should be implying steady to increasing growth ahead versus the conventional wisdom that a slowdown may be coming. In spite of all this, we have to be mindful that markets do not go up in a straight line, as we have advanced four weeks in a row and pullbacks could occur over coming days or weeks as sometimes can occur post thanksgiving, before resuming the uptrend into year's end.

We'll elaborate some more on changing behavior in various sectors of the economy and the implications of this in the days ahead.

Trade Well
From the Desk of Savant

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