CONGRESS ON THE HOME STRETCH -- MARKET RUNNING STRONG

CONGRESS IS READY TO TUCK ITS TAIL BETWEEN ITS LEGS AND TO HEAD FOR HOME

The congress is making plans to get out of town. Negotiations are well under way to roll 11 appropriations bills into one massive $500 Billion package. Bush has discouraged this action but after the house passes the package, republicans in the senate will add the funding Bush wants for the war in Iraq. Senate republicans have made it clear that they will not vote for cloture on an omnibus bill that does not contain said funding.

The senate passed an AMT bill tonight. It does not include tax increases to off set the "tax reductions". The bill will now be sent back to the house where it appears democrats will begrudgingly accept the bill as it is time for members to start packing their bags for home.


In like manner, the senate democrats do not have the votes to push through the house energy bill. Once again, Bush will hold the line on new taxes and on mandates to electric utilities. A slimmed down bill will likely pass, including increased auto and truck mileage standards.

In the mean time, the administrations plan to "patch the sub prime loan issue" is moving forward. Their will be face saving components in the bills to be passed over the next week. The good politicians will be able to go home after "saving the day" once again.

MARKETS SOARING

Foreign markets are following the US lead. The Nikki index in Japan is above 16,000 again for the first time in a month. On the other hand, the "big move" so far has been of little consequence. For the most part, stocks have gone up and down pretty hard over the past five months but the net gains and losses have been concentrated in just a few sectors. In times like these, one should buy stocks that are not moving much but that are prepared to make the big move. In some ways, the situation is like the Wayne Gretzky story. Wayne was one of the best hockey players of all time. When asked how he managed to set so many records during his career he said it was because he skated to where the puck was going not to where it had been. The stocks that are jumping up and down the most today are generally not the ones that will be 40% higher in a year.

STRONG MARKET AHEAD

The following stats are a pass through from the good guys at Hayes Advisory.

When the AAII bears to bulls ratio has hit 150 or higher during the past 20 years, the market has been up an average of 11.5% in 6 months and an average of 18.6% in one year.

The IBES Valuation index is at it highest monthly reading in its 28 years of existence.

When the rule of 20 has reached these levels, the market has been up an average of 10.9% in 6 months and 17% in one year.

When the Vix has hit these levels, the market has been up an average of 16.2% over the next year.

When the ISEE put call ratio has hit current levels, the market increase in 6 and 12 months has averaged 9.4% and 21.5%.

When the Gambill Ratio has hit these levels, the market has increased an average of 10 and 22% over the following 6 and 12 months.
THE BIG SQUEEZE

Airbus is caught in the LITTLE DOLLAR SQUEEZE. Airbus has sold billions of dollars worth of airplanes and the contracts were completed in dollar terms. The bad news is that their costs are primarily paid out in Euros. A 10 cent drop in the value of the dollar relative to the Euro results in a company loss of ONE BILLION DOLLARS!

Ford, Chrysler and GM have each decided to temporarily close truck manufacturing facilities for the next month or so. The demand for big trucks fell by more than 8% during the month of November. Before November, the annual rate of decline was running at about 3% but incentives were required to hold even those levels. The psychological break has happened. The mid cycle turn is here. Trucks are no longer being made just to maintain market share. The new mileage standards come with "job protections". The politicians, the car companies and the unions will score this deal as a long term win. The American public will see the fall in the price of gas as a "benefit of the wisdom of congress". The timing is just right for the good incumbents in congress.

THE THEME OF 2008

In case you have not noticed, I keep hitting on the theme of good times in the 2008 election year. All the "big problems", Iraq, Iran, AMT, energy, sub-prime, and more are about to be "solved". Investors who ride the wave of the coming sentiment change will do well.
BUY, BUY, BUY!