Currency Trading

A Long-Term ‘Ice Age’ for Stocks
Stocks are poised to enter a long-term “Ice Age,” according to Société Générale (SCGLY) global strategist Albert Edwards. Both the Economic Cycle Research Institute’s weekly index of leading indicators for U.S. growth and the Organization for Economic Cooperation & Development’s monthly gauge of economic measures for China have peaked, Edwards wrote in a recent report. Such high points foreshadowed the stock market sell-off that began in October 2007 and sent the MSCI (MXB) All Country World Market Index down as much as 60% in 16 months. The strategist recommends holding 35% in stocks, 50% in bonds, and 15% in cash. His report follows one by Ian Gordon, a strategist at Longwave Group in Surrey, B.C., on Feb. 9 saying the Dow Jones industrial average could fall 90% over three years as U.S. equity markets move deeper into the “winter” phase of a half-century economic cycle. Gordon said the Dow is likely to bottom in 2012 and that “winter” may last until 2020.
Deere: A Capital Expenditures Comeback?
Deere (DE) didn’t just beat expectations on Feb. 17. It slaughtered them. Net income rose to 57 cents a share, leaving analysts’ average calls of 19 cents in the dust. Its stock rose 5%, to 56.48, on news of its first-quarter profit. Deere also raised its 2010 forecast and expects equipment sales to gain 6% to 8%, compared with the 1% decline it forecast last November.

Analysts at Credit Suisse (CS), JPMorgan Chase (JOM), and Morgan Stanley (MS) say the stock could hit 65 to 70 over 12 months as demand overseas and efforts to replenish U.S. inventories spur production. “Foreign demand growth continues to be very strong, particularly from Asia, and we’re starting to see capital spending pick up,” says JPMorgan Chase economist Michael Feroli. Ways to play the trend: Vanguard’s Industrials Exchange Traded Fund (VIS), up 3% this year, and the Industrial Select Sector SPDR ETF (XLI), up 4%. The S&P 500 is down 0.3%.
What the Fed’s Rate Hike Means
The Federal Reserve’s decision on Feb. 19 to raise the discount rate, which it charges banks for loans, dampened demand for riskier assets. The Fed said the quarter-point bump, to 0.75%, will encourage financial institutions to rely more on money markets, instead of the central bank, for short-term liquidity. The move “rocked the markets,” says Crédit Agricole CIB strategist Stuart Bennett, as foreign indexes—including Brazil’s Bovespa—fell while the U.S. dollar hit a seven-month high. These moves don’t necessarily mean investors should flee to safe havens. Channel Capital Research chief investment strategist Doug Roberts says to stick with what you’ve got, “unless the Fed embarks on a massive tightening spree.” The discount rate rose from 2% to 6.25% from June 2004 to June 2006. Over that time, the S&P 500 returned 15% and the MSCI EAFE Index 37%. The Barclays Capital U.S. Aggregate bond index climbed 6%.