Bloomberg conducted a survey of 40 oil analysts and traders to guage their sense on where oil prices are going in the future. The findings:

• 16 analysts expect oil prices to go up in the near future
• 13 analysts expect oil prices to remain the same
• 11 analysts expect prices to go down

Consensus Watch’s Take: Not the most scientific survey, but it’s a nice indicator of what the Oil Soothsayers are thinking. 29 of 40 (over 70%) expect that prices will go up or remain at their current level. Using this consensus, it may reasonable to assume that prices will fall in the near future? When oil was at $50, the Soothsayers were calling for $30/barrel only to see them rise to $60. Now that they are back up, they are calling for them to go further up. Using this logic it wouldn’t surprise me to see prices fall a bit. It sounds so ludicrous, but it just seems to work out that way.

AKR

Here are some covers and headlines from the mainstream media magazines this past weekend. I was curious to see what kind of spin (if any) that they would put on the market sell off last week.

Time: “Is the Stock Market Getting Too Risky?”

Fortune: “The New King of Wall Street.” An article profiling CEO of Steve Schwartzman of Private Equity giant, Blackstone Group.

Forbes: No cover of relevance, but an interesting article by Scott Woolley called “Boom Times”. The premise being that the Bull Run is just beginning because there is less stock around.

The Economist: “A Walk Down Wall Street” with an image of a foot walking the tightrope.

Consensus Watch’s Take: I’m always looking for what the mainstream media is saying about market/economic events because when they report it as a cover story, it usually marks a signal that market/sector has reached a top or bottom. In the above cases, we see a couple of covers from Time and The Economist, where the mainstream media question whether it is still worthwhile to be in the market, perhaps a indicator that we are closer to buying opportunities than selling? Fortune’s profile of the CEO of Blackstone is also interesting, because when a magazine puts an Executive on a cover, it is usually to praise Caesar. What subsequently happens is that Caesar and Rome falls. Case in point, John Roth of Nortel, Jeff Bezos at Amazon, Carly Fiorina at HP. In this case it is about Private Equity. Putting him on the cover may mark a peak in the frenzy for Private Equity plays. It is interesting that this issue was released before the market sell off and since then, we have been getting evidence of reversal of the Yen/Euro carry trade, which has been one of the major factors of the high amount of liquidity, liquidity that been the bread and butter of Private Equity firms like Blackstone.

This week’s, magazine covers will be interesting as the nature of the sell off is now entrenched and it is likely that more publications will put something on their covers. If they start getting pessimistic, it could represent the beginning of a buying opportunity. We shall see.

AKR

Michigan Consumer Confidence survey for February

U.S. consumer sentiment fell further than previously estimated in February, hitting a five-month low as concerns over incomes and jobs in a slowing economy weighed on confidence, a survey showed on Friday.

The Reuters/University of Michigan Surveys of Consumers said the final February reading of its consumer sentiment index slid to 91.3 from 96.9 at the end of January, which was the highest reading on the index in two years.

February's result came in below the median forecast of 93.5 in a Reuters poll of economists and was the lowest reading on the index since 85.4 in September 2006.

"This suggests that consumers are feeling less optimistic about the current economy and future prospects, which is different from what the Conference Board consumer confidence index showed," said Gary Thayer, chief economist at A.G. Edwards & Sons. Thayer said the reading could reflect some negative impact from the cold winter weather.

"Although interviewing extended to Wednesday, too few interviews were conducted following the stock market decline to have an impact on February's data," a statement accompanying the data said of this week's global equities turbulence.

The survey's gauge of current economic conditions fell to 106.7 in February from 111.3 in January, while its final measure on consumer expectations slipped to 81.5 from 87.6.

The survey's one-year inflation index held steady at 3.0% in February, but its five-year inflation index slipped to 2.9% from 3.0%.

The Reuters/University of Michigan Surveys of Consumers, a monthly series of data on U.S. consumer sentiment, are produced by the University of Michigan in Ann Arbor, Michigan.

Consensus Watch’s Take: Now the consumer is feeling the shakes. The circuit is now complete? This survey is interesting because it comes off the heels of the Conference Board consumer confidence survey, which said that American consumers are in a pretty upbeat mood, however the survey was done before the chaos of this past week. Our negative list is growing, which in my mind means that buy opportunities will be available to exploit the impending neuroticism and desperation.

Was somebody saying something about Goldilocks?

AKR

Home-Price Index Slides, With 'No Sign of Bottom'

The prices of existing U.S. single-family houses extended their slide in most regions in December, trimming annual price gains, according to an index of major metropolitan areas released this week during the market shock.

The composite month-over-month Standard & Poor's/Case-Shiller Home Price Index of 10 metropolitan areas declined 0.8% to 222.01, unchanged year-over-year, S&P said on its Web site. The composite month-over-month Standard & Poor's/Case-Shiller Home Price Index of 20 metro areas showed a 0.7% drop in December, a 203.07 reading, and a 0.5% year-over-year gain.

"The slide at this point is a good deal steeper then we saw at the beginning of the decade and we don't see any sign of a bottom," said David Blitzer, S&P Index committee chairman. "These are the worst numbers in at least ten years."

Blitzer also said that the impact of the subprime mortgage market could further depress home prices: "The damage from the subprime mortgage market probably hasn't shown up in home prices yet," Blitzer said. "That will take a lot of buyers out of the market, and fewer buyers probably means weaker prices and less hope of a turnaround."

"Annual changes in home prices are either in decline, flat or yielding negative returns across all markets," added Robert J. Shiller, chief economist at MacroMarkets LLC, in a release. "All metro areas are showing smaller annual returns than those reported for November."

The newly published U.S. National Index, which has historically portrayed less volatile increases and declines, joins the other two composites in the steep decline that began in 2005, falling 0.7% over the quarter and ending the year at just 0.4% annual growth, Shiller added.

The S&P/Case-Shiller U.S. National Home Price Index tracks the value of single-family homes across the country.

Standard & Poor's last week announced an expansion of its S&P/Case-Shiller U.S. Home Price Indexes to add a quarterly gauge of national home prices.

Consensus Watch’s Take: The negativity is becoming louder and louder. I don’t understand how the Soothsayers commenting that a weakening housing market will not impact the overall U.S. economy, yet when during the housing boom, every Soothsayer was commenting that it was having a major impact on GDP growth. Come on, good impact going up and no impact going down? That’s insane. Bottom line is it is just starting. The second shoe hasn’t dropped yet. When people start losing their jobs and their ability to pay down their mortgage because they can’t afford it anymore, that is when we will see capitulation. We’re not there yet, but it’s on the horizon. This negativity would force me to start looking at real estate companies and putting together a list of the ones that are still creating tangible wealth in this growing depressed market.

AKR

Business activity in the Midwest slumped again in February, continuing a contraction that began in January, a report showed on Wednesday. The National Association of Purchasing Management-Chicago said its business barometer slid to 47.9 from 48.8 in January. Economists surveyed by Reuters had forecast the index would come in at 50.0. The 64 estimates ranged from 47.5 to 52.0. A reading below 50 indicates contraction. The index had been above that mark since mid-2003 until January's fall. In February, the employment component of the index rose to 50.6 from 42.8 in January. Prices paid rose to 63.2 from 54.9 and new orders increased slightly to 48.7 from 46.3.

The report follows separate news on the gross domestic product, or GDP. The government said the U.S. economy grew more slowly in the in the final three months of last year than originally thought as businesses built fewer inventories and consumers spent less. GDP, the broadest measure of overall economic activity within U.S. borders, expanded at a rate of 2.2% in the fourth quarter of 2006, the Commerce Department said. That was revised down from the 3.5% advance in the government's prior estimate, but was in line with economists' forecasts.

For the year, the economy grew at a 3.3% rate, down from the 3.4% earlier estimate.

In a sign businesses are becoming wary about the economy's health, non-residential spending fell by 2.4% during the quarter. It was the first decline since the first quarter of 2003, and was much weaker than the government's initial estimate of a 0.4% fall.

Adding to evidence of a troubled housing market, spending on new home building tumbled by 19.1% during the quarter, the worst quarterly reading since a 21.7% decline in the first three months of 1991.

In addition, during the fourth quarter, personal spending advanced at a 4.2% annual rate, somewhat weaker than the prior 4.4% estimate. For the year, spending advanced by 3.2%, slightly less than the 3.5% gain in 2005.

Consensus Watch’s Take: Manufacturing continues to take a hit. GDP is falling. The housing market continues to free-fall and consumer spending is showing signs of slowing down. Not exactly the sign of a US economy that is going like gangbusters. All signs point to some sort of capitulation. Tuesday’s tremor may have been the first act, but I don’t think it’s the Big One. I continue to wait patiently for something to break and then jump in when everyone is bailing out.

AKR

Up until now we’ve been hearing about Soft Landings and Goldilocks recovery scenarios by the Soothsayer Consensus. Amazing what a little body blow does to this group. Now we’re hearing the concept of Recession entering the prognostications. Here are a few notables.

The forecasters at the Economic Cycle Research Institute in New York, who have accurately predicted each of the last three recessions, argue that the current slowdown won’t amount to much more than a lull. By the middle of the year, they say, low interest rates and healthy corporate spending will have the economy growing nicely once again. Lakshman Achuthan, the institute’s managing director, said yesterday that he thought the odds of a recession over the next year were less than 20 percent.

Mr. Ian Shepherdson — the chief United States economist at High Frequency Economics, puts the odds at only 30 percent. He’s one of the most bearish Soothsayers!

Then there is Mr. Ed Greenspan (no odds)…. who in a speech to Asian investors on Tuesday stated that it is reasonable to assume that the U.S. economy will go through a recession later in 2007.

Consensus Watch’s Take: The market has been awakened and the Soothsayers are now in the process of digesting some pretty tough information. I wouldn’t be surprised to see some more negative commentary or cautious tones. The fact that there is more chatter about recessions and slowdowns should be considered a negative indicator (and consequently a buying opportunity for stocks). The Soothsayers are placing the odds of a recession as pretty low, which leads me to think and validate my take that there will be some level of an economic slowdown. I have no idea when, but we are closer than farther. As this chant gains in volume, I plan to begin slowly re-entering the market.

AKR

Instead of saying anything, let’s just go to the numbers….

Some milestones/highlights from today:

• Biggest drop in Chinese stock market in 10 years
• Emerging Market ETF’s (the sector De Jour the past 4 months) falling 8 percent
• Dow Plunges 400 Points in Worst Point Decline Since 9/11
• Nasdaq Takes Biggest Percentage Hit Since Dec. 2002
• Bond yields falling to near 4.51 for 10-year Treasuries
• Probabilities of a Fed easing in the next 3 meetings jumped from 20 percent to 60 percent

Consensus Watch’s Take: FINALLY!!! One of the main goals of Consensus Watch is to identify trends of overwhelming positive and negative consensus in the financial, economic, and the media community. Since I’ve started blogging in the past 2 months within this format, we have seen an overwhelmingly positive outlook for the domestic and global economy. Hopefully my postings have presented this. If anything, it’s inspiring me to continue onward. Goldilocks here and Goldilocks there. Institutional investors have been giddy. Retail investors have been giddy. Canadian retail investors have been piling into Global or Emerging market mutual funds with reckless abandon (I feel for them today). Chinese investors have been piling into their local stock market blindly. Today we learned that the consumer confidence is at a 5 year high in the U.S.. Overwhelmingly, the Consensus and sentiment has been extremely positive and optimistic and the numbers say so. The reality is it has been so unrealistic. From our experience, when you see this, it’s a signal to get out and I personally have done so, fearing a day like this. Today was a shock that I’ve been waiting for. It could be a one-day event or a signal of something more ominous. It’s days like this that validate why I love investing. Investing is not always about growing your savings. It is also about preserving your hard earned savings and even though I was down 0.5 percent in my personal portfolios, I preserved more of my capital than the market did. To see something ahead to time and to put your hard earned savings accordingly to save and grow and to see it validated at some level is a pretty cool feeling. At this point, I have my lists made and slowly and prudently with a Sage type approach will be looking to get back into the market as the Consensus gets nervous and slowly bails out. Today was a wake-up call. Now the true investing game begins. Opportunities to by assets on the cheap will begin to present itself.

AKR

Slower Economic Growth Is Predicted: NABE Survey (From CNBC)

Restrained by a worse-than-expected slump in housing, the economy will grow at the slowest pace in five years in 2007, leading economic forecasters say. They predict consumers will get a break on inflation from falling energy prices.

The survey of 47 top forecasters, released Monday by the National Association for Business Economics, found a greater expected impact from the ailing housing market this year than did the previous forecast in November. Stronger consumer spending will help offset the housing drag, according to the survey.

The panel predicted that the overall economy will grow by 2.7% this year. It would be slowest annual increase in the gross domestic product since a 1.6% rise in 2002, when the economy was pulling out of the last recession. In 2006, the GDP rose by 3.4%.

GDP measures the value of all goods and services produced in the U.S. It is the broadest gauge of the country's economic health.

NABE's November forecast put GDP growth this year at 2.5%.

The slight upward revision occurred even though the forecasters now believe housing construction will plunge by 14.9%  this year. That would be nearly three times bigger than the 5.5% fall in residential construction they had projected in the earlier survey.

Construction spending dropped by 4.2% for all of 2006. That decline was a chief factor in the economy's sluggish growth in the second half of last year. Thousands of construction workers lost their jobs and home builders struggled with slumping sales as the five-year housing boom ended abruptly.

But the economic forecasters see a cushion to the sharp drop in housing: stronger than previously expected consumer spending. This measure will grow by 3.2% in 2007, the same as last year, the panel said.

The forecasters also saw good news on inflation.

They predicted that consumer prices will rise by just 1.9% this year, down sharply from the 3.2% increase on an annual basis last year and the best showing in five years.

The Federal Reserve had lifted interest rates for two years, with the last increase in June 2006, in hopes of slowing growth enough to dampen inflation, but not too much that it would cause a recession.

"The forecast we are presenting is the picture of a soft landing," said Carl Tannenbaum, NABE's president and the chief economist at LaSalle Bank/ABN AMRO in Chicago.

As housing stabilizes, the forecasters are looking for GDP growth to rebound to 3% in 2008.

Because of the slowdown in growth, the forecasters predicted the unemployment rate will tick up modestly to 4.7% this year and 4.8% in 2008. The rate averaged 4.6% last year, the lowest in six years.

The forecasters now believe the Fed will be content to remain on hold for the entire year. In November, they predicted the Fed would cut interest rates twice in 2007 to jump-start a sluggish economy.

"The economic expansion seems to be facing fewer risks today than it did when we took past surveys," Tannenbaum said. "The drop in risks plus the moderation in inflation will allow the Fed to stay on hold."

Consensus Watch’s Take: The Lead Soothsayer Consensus is getting more pessimistic. They feel that GDP will slow, housing is still and will continue to be in a free-fall. This Consensus is clearly in the minority, but this could sentiment may start taking firmer hold, given the hand ringing we’re seeing today in the global markets.

AKR

Money managers are smiling again, says State Street

ANGELA BARNES/ Globe and Mail

Tuesday, February 20, 2007

Happy days are here again, at least according to many institutional investors around the world.

State Street Global Markets' monthly global investor confidence index surged to 90.4 per cent this month from January's revised reading of 85.2. North American investors seem a particularly confident lot. The reading there jumped to 101.7 from 94.9. Confidence levels in other areas were broadly unchanged. European investors showed a small increase of 1.5 points to 93.7 while Asian investors are a little less confident. Their index dropped 1.1 points to 83.9.

Unlike other measures of investor confidence, the State Street index is derived from an analysis of the actual buying and selling patterns of institutional investors. The index is based on the financial theory that assigns meaning to changes in the investor risk appetite, or the willingness of investors to allocate their portfolios to equities. The more of the portfolio devoted to equities, the greater the risk appetite or confidence.

“This month saw a strong increase in the confidence of North American investors,” said Harvard University professor Ken Froot who developed the index with State Street Associates director Paul O'Connell. “In part, this is reflective of the global growth outlook, with a sanguine assessment by U.S. policy makers complementing improved numbers in both Asia and Europe.”

Over the last three months, North American investors have turned more confident, but Asian investors have become considerably more cautious. The reading for European investors remains close to the high established in December.

Interestingly, the current high reading for global investors is just a fraction lower than the reading last June. Many global markets including the Standard & Poor's 500-stock index and the S&P/TSX composite index corrected early last summer.

Consensus Watch’s Take: Retail investors are jumping into the market. The professionals are jumping into the market. Every single bourse is breaking record highs almost daily. The world is immersed in cash and looking to put it to work in anything. Some of the private equity firms are kicking the tires at Chrysler, a firm that is bleeding money. When we see this level of euphoria, we get nervous.

AKR

Analyst ratings appear to have shifted to the bearish side recently. Currently, 46.6% of analyst ratings on S&P 500 stocks are Buys, down from over 50% late last year. Telecom and utilities (both less than 40% Buys) are the least-liked sectors, while energy (62.3%) and industrials (51.4%) are most liked. In general, analysts currently favour cyclical sectors over defensive sectors, despite the threat of a slowdown in the U.S.

Consensus Watch’s Take: A possibly significant move if the analysts are shifting away from the Goldilocks thesis, even if it is ever so slightly. Good quality, wealth creating Utility and Telecom firms in the States should be re-examined as bargains could be found, while Energy and Industrials should be treaded upon carefully if we’re reading the Consensus properly. Overall if the Soothsayers are starting to get pessimistic then buying opportunities may begin to emerge. We’re continuing to wait for a Shock in the US.

Well we’re about 2 months into 2007 so it’s about a reasonable to step back to see what the hot sectors have been so far. In the U.S (S&P500). it has been pretty broad based with the Materials sector generating the highest return (8.7percent) followed by Consumer Discretionary (3.9%), Telecom (3.7%), and Utilities (3.6%). The worst performing sector has been the Energy sector, which is down 1.9 percent YTD.

In Canada (TSX/S&P Composite), Info Technology (9.7%), Industrials (9.3%) and REITS (9.3%) have been the “It” sectors. The worst performing sectors in the TSX have been so far Utilities (-5.4%), Energy (-1.1%), and Health Care (-1.1%).

Consensus Watch’s Take: Usually last year’s winners tend to be this year’s losers and last year’s losers turn out to be this year’s winners. In the U.S., the Energy sector, which was one of the top performing sectors (22.2% last year) has been a dud so far in 2007, but then again most of the S&P500 performed pretty well in 2006. In Canada, most of the duds last year (Health Care, Utilities, Energy have performed even worse so far in 2007.

Well we’re about 2 months into 2007 so it’s about a reasonable to step back to see what the hot sectors have been so far. In the U.S (S&P500). it has been pretty broad based with the Materials sector generating the highest return (8.7percent) followed by Consumer Discretionary (3.9%), Telecom (3.7%), and Utilities (3.6%). The worst performing sector has been the Energy sector, which is down 1.9 percent YTD.

In Canada (TSX/S&P Composite), Info Technology (9.7%), Industrials (9.3%) and REITS (9.3%) have been the “It” sectors. The worst performing sectors in the TSX have been so far Utilities (-5.4%), Energy (-1.1%), and Health Care (-1.1%).

Consensus Watch’s Take: Usually last year’s winners tend to be this year’s losers and last year’s losers turn out to be this year’s winners. In the U.S., the Energy sector, which was one of the top performing sectors (22.2% last year) has been a dud so far in 2007, but then again most of the S&P500 performed pretty well in 2006. In Canada, most of the duds last year (Health Care, Utilities, Energy have performed even worse so far in 2007.

The recent edition of Business Week proclaimed in it's February 19th cover that, "It's a Low, Low, Low, Low-Rate World: Why money may stay cheap longer than you think". Strategist James W.Paulsen of Wells Capital Management proclaimed that, "This could be a prolonged cycle where the cost of capital is low (for) 10 or 20 years." Emerging and global markets are looking to put excess capital to use and can't find anything safe and cheap so they are piling into the US treasuries and that has kept yields low. Prices go up, yields go down. Liquidity is high and raising money is easy right now. According to the article, financial institutions have been developing derivative products that keep borrowing costs low by spreading risk into large chunks and then reallocating among hundreds of investors. As a result, investors led by hedge funds are willing to make bigger more risky bets in order to generate the sacred alpha.

Consensus Watch's Take: When the mainstream media gets a hold of a trend or business concept and proceeds to put it on it's cover; you know that the trend has peaked. A Jump The Shark moment may be in play now. Business Week’s prognostication of an age of a perpetual low interest rate environment has essentially crystallized and reinforced in our minds that interest rates will stay flat to actually rising. Based on this premise, Consensus Watch anticipates that stocks will come under pressure, as higher rates will slow economic growth, creating higher unemployment. This could potentially bring the fragile real estate market down to its knees and cause a domino effect in terms of falling consumer spending. The Fed would naturally lower rates, but given the terrible state of the U.S. balance sheet, they have to keep rates higher than normal to attract capital to fund it's addiction to cheap imports. It's a vicious circle indeed, but unfortunately a necessary adjustment to bring some balance in the global asset structure.

AKR

Another top-notch month of sales for the Canadian mutual fund industry. Mutual funds sales reached $4 billion in January according to the Investment Funds Institute of Canada. It was the industry’s best showing for the month in 10 years. The fact that retail investors are piling into the market at RRSP season can’t hurt either.

Global and international equity funds were the month's biggest winners, attracting close to $2-billion in net sales. This is in sharp contrast to January 2006 when the asset class attracted only $56-million.

Mutual fund-of-funds or so-called wrap accounts were the dominant product last month. Portfolios of funds accounted for about $2.3-billion or 60 per cent of all net sales in January. These comprise the trendy hedge fund sector.

Consensus Watch’s Take: The numbers are impressive. Usually around RRSP season, retail investors park their money in something liquid like money market funds until they figure out where they want to invest. It seems this year the Canadian retail investor is making some big bets, specifically in the international area and in alternative investments. When the retail investor jumps in headfirst into something, it usually marks a peak in the market cycle. A year ago, investors were piling into energy and commodities and the sector proceeded to have a meagre year. Hence, we would be hesitant into getting into global equities right now. They’ve had a good run. Alternative investments shouldn’t even be brought up in a discussion.

AKR

Merril Lynch’s latest monthly survey of global money managers reveals that Investors are even more in love with equities than they were 10 months ago. Some highlights

• An increasing number now think the global economy is only mid-cycle. 67 percent of managers are either aggressively or moderately overweight in stocks. They especially have a penchant for Eurozone stocks, where net overweight position is the most positive in 18 months. Almost 60 percent are overweight Euro stocks.
• Japan is gaining favour with just under 50 percent loading up on Japan stocks, up from 42 percent in January and 38 percent in December.
• 60 percent feel equities overall are fairly valued.
• Commodities are becoming less in vogue with only 5 percent overweight.

Consensus Watch’s Take: Interesting how bearish the Money Manager Consensus became on oil, only to see it go up from $50 to $60 and the TSX Composite scale up to record highs. If you had taken the other side of the trade, you would have done quite well. Now they are getting hot and heavy about Europe and Japan stocks. Based on this, a sage investor would be lightening up on these sectors and wait for a pull back.

AKR

Merril Lynch’s latest monthly survey of global money managers reveals that Investors are even more in love with equities than they were 10 months ago. Some highlights

• An increasing number now think the global economy is only mid-cycle. 67 percent of managers are either aggressively or moderately overweight in stocks. They especially have a penchant for Eurozone stocks, where net overweight position is the most positive in 18 months. Almost 60 percent are overweight Euro stocks.
•  Japan is gaining favour with just under 50 percent loading up on Japan stocks, up from 42 percent in January and 38 percent in December.
• 60 percent feel equities overall are fairly valued.
• Commodities are becoming less in vogue with only 5 percent overweight.

Consensus Watch’s Take: Interesting how bearish the Money Manager Consensus became on oil, only to see it go up from $50 to $60 and the TSX Composite scale up to record highs. If you had taken the other side of the trade, you would have done quite well. Now they are getting hot and heavy about Europe and Japan stocks. Based on this, a sage investor would be lightening up on these sectors and wait for a pull back.

AKR

Small Business Start Year With Greater Optimism, Survey Shows                 

Owners of small U.S. businesses started the New Year with greater optimism, a survey showed Tuesday, with nearly a quarter saying they planned to add jobs during the first three months of 2007.

The National Federation of Independent Businesses said its index of small-business optimism jumped 2.4 points to 98.9 in January, with a rebound in demand for labour boding well for
employment growth.

During the next three months, 23% of the owners polled plan to create new jobs, while only 5% plan to cut staff, the report said.

The small business survey results are based on 1,755 respondents to the January survey of a random sample of NFIB's 600,000 member firms polled through Jan. 31

Consensus Watch’s Take: Mom and Pop America are still feeling pretty good about their prospects, however the wage pressures they are seeing could be enough to get the inflation hawks in the Fed going again. If so those prospects may be short lived. Another sign of perhaps a topping or cresting in the US economy?

AKR

A couple of consumer confidence surveys in both US and Canada:

The Conference Board of Canada consumer confidence index climbed 3.1 points to 101.1. (Note: the index was recalculated to base year 2002 = 100) The survey was conducted during the week of January 11-17. According to the survey, consumers are more upbeat about their current and future financial situation, future job conditions and purchasing major items. Provincially, B.C. was the only province where confidence fell from an elevated level in the month. Ontario’s index rose above 100 for the first time in three years.

IBD/TIPP Economic Optimism Index… For February, consumer confidence slipped with the IBD/TIPP Economic Optimism Index registering a still optimistic 52.7. This is down one point, or 1.9%, from January's reading of 53.7 and 2.6 points above its 12-month average. 

Over 50 means optimism; below 50 indicates pessimism. 

The IBD/TIPP Economic Optimism Index has a good track record of foreshadowing the confidence indicators put out later each month by the University of Michigan and The Conference Board. IBD/TIPP conducted the national poll of 925 adults from February 5 to February 11. The margin of error is +/-3.3 percentage points. 

The IBD/TIPP Economic Optimism Index has three key components, all of which lost ground in February. 

• The Six-Month Economic Outlook, a measure of how consumers feel about the economy's prospects in the next six months, lost 1.7 points, or 3.5%, to reach 46.4. 

• The Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months, shed 0.4 points, or 0.7 %, falling to 60.8. 

• Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure of views on how government economic policies are working, fell 0.9 points, or 1.7%, to reach 51.0.

The IBD/TIPP Economic Optimism Index is the earliest take on consumer confidence each month and predicts with 80% reliability monthly changes in sentiment in well-known polls by The Conference Board and the University of Michigan. The IBD/TIPP Economic Optimism Index is based on a survey of 900-plus adults chosen at random nationwide. The poll is generally conducted in the first week of the month.

Consensus Watch’s Take: In both Canada and the US, consumers are still pretty optimistic overall, although it is wavering a bit in the US. From Consensus Watch’s perspective, we still maintain that the continued resilience of the consumer is a negative signal of impending weakness in the overall economies. Overwhelmed with debt and with access to their home equity ATM’s cut off, it is difficult for the average consumer to continue its laissez-faire spending ways.

AKR

How to avoid ‘value traps'
CAROLYN LEITCH – Globe and Mail
Tuesday, February 06, 2007
Any money manager on the lookout for cheap stocks can claim to be a value investor, notes one Wall Street professional, but to make any money, the value investor had better demonstrate some talent.

Merrill Lynch & Co. Inc. quantitative strategist Savita Subramanian says that savvy value investors are good at identifying stocks in industries that are out of favour but will eventually rebound. The less adept merely become mired in value traps.

Value traps at the moment, according to her research, are lurking in biotechnology, industrial conglomerates, information technology services and semiconductors.

She points to names such as Amgen, Biogen IDEC Inc., General Electric, Unisys Corp., Applied Materials, Intel Corp. and Teradyne Inc. They are all rated “neutral” by Merrill Lynch.

Ms. Subramanian defines a “value trap” as an industry that appears undervalued compared with its historical multiple but also has deteriorating price and earnings momentum.

“These industries tend to remain trapped in this category until an external catalyst propels price performance,” says Ms. Subramanian in a note to clients.

The strategist constructed a model of stocks with value-trap status and looked at their performance over the past 11 years. They either stagnated or deteriorated further 67 per cent of the time.

Moreover, 76 per cent of the time, industries that were identified as value traps failed to exhibit above-market price momentum in the subsequent month.

The difference between the savvy and the not-so-swift is often a matter of timing, she says. Her work suggests that the hardest thing for a value manager to do is to pull the trigger on buying a stock, and skillful value-oriented managers are likely to be buying stocks later than their peers.

Value managers often like to say that they will buy stocks early but they'll be there at the bottom, the strategist points out.

“Although that sounds encouraging, the route to value fund underperformance is to buy early too many times.”

Consensus Watch’s Take: From a Sage Investing point of view, the best companies are the one’s that create tangible Economic Profit and sell at a discount. Often these miss-priced stocks reside in unpopular industries, so Consensus Watch shares in some of Miss Subramanian’s take. In her analysis, she has identified several companies that are creating strong Economic Profit that are potential dogs according to their analysis. Often stocks that analysts are pessimistic on tend to be the out performers. It’s easier for an analyst to put a Buy rating on a Google than in a pharmaceutical stock. Based on this, Consensus Watch wouldn’t be surprised if these stocks jump to the upside in 2007. We’ll keep an on these stocks and report in the future. In terms of sectors, don’t be surprised to see the biotechs, techs, and industrials to surprise.

AKR

BEIJING -- Sun Qi had been skeptical about China's stock markets since the late 1990s, when his family suffered big losses on its investments. But yesterday he was back, for the first time, signing up for an account with $1,400 to burn.

"You don't realize how hot this market is," the 26-year-old investor enthused as he filled out forms at a Beijing brokerage.

He's heard all the warnings about a bubble in the Chinese market, after an extraordinary 130-per-cent surge in the Shanghai index over the past year, and he knows that the government is clamping down to cool the economy and dampen the investor exuberance. But he still planned to rush home to choose a batch of stocks to buy on the Internet.

"I asked my father to get me some stock market books from the Beijing public library," he said. "But can you believe there was nothing available? All the books were borrowed already."

At a nearby counter was a 27-year-old office clerk, Ms. Hou, who asked for help from the brokerage staff as she struggled to fill out the forms for her new account. "This is the first time I've ever opened a stock account," she said.

"I don't know the stock market very well," she admitted. "But my friends are investing in the market and they've been urging me to buy some stocks because of the boom."

"Why should I wait until the bull market becomes a bear?," Ms. Hou said.

Despite a sharp drop on Wednesday, China's stock markets rebounded yesterday, and the two main markets in Shanghai and Shenzhen are still running far ahead of where they were a year ago. After a five-year slump, both markets have more than doubled in the past year, and retail investors are opening 90,000 new accounts every day. About 2.7 million new accounts were registered in China last year, three times the number registered in the previous year.

Many investors are pawning their personal possessions in a mad craze to raise money for stock purchases. Several hundred million dollars have been raised at Chinese pawnshops for stock acquisitions, according to a report this week in a Shanghai newspaper.

The investor boom is causing a dramatic growth in China's stock exchanges. With a combined value of more than $1-trillion, the Shanghai and Shenzhen exchanges have become the 10th-biggest equity market in the world.

Cheng Siwei, a vice-chairman of China's national legislature, warned this week that many investors are acting irrationally. "There is a bubble growing," he told the Financial Times. "Investors should be concerned about the risks."

His comments triggered a 6.5-per-cent drop in the Shanghai and Shenzhen 300 index on Wednesday. But even after the sharp decline, the market mania was still in full swing yesterday at a Beijing branch of Shenyin & Wanguo Securities Co., one of China's leading securities firms. Its rooms were packed with excited investors.

By 10 a.m., about 200 people were already crowded into the small-investors hall on the first floor. There were 50 chairs in front of the big board displaying the stock quotes, and every chair was occupied by an eager investor, with others standing nearby and discussing the latest trading. Others jostled around a computer, where stock trends could be tracked.

Outside the building, dozens of bicycles were parked. Many of the novice investors had arrived by bicycle.

"I'd never touched stocks before," said Hu Ping, an unemployed man who opened an account in December. "The market was booming, so I invested more than 9,000 yuan (about $1,400). I just bought them for fun."

Liu Lin, a 28-year-old doctor with a monthly salary of about $450, opened his stock account at a brokerage last week. "There's so much about the booming stock market in the newspapers and on television and the Internet," he said. "I think I might make my first try today. I don't know the stock market at all, but I'm learning about it from the Internet and from talking to my friends. I'm finding the vocabulary a little difficult, but it's fun."

At another Beijing brokerage, Guosen Securities, there are early morning queues to get into the trading rooms. "People come early because they won't get a seat if they are late," said Liu Shixin, an analyst at the firm. "The market has been very hot since New Year's Day," he said. "Most of the newcomers have no experience and know nothing about the stock market."

Consensus Watch’s Take: Two major themes come from Mr. York’s piece. The first is the retail investor piling into the stock market, pawning anything of value to buy blindly any kind of stock. This type of hysteria is a clear sign of a market top or a bubble about to burst as when the retail investor gets into the stock game, it’s usually at the peak of the market. The second theme is the emerging market rage that is currently in vogue. They have done amazing. 130 percent return is not a bad thing however, what’s happening in China is insane. It makes the Dot Com bubble look like a snow -flake. The easy response is to question whether these investors have learned anything from the tech meltdown, however the problem is a lot of these people in China have never invested before because they were never allowed so they haven’t had a chance to make mistakes. Now for investors on this side of the ocean, there’s no excuse. If you have profits in your international portion of your portfolio, best to bank it now and wait for a correction and then jump back in for another ride up when people start getting really pessimistic.

AKR

Consumer confidence improved slightly in January on a strengthening job market, but consumers also appeared concerned that labour conditions could worsen in the future, according to a survey released Tuesday by a private research group.

The Conference Board said that its Consumer Confidence Index edged up to 110.3 in January from a revised 110.0 in December. Analysts had expected a reading between 110.0 and 110.5.

The January increase was "fuelled primarily by a more favourable job market," said Lynn Franco, director of the board's consumer research center. However, "looking ahead ... consumers are not as optimistic as they were in December," she said.

As a result, the index suggests just "moderate improvement" in economic growth in early 2007, Franco said.

Back Seat To Fed Meeting

"Consumers seem to be feeling good about the current situation, but there's concern about the future," Gary Thayer, an economist at A.G. Edwards & Sons. "The good employment situation and lower energy prices make people feel that the economy is doing well now, but there are still some lingering worries about housing and where energy prices might go in the future."

Source – CNBC/Conference Board

Consensus Watch’s Take: Another one of those wishy-washy “cautiously optimistic” indicators, but again the message is similar. The average consumer is feeling relatively comfortable and satisfied with their current state of affairs.

AKR

Another “Goldilocks year” predicted for the global economy (From World Economic Forum in Davos)

“Even with a US slowdown, it should be another Goldilocks year for the global economy thanks to encouraging growth from Europe and Japan,” said Laura Tyson, Professor of Economics, University of California, Berkeley. Most of the participants of this Global Economy update session agreed with this assessment, but Nouriel Roubini, Chairman and Professor, Roubini Global Economics, warned that the risk of a US slowdown was real and identified its housing recession as a major warning sign.

Consensus Watch’s Take: Chalk up another one for Goldilocks Consensus. The economists are have definitely been becoming more optimistic over the past month. Uh Oh.

AKR

Economy to take a breather

Consensus Watch’s Take: Unlike the Davos Soothsayer crown, the Canadian Soothsayers appear to be more muted in their economic expectations. They are consistent in their assessment that the Canadian economy will be slow in the first half of 2007 only to accelerate in the last half of 2007 and well into 2008. Based on this, Consensus Watch expects the slowdown to last well into 2007. The Soothsayers will sense this and again push out the recovery into later in 2008.

AKR

ConocoPhillips misses expectations

CEOs Go to Davos Full of Confidence

By John Fraher and Simon Clark
Bloomberg

DAVOS, Switzerland (Excerpt) -- Nine out of 10 chief executive officers expect their revenue to rise this year, lifted by global economic growth near a three-decade high, according to a survey by PricewaterhouseCoopers.

The New York-based accounting firm found that 91 percent of 1,391 CEOs it interviewed were "very" or "somewhat" confident about the next 12 months, the survey, released Wednesday at the World Economic Forum in Davos, Switzerland, showed. The figure is up from 84 percent in 2003 and 72 percent in 2002.

"This is three years we've seen this confidence growing," PricewaterhouseCoopers CEO Samuel DiPiazza Jr. said in an interview. "We're seeing a distinct increase in a view toward capital investment, additional facilities and hiring people. It's a very optimistic view over the next 12 months."

Global economic growth will probably reach 4.2 percent, following a 5 percent advance in 2004, which was the biggest since 1976. The average in the past decade has been 3.8 percent, the International Monetary Fund says. The expansion will probably spur a third year of gains in stocks and push bonds lower, according to surveys by Bloomberg News.

"The mood for this year is reasonably positive," said Pascal Blanque, chief economist at Credit Agricole, France's biggest bank by assets. "We seem to be in pretty good shape." Blanque, who is attending the forum in Davos this week, expects U.S. growth to slow to 3.6 percent this year from 4.5 percent.

An index of German business confidence rose to an 11-month high of 96.4 in January as oil prices fell and the euro retreated from a record, the Munich-based Ifo institute said.

Consensus Watch’s Take: When 90% percent of any group of people takes a specific position, that’s a pretty strong Consensus. Unlike the Economic and Financial Soothsayers who consistently manage to get things wrong, the CEO Consensus has to be taken a bit more seriously since they are much more wired into their industries and the supply-chain feeding into it. Unfortunately, our experience from these sentiment indicators is that when so many people are so sure that something is going to happen…it doesn’t.

U.S. Investor optimism rises in Jan from Dec - UBS

NEW YORK, Jan 22 (Reuters) - Investor confidence in the U.S. economy rose in January to its highest since 2004 amid expectations the stock market will continue to perform well, according to the UBS/Gallup Index of Investor Optimism released on Monday.

The UBS/Gallup Index rose 13 points to 103, only the fifth time it has been above 100 since December 2000, UBS said. The index stood at 90 in December.

"Investors are beginning 2007 with a bullish outlook for the stock market. Thirty-seven percent of investors expect the Dow Jones Industrial Average to end 2007 at a higher level than its record 2006 close," UBS said in a statement.

The UBS/Gallup survey covers about 800 households from around the United States with investments of $10,000 or more. Nearly 40 percent of American Households have at least this amount of savings and investments.

Consensus Watch’s Take: The retail investor has never been this confident about the markets since 2004. It pains us to say it, but when Johnny and Suzy Lunch-Bucket are jumping into the stock market in droves, it usually turns out pretty bad. They mean well. It’s normal. Who doesn’t want to hang out with a winner? Unfortunately, it’s a pretty negative indicator. Best to keep your powder dry, wait for the adjustment and then jump in when Johnny and Suzy are bailing out.

AKR

Merrill Lynch is out again with its monthly survey of global fund managers. A total of 500 money managers who are stewards to $1.1 trillion in assets took part in the survey. Here are the highlights:

• Two-thirds felt the stock market is fairly valued right now.
• The prevailing expectation is that the global economy will slow and a recession is less likely.
• Two-thirds felt that it is fairly unlikely that corporate profits would increase over 10 percent in 2007.
• Fund managers are favouring telecom, technology and insurance sectors.
• Fund managers are ignoring utilities, consumer discretionary, and basic materials.

According to David Bowers, independent consultant to Merrill Lynch, “Investors do not appear unduly euphoric about the equity market — indeed, there still seems to be a healthy scepticism about where the market could be headed.”

Consensus Watch’s Take: Not to hot and not to cold, but just right in the sweet spot. That seems to sum up the Money Manager Consensus right now and further confirms the overall sentiment we are seeing from the variety of Consensus we have spotted. The Goldilocks world unfortunately does not last very long, so we anticipate a much more disruptive turn of market events going forward.

AKR

An interesting take on the Analyst Consensus by Myles Zyblock, chief institutional strategist at RBC Dominion Securities Inc about analyst estimates. Mr. Zyblock issues a cautionary tale to investors who religiously follow analyst recommendations. Basically when analysts get really rah-rah about a particular security or sector, the chances are that outcome will be opposite that positive sentiment and that outcome will persist for a lengthy period of time. Same premise holds true when analysts get extremely pessimistic about security or sector, the chances of a positive reversal significantly increase. The tables below lists which Canadian and American sectors analysts are currently optimistic and pessimistic:

Source: RBC Dominion Securities

According to Mr. Zyblock, there is also a caveat with looking at analyst consensus. “…high turnover costs are associated with a revisions-based strategy. Our quantitative team estimates that a portfolio constructed solely on the strength of estimate revisions will be turned over about twice annually in the U.S. and Canada.” These costs can be reduced by understanding the time-sensitive properties of consensus earnings forecasts and estimate revisions, he said. “Consensus earnings forecast errors vary systematically with the business cycle. Errors are greatest at transition points, be it at the top or the bottom of economic activity.”

Consensus Watch’s Take: Kudos’ to Mr. Zyblock for shedding further light to this (I suspect he’s been reading our blog?). He doesn’t exactly paint a favourable picture of the security analyst, so Consensus Watch salutes him for making such a bold statement. For fairness, we will be posting this piece in both the Optimistic and Pessimistic columns as there is a fair bit of both sentiments expressed.

An interesting take on the Analyst Consensus by Myles Zyblock, chief institutional strategist at RBC Dominion Securities Inc about analyst estimates. Mr. Zyblock issues a cautionary tale to investors who religiously follow analyst recommendations. Basically when analysts get really rah-rah about a particular security or sector, the chances are that outcome will be opposite that positive sentiment and that outcome will persist for a lengthy period of time. Same premise holds true when analysts get extremely pessimistic about security or sector, the chances of a positive reversal significantly increase. The tables below lists which Canadian and American sectors analysts are currently optimistic and pessimistic:

Source: RBC Dominion Securities

According to Mr. Zyblock, there is also a caveat with looking at analyst consensus. “…high turnover costs are associated with a revisions-based strategy. Our quantitative team estimates that a portfolio constructed solely on the strength of estimate revisions will be turned over about twice annually in the U.S. and Canada.” These costs can be reduced by understanding the time-sensitive properties of consensus earnings forecasts and estimate revisions, he said. “Consensus earnings forecast errors vary systematically with the business cycle. Errors are greatest at transition points, be it at the top or the bottom of economic activity.”

Consensus Watch’s Take: Kudos’ to Mr. Zyblock for shedding further light to this (I suspect he’s been reading our blog?). He doesn’t exactly paint a favourable picture of the security analyst, so Consensus Watch salutes him for making such a bold statement. For fairness, we will be posting this piece in both the Optimistic and Pessimistic columns as there is a fair bit of both sentiments expressed.

According to data released by the Investment Funds Institute of Canada (IFIC), retail investors are pouring their savings into international type funds at a pace not seen in years. IFIC reported that Canadian investors bought a net total of $6.6 billion in foreign equity funds in 2006. In 2005, Canadians had net redeemed $5.5 billion from foreign equity funds. It’s the best year for the asset class since 2000, when net sales of global equity funds were $16 billion.  IFIC expects the foreign investing to continue to increase. According to Chris Reynolds of the Investment Planning Council, "We are seeing a shift in asset allocation…. Clients who had probably more Canadian content than they should are now rebalancing and getting back in to global markets."  Interestingly, the United States was the only global market that saw net redemptions. US Equity funds saw net redemptions of $574 million in 2006 versus $1.5 billion in net redemptions in 2005.

Consensus Watch’s Take: Sadly retail investors are usually the last to come to the party. A year ago, they poured their savings into any energy funds only to see the energy index earn a miniscule 4 percent return in 2006. Now they are piling into foreign funds. Foreign funds as IFIC’s data shows were shunned a year ago and yet they performed extremely well. So now they’re jumping on that bandwagon. If history is any indication, expect foreign funds to under perform in 2007. Disclosure: The Sage Investor established positions in several iShares foreign ETF’s in January 2006 and were rewarded handsomely in 2006 with 45 percent gains in the Emerging Market fund (EEM), 20 percent gains in the International EAFE fund (XIN), and a 15 percent return in the S&P500 (XSP). We subsequently sold off our positions in those securities in November 2006 but are looking to jump back when these foreign funds pull back. We currently retain a small position in the iShares US Dividend ETF (DVY) that has been up 16 percent since we bought in over a year and a half ago.

AKR

Latest report by the National Association of Home Builders in the States (NAHB) shows builder confidence for sales of new, single-family homes rose in January. The NAHB Index of Builder Confidence rose to 35 from 33, which is the highest it’s been since July 2006. The index is based on a survey of homebuilders who answered questions about sales prospects now and in the near-term. The rise may indicate that the housing market in the States may be showing signs of strength. As a rule, a value over 50 indicates builders see “good” sales out number “poor” sales. According to NAHB Chief Economist David Seiders, “Builders are starting to see that the worst is behind them and that buying conditions have improved to the point that greater optimism is warranted.” Two out of three component indexes registered improvement in January. The index gauging current single-family home sales and the index gauging traffic of prospective buyers each gained three points, to 36 and 26 respectively, while the index gauging sales expectations for the next six months remained unchanged at 49, the NAHB said.

Consensus Watch’s Take: While the sentiment has indeed improved, the bottom line is it is way way below the crazy levels of the past several years. Consensus Watch feels that the real estate market is still in the first leg of a severe downturn. The first leg is simply the body blow from the higher interest rates and lower affordability. The next and most painful leg that hasn’t occurred yet will occur when people start losing their jobs as the economic slowdown takes form. When people lose their jobs or get downsized to lower-paying service jobs, they won’t be able to afford the mortgage payments and will have to sell. We haven’t reached it yet, but it will happen at some point.

AKR

On Tuesday, the National Retail Federation in the US released their annual survey of expectations for the retail sector in 2007. Some highlights include:

• NRF expects there will be an economic slowdown and not a recession
• Luxury and online retailers will thrive in 2007
• Lower to medium income focused retailers will struggle in 2007
• Rosiland Wells, NRF chief economist indicated that economy will be weak in the first half of 2007 and then accelerate in the last half of 2007.
• Wild cards will be extent of housing correction as falling home equity impacts consumer spending

As for metrics, the NRF members see consumer spending, average sales gains, and average real GDP lower in 2007.

Consensus Watch’s Take:  A trend is emerging amongst the various species of Consensus. One is that the economy will be slow in the first half of 2007 and then speed up in the second-half. We’ve seen the Economic Soothsayers, Money Manager Soothsayers, and now the Retail Soothsayers expressing a similar sentiment. Looks like July 2007 will be an inflexion point. Whenever the Consensus makes predictions involving time (e.g. by August 2007 the Fed will cut rates), it usually doesn’t happen. As a result, Consensus Watch expects this slowdown to extend well into the second half of 2007.

In terms of the NRF, one must be cautious, as trade associations tend to be more optimistic than pessimistic. They’ll never really tell you how bad things are. They’ll tell you the good stuff of course. It’s in their member’s interest. Overall their sentiment is cautiously optimistic, which means they’re not hot and heavy about the year. Again the theme is identifying some good retailers that are creating wealth in this slow down and to buy them when everyone starts to truly get pessimistic about the economy.

AKR

There is a growing consensus among Canadian commodity experts that uranium will outstrip oil and gold as the “It” commodity for 2007. The premise is driven by Canada’s position as the number one supplier. Canada currently produces one-third of the world’s output. They anticipate demand (Iran and North Korea not withstanding) to grow and supply to fall because of numerous production bottlenecks, such as the accidents at Cigar Lake mine in Northern Ontario, which has decreased the supply of Yellow Cake material.

You can’t blame their optimism. Last month the spot price for uranium jumped $7 to $72. This marked the biggest monthly increase in 40 years!

The Commodity Soothsayers are lining up to jack up their estimates. Resource Capital Research has priced uranium at $90 in 2007 and $115 in 2008. Scotia Economics has rated uranium, as it’s top commodity for 2007 with a target price of $80. Bart Jaworski of Raymond James is forecasting a $90 spot price for 2007 and a $100 spot for 2008. Even the Oracle of Commodities, Jim Rogers is bullish.

Consensus Watch’s Take: When Soothsayers get giddy about something, especially a commodity, watch out. A year ago the Oil Soothsayers were throwing out the concept of $100 oil and it’s now at $53. After Katrina, the Natural Gas Soothsayers were promoting an age of $20 nat-gas only to see it fall. Why is uranium any different? Uranium has been going up as an alternative energy source as oil was kissing the $80 barrel. The fact is for all the “models” they tout, the reality is they have totally no clue where it’s going and they never will so take their soothsaying with a mountain of salt. Consensus Watch will be the first to proclaim that we have no clue what the price of anything is going to be 1 minute, let alone 1 year from now, so why bother.

AKR

The latest issue of Barron’s contained the annual roundtable of Soothsayer projections for 2007. Highlights of the round table include:

• The Consensus of the roundtable concluded that the market has gone a long time without a significant correction and is due for one.
• The portions of the roundtable that are long stocks are looking for a pullback.
• The Consensus is modestly bullish to bearish (actually that’s really not much of a Consensus…STRIKE IT!)
• The Consensus is concerned with big picture macroeconomic issues like the current account deficit and housing.
• One of the Soothsayers, Abbey Joseph Cohen of Goldman Sachs is bullish on the market but less bullish than last year.

Consensus Watch’s Take: Soothsayers will rarely say they are deep down pessimistic. That’s just not good for business. The fact they are modestly bullish and cautiously optimistic is as close as you’ll ever see them cross over to a negative consensus. Given the growing devotees to the Goldilocks hypothesis, we see this modestly negative consensus view as a sign to build up a list of favorite (and cheap) stocks in preparation for buying opportunities.

AKR

Blue Chip: U.S. growth to be near trend in 2007

By Joanne Morrison

WASHINGTON, Jan 10 (Reuters) - U.S. economic growth will be subdued over the first half of this year and will expand at a healthier clip in the second half, but job growth will be moderate, a survey of top forecasters showed on Wednesday.

The consensus forecast of panellists surveyed in the Blue Chip Economic Indicators newsletter predicted that economic growth, as measured by real gross domestic product, would remain subdued in the short-run.

Real GDP is expected to grow by 2.3 percent and 2.5 percent, respectively, in the first and second quarters of this year. In the third and fourth quarters, real GDP is expected to expand by a 2.9 percent and 3.0 percent, respectively.

"Over the past month, most of our panellists grew more optimistic about the pace of real growth in the final quarter of last year," the newsletter wrote.

The consensus forecast of annualized real GDP growth in the fourth quarter rose 0.4 of a percentage point from a month-earlier forecast to 2.3 percent.

While stronger economic growth is expected later in 2007, the panellists expect job growth to be moderate, with average monthly nonfarm payroll gains of 111,000 in 2007 compared with average monthly gains of 153,000 last year.

At the same time, real investment in business equipment and software is expected to increase 5.5 percent this year, but median prices for single-family homes will decline.

The odds of a recession are less likely than earlier thought. The consensus put the chance of a downturn within the next 12 months at 25.4 percent, down from 27.4 percent a month ago.

While the forecast of GDP growth for this year has steadied, inflation is expected to continue to fall.

The consensus forecast for year-over-year changes in the consumer price index and the GDP price index for 2007 both shrank by 0.1 percentage point to 2.0 percent and 2.1 percent, respectively.

Consensus Watch’s Take: In December, the Consensus were on the pessimistic side, but it appears, they to have succumbed to the charms of a certain Miss Goldilocks. GDP will be tepid in the first half but then rise later in the year. The odds of a recession have receded and inflation will be in check. Up until now, the Soothsayers have been the only significant group that has been overly cautious. I’m afraid the circuit is now complete….we’re happy, happy now. Queue the Bobby McFerrin song.

AKR

The Bank of Canada released their quarterly survey of business outlook. The slowdown in the Canadian economy over the past several months has not generally alleviated production capacity restraints among the country's companies. Labour shortages appear to be easing slightly and, with falling oil prices, there is less concern about inflationary pressure, the survey showed. Overall, the survey suggests that the economy is not in overdrive, but nor is a huge amount of slack opening up, despite economic activity dropping off sharply from a 3.8-per-cent pace in the first quarter of last year to a sluggish 1.7-per-cent pace in the third quarter. Pressures on production capacity were slightly higher in the winter survey than in the fall, and again concentrated in Western Canada. Nearly 50 per cent of firms in the survey say they would have some or significant difficulty in meeting an unexpected surge in demand.

There also appears to be little concern about inflationary pressure, the survey showed, as 86 per cent of firms expect consumer price increases to remain within the central bank's target range of one-to-three per cent.

Firms told the central bank that they generally expect sales volumes to pick up the pace a bit this year, especially firms in central and eastern Canada. Firms in the West expect a continuation of the same rapid pace that has supported that region's boom for the past couple of years.

Hiring intentions are about the same in the winter survey as in the fall survey, but they are generally stronger than the historical average, and more robust in the services sector than in the goods-producing sector, the bank said.

The business outlook survey is conducted by the Bank of Canada, and polls senior managers in about 100 companies. The winter survey was conducted between Nov. 14 and Dec. 8 last year. While the central bank recognizes that the survey size is too small to have any statistical reliability, it frequently refers to the survey in its decision-making for monetary policy.

Consensus Watch’s Take: Despite clouds on the horizon domestically and in the US, Canadian business is generally feeling pretty good about its prospects. Should the Canadian economy slow down dramatically, the Bank of Canada has more flexibility to move on interest rates because of Canada’s strong balance sheet. The subsequent lower dollar would also give some relief to the manufacturing sector in Central Canada. The reality is if the US economy slows down significantly, then there will be an impact on Canadian companies and subsequently their stocks. The confidence is nice to see, but the economic reality may splash some cold water on it should things get a bit crazy.

AKR

The National Federation of Independent Business in the US released their monthly survey of business optimism. The survey is based on 447 respondents to the December survey of a random sample of NFIB's 600,000 member firms polled through Dec. 30, 2006. The results indicate that small business owners have less confidence in the US economic outlook and expect a rise in unemployment in the first quarter of 2007 as they clamp down on plans to create jobs. The index of Small Business Optimism slipped 3.2 points to 96.5 in December. This marked the second lowest reading of the index in the past 12 months. The survey also showed a 15 percent drop from November in the number of owners who expect the economy to improve. The survey showed a 9% drop in the number of business owners who plan to create jobs during the next three months, while just 19% reported unfilled jobs openings, down 3 percentage points from November and 8 points from October. Only 10% of the owners said the availability of qualified labour was their top business problem, down 2 points from November and 5 points from October, an indication that labour market conditions may be easing, NFIB said.

Consensus Watch’s Take: A bit of a surprise as all the news coming out about the stock market and the government economic indicators has been downright giddy, so perhaps this may mark the beginning of a switch in sentiment? If this notion takes some solid footing, then the time to look at equities may be approaching.

AKR

The unemployment numbers in both Canada and the US were quite breathtaking. In the US, up 167,000 in December and in Canada, up 60,000. Quite impressive for economies that most Soothsayers (including Consensus Watch) have claimed to been slowing. Consensus Watch was interested to see how the mainstream media would play the story in their evening news. In Canada, CBC and CTV ran it as either their 2^nd or 3^rd story in their nightly newscasts. In the US, it was the lead story on one of the main networks. The themes and storylines were similar. Very Dickens’esque. All is well in the economy. People are working. Bellies are full of nourishment. Jobs are going begging. It’s all true.

Consensus Watch’s Take: When the mainstream media leads a newscast with stories about the economy (good or bad), it often represents a top or bottom in the business cycle. In this case, the media is hailing the strong employment numbers, which could be indicator that the job market is about to get a bit rougher. If that’s the case then the economy will slow down. More significantly, if unemployment were to rise, the real estate sector would take an even more enormous hit as all those people with mortgages, who found themselves out of a job, may have to sell their homes which would exasperate things even more. An extreme assertion, no doubt but unfortunately, the media has a tendency to be late to a party, when it gets wind of something.

AKR

Oil took a pounding this week, falling to the $55/barrel level by Friday. The Oil Soothsayers have identified many reasons: abnormally warm weather in North America, higher inventories, slowing economies in the West (the job numbers beg to differ), hedge funds bailing out in droves, and calming geopolitical concerns. Not great news for all the retail investors, pension funds and hedge funds that were pouring money into the black gold, but some relief for consumers and transport companies.

A year ago, the Oil Soothsayers were pronouncing the upcoming era of $100 oil, only to see oil fall to the low $60’s. Now that oil is essentially free falling the Soothsayers are now calling for oil to fall as low as $20/barrel.

Translation: As hard as they try to look like they know what they are talking about, the Oil Soothsayers have no clue where oil is going. Their intentions are good, but they just don’t know. It’s a fools game. I’m not even going to guess where it will be in 6 minutes let alone in 6 months. All I know about oil is 2 things. One, when the Oil Soothsayers say it’s going up, then it’s pretty likely that oil is going to fall and vice versa. Two, oil companies have proven themselves to be excellent managers of their capital and no matter what price oil is, they will be able to create a strong level of Economic Profit. They make money when oil is at $12/barrel. They make money when oil is at $70/barrel. Keeping these two concepts in mind, I have started to build positions of oil stocks (Disclosure: I own Talisman Energy and this past week took a small position in oil refiner Valero Energy and will likely build that up if oil creeps lower).

AKR

Canadian investors rolled heavily into mutual funds in December, parking approximately $3.5 billion, the highest amount since 1996.

With good reason, various fund classes performed very well in 2006. Below is the breakdown their average performance:

Translation: In the mutual fund game, past performance is not an indicator of future performance. More often than not, when Johnny and Suzy LunchBucket plunk their hard earned money into the fund game, it is often at the end of the game. They tend to chase the high flyers and are always disappointed. Sadly retail investor sentiment and investment habits tend to be a negative indicator of future performance. The sharp pullback this week may be portend of things to come.

AKR

As the commodities sector crashes and burns to start 2007, it is interesting to not that some of the major components of the Consensus has been particularly bullish for the sector for 2007. Top commodity soothsayer, Jim Rogers is bullish on agriculture commodities. So is John Normand at JP Morgan. Corn, wheat, and soybeans are particular favourites. They had a pretty good 2006 with wheat up 24 percent and corn up 54 percent so these are not exactly laggards.

In 2006, the metals were the dominant commodities with energy products falling way behind the pack (i.e. the products unfortunately the average retail investor was piling into throughout the year when the Soothsayers were saying oil was going to $100/barrel).

Source: Bloomberg and Globe and Mail

Translation: We’ll let the current downturn in the commodities speak for them selves. We’re not hearing Soothsayers promoting $100 oil anymore like last year, but $70 isn’t that far off. The Consensus is looking for oil to be pretty mellow in the $50-60 range and so far so good, but don’t be surprised to see the energy sector spike up in 2007 as organic growth in the BRIC countries continues to make energy demand brisk. In addition, the penchant for agriculture by the Soothsayers should make investors take pause before jumping in.

AKR

The financial services sector is always churning out and putting out financial products to entice investors. There are times when you can get a sense of the investment product de jour when a bunch of companies release similar products. During the height of the Tech Boom, many funds were launched that specialized in E-commerce and New Economy to capture investor’s appetite. Of course as soon as they were launched, the sector busted. Consensus Watch from time to time likes to take a look at what the industry is crafting as ultimately these products can represent a top in a certain asset class. The recent and rightful slamming of the Canadian income trust sector has forced investors to seek other sources for the magical “yield”. The mutual fund industry has seen the future and is scrambling to come up with income-flavoured product for the upcoming RRSP season. Manulife Financial jumped into the fray in late October when it launched the Income Plus fund, a guaranteed income fund that has had some brisk volume. According to Don Reed of Templeton, he expects an increasing number of products targeting defensive oriented investors who are bloodied from the income trust debacle and are looking for yield.

Translation: RRSP season is prime time for fund companies to launch new financial products. Given the emphasis on yield oriented products, it may be prudent to take a more cautious look at this asset class. If you are determined to get into the action, you’re better off buying the fund companies itself as they are essentially cash cows, skimming the inflated MER’s.

AKR

The Wall Street Journal released the results of their semi-annual survey on the US economy. Highlights include:

• 1^st half real GDP will be 2.3 percent with GDP and rising to 2.8 percent in the second half.
• The US economy will overcome the lull in housing and rebound in 2007.
• Inflation will fall to 1.7 percent by May from the 2.1 percent in November 2005.
• The Fed will lower rates to 4.75 percent.
• Unemployment will rise to 4.9 percent with on average 100 thousand jobs being created per month. This is the new normal according to the Consensus.

Translation: The Consensus is feeling optimistic on the economy overall. Rising GDP and lower inflation will be predominant. If this the case, then wouldn’t interest rates be heading up or remaining constant? As long as there is a lot of liquidity in the market, the Fed will be inflation conscious, so expect rates to stay stable and even rise sometime in 2007. The recent move in 10-year treasuries could be an indicator of a future move up in rates. If that sticks, look out.

AKR

Time announced it’s 2006 Man of the Year (MOY). Essentially they named the New Internet or Web 2.0, but how can you take a picture of a Web 2.0? Easy. You take a picture of what it represents and for 2006 it represented millions of you and me’s poking around the social web sites of YouTube (now owned by Google) and MySpace and Second Life looking for some virtual connection. Appropriately Time put a mirror on it’s cover celebrating the new social mores.

Translation:  In the past, getting on Times (MOY) proved to be a harbinger of bad things, especially if the mainstream media was celebrating an icon of business. Take Jeff Bezos of Amazon. At the time of being named MOY, Amazon’s stock was at $113. After the cover, it went as low as $15. Right now Google is the business force de jour. The MOY is a recognition of Google’s ability of shaking the computer and information landscape and deservedly so. The question from an investment perspective is it over for the stock? History shows the media has a funny way of telling us it’s over.

AKR

As part of the year-end prognostications, CNBC undertook an informal survey of US money managers, traders, and Soothsayers to gauge their tealeaves for 2007. Here are some highlights:

·         S&P 500 will reach the 1550 level (up 10 percent)

·         84 percent expect a rate cut in 2007. 44 percent expect a cut in the first half, while 44 percent expect a cut in the second half

·         78 percent expect a slower economy, but not a recession

·         17 percent expect growth to be the same as in 2006 (which is slow)

·         Oil will trade in the $60-70 range.

·         Favorite sectors are Health and Financials

·         Worst sectors will be Energy.

·         They expect the M&A gluttony to continue

Translation: All in all, a reasonably positive outlook with some temperate growth, so we’ll have to put this group in the Positive Consensus column. Again the Consensus is pretty entrenched with the falling interest rates thesis and they expect the economy to slow but not fall into a full out recession. Knowing what we know about the Consensus, we might have to take the contrarians position that rates will stay stable and even rise, which would tilt the fundamentals to a recessionary track.

AKR

From the New York Times article, “An Economy of Extremes” (December 26, 2006):

“…A majority of traders now anticipate that the Fed will cut rates next year, starting in the summer…According to the market for interest rate futures, the Fed is expected to cut its benchmark rate to 4.75 percent by the end of 2007…”

Translation: Whenever Consensus Watch has seen this type of language coming from the market; it never really turns out that way. The reality is that the Fed has its hands tied and won’t be in a position to even contemplate cutting rates until late 2007. The US is so dependent on debt and given the rumblings of foreigners looking to diversify out of US paper, the Fed has to offer lenders a nice return on their investments for parking their cash in the USA.

AKR

A Bloomberg survey of 35 soothsayers and traders found 21 of 34 have a negative outlook for gold for 2007 (62 percent).

Translation: Gold was up last week and data showed that China moved 1 percent of its foreign currency reserves into non-dollar investments most of which was gold. Further to this, the United Arab Emirates announced today that it intends to diversify 8 percent of it’s foreign reserves into other currencies besides the US dollar. As this momentum continues, the US dollar will fall and subsequently gold should move up.

AKR

2006 was clearly the year of the Rainmaker. These are the matchmakers that facilitate the merging and acquiring of companies. It’s been a good year for them. In 2006 a total of $3.8 TRILLION dollars in M&A deals were closed off, of which $626 million was done by private equity firms (this surpasses the value of M&A’s done during the Dot Com bubble). The Rainmaker’s were in full force this year and the Consensus was right behind them. Mergers are good according to the Rainmaker Consensus.

Facts are facts. There's a lot of cash out there. If you didn’t have cash, it’s been pretty easy to borrow it from someone. The Rainmakers need to find a good home for it. Unfortunately when there is too much cash, managers will throw it around and make bad capital decisions. I equate it to the New York Yankees. They have been swimming in cable money and so can afford to drop $20 million on a marginal pitcher. If he doesn’t pan out, they can afford to write it off, as there’s more fruit to pick from. The same mentality is taking shape in the markets. Normally, when capital is scarce, people are cautious and prudent at allocating capital. This is not happening right now. Stewards of capital believe they can’t grow organically and in order to satisfy the growth addiction of the Market, they have no choice but to pimp themselves out for a quick hit. The Rainmaker Consensus has fostered the "Best of Times" and "Goldilocks" sentiment in the markets. M&A has been good to the Rainmakers, the Investment Banks, and the Lawyers. You only have to look at the insane bonuses that are being dished out. Unfortunately, the average investor doesn’t have anything to jump up and down about. Therein lies the problem and it will get worse. Companies that have been acquired will have any semblance of cost squeezed out. You will be see more outsourcing and more pink slips. All of a sudden those mortgage payments will look a bit heavy and that’s when you’ll see the second shoe drop on the real estate market.

The "It's different this time" lobby will say that private equity will hire top management to create value and that this is not simple financial re-engineering. Unfortunately top talent just doesn’t grow on trees. Good people are scarce so expect marginal managers to get overpaid (can you say inflation?). Ultimately, there will be some purchases that just don't work out and will be dumped back on the market at bargain.

The thing about merger frenzies is that they lead to a major hangover. Studies have shown that the last five merger waves have lead to serious stock declines, the most recent being in 2000 at the height of the tech bubble, which subsequently lead to 3 years of bear markets.

Translation: The Rainmakers are shaking the earth right now and convincing stewards of capital to make imprudent and risky decisions with their capital. History has shown that this only leads to severe pain, which the average investor pays for in stock price and in their job.

AKR

Barron's cover on December 15^th weekend proclaimed that ConocoPhillips to be the cheapest stock in the market for 2007.

Translation: ConocoPhillips will be among one of the most disappointing stocks for 2007.

AKR

Merrill Lynch last week released their monthly survey of market sentiment. It is based on a survey of 210 global fund managers (or Lead Steers as we like to call them) who oversee over $713 billion in assets. These are individuals who essentially “manage” the market.

The title for the November report summed up the mindset of the Lead Steers quite nicely: Global Fund Managers Expect a Goldilocks Kind of Year. The Consensus believes the economy is not too cold and not too hot, but just right. It appears the Consensus has bought into the Soft Landing thesis as well.

63 percent that were surveyed say the economy is weakening with 8 percent say recession is likely. The weakening economy will put a lid on inflation and expect to see it declining in 2007. Two-thirds say short-term rates will the same or lower in December 2007. The Lead Steers expect long-term rates could be higher.

60 percent think market will be higher in a year with 63 percent are overweight stocks.

A goldilocks economy is a nice thing to have, but the thing about goldilocks and sweet spots and best of times analogies is they usually don’t last very long and they are often followed up by a negative event.

I equate this sentiment more to a hurricane than a nursery rhyme. We are in the eye of the storm right now. In the Eye things are very calm and silent. It’s usually the back end of the Eye that you get the most damage and unfortunately, we haven’t seen it yet.

Translation: The Lead Steers are complacent right now. They are assuming the “good times” for stocks will keep going. It is a sentiment that is eerily similar to the Dot Com bust. This type of sentiment by the “professionals” is usually an indicator of a slow down.

AKR

A great indicator of market tops and bottoms in various industries can often be found in the stock indexes themselves. They represent a group we call Index Consensus. All the major global stock exchanges have a tight set of rules, which defines which stocks get added and removed from benchmark indexes such as the TSE/S&P Composite or S&P 500 indexes. It reflects the consensus of Market Makers. Conventional wisdom states that when stocks are added to indexes, they often go up because mutual fund and index fund managers have to include them in their products and vice versa for companies that are removed from an index. This is true in the short-term, however we’ve also noticed that when the Exchanges make changes to their indexes, specifically adding a large number of companies from a similar sector, they are often a reflection of the strength or weakness of various industries in the economy. More often then not, when an exchange adds companies to their indexes, it is often at the top of the industries business cycle and subsequently, companies that are removed from an index are often removed at the bottom their industry cycle. Sadly the Exchanges are often late for the party and when they bail out of a sector, they throw the baby out with the bathwater.

The most recent example of this was in 2005, when the TSX group decided to include Income Trusts in their benchmark TSX/S&P Composite Index. Index Trusts were the asset class de jour at the time. We wrote in our blog that this move would be the death of the sector and thanks to the Conservative government and their decision to tax income trusts, the countdown has begun.

Flashback to the late 90’s when the TSX, desperate to show itself as a New Economy stock exchange, threw a bunch of tech companies into its flagship index. Do you remember Bid.Com, Corel, JDS Uniphase, C-Mac Industries, Certicom, Cognicase? Probably not because these companies barely could make any tangible wealth and proceeded to crash and burn behind Nortel. At the time Nortel represented over a quarter of the value of the index.

Over the past 3 years we’ve seen a surge in the commodity firms such as Oil and Gas, Mining, and Gold companies leading the new entrants into the index. These sectors along with the Financials now represent a significant Nortel’esque like weighting in the supposedly the most diversified stock index in Canada. Consumer Staples, Health Care and even Technology firms are second-class citizens in the Canadian market. In the last 2 quarterly adjustments of the TSX/S&P Composite Index, only one non-commodity type firm was added to the index and that was Canadian icon Tim Horton’s (THI).

The latest additions and deletions to the TSX index can be found that the TSX website. We recommend book marking this page and checking them a few times a year.

Translation: The Index Consensus is in love with the Commodities and Financials right now. Better to lighten up on them right now, wait for the pain to ensue and jump right in on weakness.

AKR

In a sense, the stock market can be seen as the mother of all Consensuses. The return on the TSX Composite, S&P500 index or any stock index is essentially vote by significant portion of investors on the future prospects of the economy. The market consensus is either Bull or Bear.

The performance of various major market indexes and the sector sub-indexes within them, provide an excellent opportunity to identify current high-flyers and more importantly for the average retail investor, future high-flyers. More often, tomorrows “It” sectors are often today’s underperformers.

As an equity research and investment-consulting firm, we are always on the lookout for the sectors that are trailing the pack or not on the radar screens of the Soothsayers as companies in those sectors will have stocks that are beaten down. If you can identify these underperforming sectors and invest in the best wealth creating companies in those sectors, your chances of success are much higher.

To illustrate, the series of charts below shows the worst performing sectors in the TSX/S&P Composite and S&P500 indexes. In Canada, Consumer Staples, Info Technology and Health Care lead the underperformers in 2005. As you can see, those underperformers have been among the leaders in 2006. Conversely, the energy sector, which was the darling of the Canadian market in 2005 with a 61 percent return, has been barely break-even in 2006.

Looking at the S&P500, the same concept is demonstrated. The laggards of 2005 (Telecom, Consumer Discretionary, and Banks) have performed very well in 2006.

Canadian Laggards in 2005 turnaround nicely in 2006….

…The same holds true in the US.

As you can see, identifying this Market Consensus can be very lucrative for the individual investor. The key is to have the stomach to stick with it while the Soothsayers tell you that you are insane. The Soothsayers have to tout the Flavours of the Month sectors because, they’ll lose their job and because it’s easier to politically justify to their peers.

Our Market Consensus postings will be a very prominent segment in Consensus Watch, so keep coming back for more postings.

AKR

The Consensus Watch Blog is always on the lookout for a collective sentiment that celebrates market joys and market dismay. No one demonstrates this better than the mainstream media. When the mainstream media gets giddy about the markets, the economy, or a certain product or sector, it’s usually a good indicator that the party is close to being over if it is not already. The same is true when the media laments, but strangely they don’t seem to do those kind of stories, given how cynical the media can get.

These days, the good people at CNBC are singing the kudos. Leading the celebration is perpetual bull, Lawrence “of America” Kudlow, who on his flagship show, claims the American economy is the “Greatest Story Never Told”. Every time the market closes in the black, the show On The Money (great show by the way) leads off it’s program with a “Best of Times” segment touting how the market can do no wrong.

So far this sentiment has not translated on to the print media, but it seems it’s only a matter of time.

Bottom line: The mainstream media is feeling pretty bullish right now judging by the positive stories on the market that is filling the airwaves. If the media is positive on the markets then, we have to conclude that something negative is lurking in the shadows.

AKR

Dresdner Kleinwort tracked number of times the terms "soft landing" and "global liquidity" have been used in the financial press since 2003. At this point the level of use of these terms is at the highest level in the time series. This follows up the term "goldilocks" which is also being used at the highest rate.

Translation: Soft Landing is the buzzword de jour that is being used by the Soothsayers, indicating their bullishness on the economy. At this point if I were trading buzzwords in the options market, I would be short “soft landing” and long on “hard landing” and “recession”.

The Illuminati of Central Banks, also known as, The Bank for International Settlements, which is a forum for Central Bankers around the world to discuss economic issues, released their latest quarterly report. The Lead Soothsayers are feeling quite bullish about the world economy and see a soft landing in the offing for the US economy. In their report they cite, “While at times sending mixed signals, markets appeared to be largely optimistic about global economic prospects and the likelihood of a soft landing in the US."

They also indicated that investors currently have a very high appetite for risk. According to the Illuminati, Investors have an appetite for risk. In an environment where considerable uncertainty seemed to remain about the direction of economic growth, inflation, and monetary policy — in particular in the United States — prices of options ... implied very low levels of near-term volatility…A strong appetite for risk among investors is likely to have played a role in the pricing of financial assets and associated derivatives."

So with the Illuminati on the bullish side, that makes it 2 to 1 for the Longs. Translation? Take profits where you can and keep your powder dry as there appears to be a major economic adjustment in the cards for 2007.

AKR

December survey from the Blue Chip Economic Indicators for the US economy shows the economic Soothsayers are getting queezy about US economic prospects.

The economic consensus believes that US GDP will fall….

….along with inflation, spending, profits, and housing.

Source: Blue Chip Economic Indicators

So right now we have to camps of Soothsayers. We have the Economic Soothsayers who are bearish and the Market Soothsayers who are positive. We need someone to break the tie. How about the Central Bankers?

One of the reasons I decided to start our Consensus Watch at this point of the year was at year end there is a revolving door of Soothsayers hitting the media airwaves throwing out their “professional” projections for the following year. Very rarely do these projections ever come true (more on this in another posting). I can’t blame the media, it does make for good mind candy.

So for our first posting in Consensus Watch, we’ve come across a classic Consensus. This comes from this past weekend’s Barron’s where 8 Soothsayers were asked about their 2007 outcomes. All of them had the same opinion that the US economy was going to grow in 2007 and the stock market would be up around 8 percent.

You know the rule…when a lot of people (especially “experts”) are so sure something is going to happen…it doesn’t. As an investor, I’d be looking to lighten my US exposure. (Disclosure: Over the last 2 months I have been personally selling off my S&P500 ETF’s (Ticker XSP). My only US position is in the iShares US Dividend (Ticker DVY).

AKR