Just thought you might like to see what the bourgeoisie is getting
in the mail.
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Introducing Outlook Newsletter
Author: Dennis Lohouse Date: 04/07/98
Introducing Outlook, written monthly by Dennis Lohouse, Chief Investment
Officer of Chase Investment Services Group. It was first published in
1985, is written as of month end, and comes out on or about the 5th.
For those of you who are not familiar with Outlook, here is some background
information from Dennis:
"Outlook goes with statements to Affluent Markets customers, to plan
sponsors, corporate customers as requested by RM's or directly, employees
as requested, selected branches, and a "private" mailing list of
individuals that are referral sources, important prospects, individuals I
have called on or met with over the years."
"We print about 8-10,000 per month. There are no current restrictions to
the mailing list. Some offices request multiple copies."
"I have authored the piece every month since January of 1992 and began
participating in the writing in 1988. The Outlook is meant to be succinct
(750 words), entertaining and informative, conveying our market strategy,
economic outlook and comment on important or interesting trends both
political and social. It is written in a casual style to foster readership
and interest in subject matter that can be somewhat dry."
Outlook
April 3, 1998 Volume XIII, No. 4
In Brief:
Rolls ?Rolph?
Pity the poor Brits. No one seems to respect the royals anymore, the
London Bridge is in Arizona, Ford Motor Company goes and buys Jaguar
and the ultimate affront, Rolls Royce falls to BMW. Bad enough that the
latest model is powered by a BMW powerplant, this venerable symbol of
the Empire will be owned by a company that started out life as a German
motorcycle maker. So maybe its not a big deal after all in this age of
globalization and the European Union. Just think of the auction at
Sotheby?s when the crown jewels go under the gavel!
This purchase does offer a chance to comment on the fact that many of
the largest companies in the United States have really become global in
their scope. One of the most common questions I get asked when
discussing our global investment strategy is why not simply buy stock in
US firms that do business abroad - Coca Cola for instance, derives more
than half of its profit from overseas. This idea is certainly appealing
but assumes that only US companies are players in global markets. This
is clearly not the case. Companies like BMW or Nokia or Glaxo-Wellcome
have global reach and compete with the best US companies. As we look
back on the large capitalization bias in US stock market returns over
the last 15 years, it may be this international exposure that has driven
some of the superior returns. One of the most important trends in
corporate strategy has in fact been building size and scale, so as to be
competitive with giant firms from around the world. So far many US
companies are succeeding.
The Economy:
The first quarter of 1998 is now a fond memory. The housing market was
surprisingly strong, due mostly to lower mortgage rates, very high
consumer confidence and the warmest winter in memory. Our current
estimate of first quarter GDP growth is 3%. This is somewhat lower than
the 3.8% pace set in the fourth quarter of 1997. In light of the
inventory buildup last year and the grinding halt in Asian expansion,
this is a very good performance. Despite all the media coverage of the
melt-down in Asia, most Americans could hardly care. The US stock market
has shaken off the crisis and traded to new highs. Consumer spending in
the first quarter, which was quite strong, was driven in part by
confidence but was aided by home refinancing and strong employment
trends.
|-------------------------------------------------------------------------|
| |
| March YTD 1998 |
| |
|-------------------------------------------------------------------------|
| |
| Dow Jones Industrial Average 3.1% 11.7% |
| Standard & Poor's 500 Composite 5.1 13.9 |
| NASDAQ OTC Composite 3.7 17.0 |
| Treasury Bills 0.5 1.4 |
| Long Treasury Bonds 0.3 1.3 |
| |
|-------------------------------------------------------------------------|
| |
| |
| On the industrial side of the economy, the durable goods, metals, |
| fabricated metals and textiles industries have seen a slowdown in |
| activity. Since most of our exports to Asia are machine tools, |
| telecommunications equipment and other capital goods, the loss of |
| demand in these markets is showing up first in our durable goods |
| industries. |
| |
|-------------------------------------------------------------------------|
Despite the strength in economic growth, most measures of inflation
continue to be very benign. Producers prices are flat to down, consumer
prices are flat, import and export prices are down, as has been the
price of crude oil. Which brings us to the recent behavior of the
Federal Reserve.
The Fed met this week and took no action. Holding to a neutral posture,
the members of the Open Market Committee are caught between the
continuing strength in the US economy, including its tight labor market,
and Asian turmoil. The fact that inflation measures are flat is viewed
as old news. It is the prospect of inflation, driven by a robust economy
and tight labor markets, that will call the tune at the Fed.
The Markets:
The stock market has continued to make new highs against the winds of
Asia and the Fed?s determined admonitions on inflation. While some
prognosticators of economic fortune are busy planning for the long bond
at 5%, we think long term interest rates are bumping along at or near
the low end of their near term range. We have, almost monthly, recited
the litany of low inflation data along with the disclaimer that the
Federal Reserve is prospective, not reflective. As the stock market
rises to richer valuation levels and corporate earnings are subjected to
a somewhat weaker global economic picture, there is little additional
?juice? available from further declines in interest rates. As we enter
the first quarter reporting season, it will be important to pay
attention to the direction of earnings expectations. It may also be the
case that the drag from Asia will be felt more in the second quarter
than the first. One factor continuing to propel the market is the inflow
of cash which continues to be strong on the retail side. In light of
these concerns, the equity weighting in our domestic asset allocation
model has been reduced slightly as a signal of our caution in the near
term.
|-------------------------+----------------------------------------------|
| | |
| Dennis E. Lohouse, CFA | Chase Manhattan Bank |
| Chief Investment | One Chase Square |
| Officer | Rochester, NY 14643 |
| Chase Investment | e-mail:[EMAIL PROTECTED] |
| Services Group | |
| | |
|-------------------------+----------------------------------------------|
| | |
| Dow Jones Industrial | |
| Average: 8799.81 | |
| Standard & Poor's 500 | |
| Index: 1101.75 | |
| U.S. Treasury Bond: | |
| 6.125%, due 11/15/27: | |
| 5.93% | |
| Prices as of March 31, | |
| 1998 | |
| | |
|-------------------------+----------------------------------------------|
*** End of Document ***
