The Uber Soothsayers are predicting impending doom in the developed world as a result of the Euro Zone crisis. The latest prognostication comes from the World Bank which has ratcheted down its global GDP growth expectations to 2.5% in 2012 and 3.1% in 2013, which was down from the 3.6% estimate this past June. It also proclaims that Europe is probably in a recession now. The World Bank is the latest mega institution to take its estimates downward (add: IMF, OECD, and the Bank of Canada). Unlike last year, where the Soothsayers were calling for strong economic growth globally, only to lead to double-digit stock market returns in 2011, they are taking the opposite side for 2012. Following this logic and very poor track record for economic forecasts, this may signal a nice opportunity to build equity positions.

Over the ages, many civilizations have signaled their arrival and relevance in the world through architecture, but unfortunately, it often signals a "Jump the Shark" moment as it often foreshadows a significant downturn. Barclays Capitalhas done some analysis and has identified a correlation. The latest test sample is in China and India where skyscrapers have been going up at a rapid rate thanks to easy credit conditions. Many of these buildings, especially in China are lying empty, causing concern that China's might be in the midst of an asset bubble.

In the history of cosmetic economic indicators it has always been lipstick and hemlines that has fortold our economic fortunes, specifically, in slow economic times, sales of cosmetic products tend to rise. Now we can add nailpolish. An interesting little articlethat outlines how sales of lacquer nailpolish have been strong the past few year despite the tepid and slow economy. Nail polish is considered a small affordable indulgence and is more easier to justify the purchase than clothes or jewelry.

In another sign that the US economy is slowly awakening from its malaise, amusement parks report record numbers of visitors over the Holiday season, so much so that they had to turn away visitors. It appears that "the cheap dollar is encouraging more international tourists. Visit Orlando forecasts that 4 million overseas visitors will come to the region next year, up 4.2% from 2011. That surpasses the 3.8% gain expected this year. Domestic visitation is expected to jump 3.7% to 49.6 million in 2011 and rise 1.6% in 2012 to an estimated 50.4 million visitors." The same trends appear to be emerging in other vacation hotspots like Las Vegas and Hawaii.

The latest by the Bank of Canadapaints a rather cautious image of Canadian economy's prospects in 2012. In the survey. twenty-eight percent of businesses surveyed said credit conditions had tightened in the past three months, compared with 23% that said they had eased. That marked the first time since the second quarter of 2009 that businesses did not report an easing in lending conditions. Although hiring intentions appear to be higher this year than in 2011, most of the hiring will be in the Western part of the country. According to businesses surveyed by the Bank of Canada, their tempered tone is being driven by events in Europe and the US

"Another aspect of the survey that is most likely to provide a sigh of relief for the Bank of Canada is the outlook on prices for 2012. Inflation expectations for businesses continue to trend lower, according to responses in the survey. Balance of opinion shows that Canadian businesses generally expect their output prices to be slightly lower in 2012 compared with the previous 12 months."

We're starting to see some positive data coming out of the US economy. First housing starts have turned positive. Next weekly unemployment claims have trended below 400K. Now monthly jobs created is trending toward the 200K level. Not amazing, but a heck of a lot better than what's been going on the last 3 years. Even long-term unemployment is starting to trend down.

All good news and well needed, despite the negativity coming out of Europe and also sans stimulus programs. There is still a long way to go and many difficult structural decisions on debt/social programs/pensions will need to be made, but they won't be made until after the election in November, which will be a referendum on America's future ideology. In the interim, we hope this trend will solidify and external geo-policital events will nurture this trend. For 2012, this should bode well for stocks ultimately down the road and of course, all this flies in the face of what the Soothsayer consensus is calling for.

70% of Canadians surveyed by the Economic Club of Canada and conducted by Pollara Strategic Insights feel the country is in the midst of a recession. Pollara called the results the most pessamistic in 16 years.

“Most Canadians have little knowledge of economics, but they are on the front lines of the economy. They can see, and feel, financial change, and they tend to act collectively,” he said. “Canadians, in aggregate, are remarkably canny about the economy.” according to Michael Marzolini, chairman of Pollara

The survey of 2,878 Canadians found optimism towards the Canadian economy has dropped to 25%, compared with 54% in 2009. As well, 35% of Canadians expect employment to worsen this year, compared with only 25% a year ago. As much as the Soothsayers claim to be the experts in measuring economic output, one can feel the average person has a more tangible viewpoint of the economy than someone sitting in a climate controled, sanitized office on Bay Street.

From an investment standpoint, the pessamism could mark a turning point as when individuals turn negative, it could indicate an opportunty to start building positions in companies, global companies that is because Canadian stocks are mostly commodity based and are depedent on foreign demand and geo-economic events.

If there's one thing that's we can all relate to it's food and if there's one thing that is visisble on a day-to-day basis is that the cost of eating...anywhere... is going up and is likely not going down anytime soon. Sure you can go to a fast food place and buy something from their "value" menu, but when you look at the quantity you get, it's a lot less then from a few years ago. The dollar price may look the same but the weight is markedly lower.

The latest reports from paint a snapshot that food prices in Canada are on the rise and there are many factors from commodities (grain, oil, flour) to transportation costs.

In Canada, while prices have been trending up, we've been lucky as our stronger dollar has tempered some of the price rises. Not so in other countries where food costs are a serious problem.

Long-term, rising food costs could have political and economic ramifications. From a stock market perspective, food prodcuing and agriculture based companies will benefit from food inflation and could be nice long-term additions to a portfolio.

According to US portfolio managers, "It is a good time to be a U.S. stock investor for the long term – if you can ignore the noise erupting every few hours." A Reuters pollof 12 U.S. fund companies showed managers in December boosted equity holdings to their greatest percentage this year.

Despite this, individual investors still prefer income than risk with. Equity portfolios in the US shrank by $186 billion while bond portfolios rose by $69.8 billion

While the trend observed by the Consensus is positive, one has to still be wary of the major economic structural adjustments many countries are going through which will create shocks. As always the best approach is to build positions slowly buy buying great, well run companies that are capable of creating tangible wealth in depressed markets, especially as the Soothsayers become more pessamistic, which appears to not be the case here.

Well we're at that time of the year where the Soothsayers begin lobbing out their fearless, unaccountable economic forecasts. First off, Toronto Dominion which is calling for a Euro slowdown that will take down the Canadian economy a few notches in 2012. Next, a survey of global economists which is calling for a global recession in 2012

So acute are the risks that few economists are now willing to bet heavily against another global recession in 2012. By common consent, the world economic outlook is much darker today than it appeared in the early autumn.

A year ago the same group of Soothsayers were calling for strong economic growth for 2011. The Euro crisis was deemed a local isolated incident that would have minimal impact on the global economy. We've seen how that panned out. Now as we enter 2012, it appears that the Consensus is taking the side that the world is staring into the abyss. Granted there are serious issues and frankly given the immense volatility that has existed in financial markets, at it's core, nothing has really happened yet. 2011 has been a Seinfeld episode with many plots and events involving a kicking of a certain can down the political and economic road. It's been a year about nothing. So the Soothsayers may just be right, however the impending economic malaise may not necessarily translate into the stock market. In fact, their call may just be a call to build positions in stocks.

"Hedge funds have slashed their exposure to stocks both on a long and short basis - to the lowest level since 2008" according to a report from Bank of America

That period in 2008 when they bailed out of the market actually market a great entry point into the market and if you bought in you would have done very nicely in 2009 as the Fed opened up QE2 and Obama pumped stimulus into the system. We might be reaching another similar inflection point as the global economies stumble and bumble their way to recovery and all signals point to another massive injection of money into the system.

Well we now know what the good people at Big Blue IBM are working on these days. The latest research from IBM is showing that heel size preferences can predict the future economic prospects. High heels predict a slower economy as was the case in the 90's and mid 2000's, while low heels/flats predict an improving economy. That's where we are right now in terms of preferences, which indicates that things maybe looking up in the US economy. The logic is in down times, people don't want to show off too much and opt for more conservative looks and less on the ostentatious side. In other words, these days it is better to feel good than look good given there's not many good things going on economically. As a result, we decided to place this sign of Consensus on the negative side. Are the fashionista's pointing us to a capitulation?

With all the talk of bailouts, underwater mortgages, credit crises, and deleveraging, you’d think nobody would be shopping for anything. Over the past 2 years many Soothsayers have taken a hammer to retail stocks, however, the luxury retail companies like Louis Vuitton, Williams Sonoma, Whole Foods, and Apple (yes you could say they are a high-end consumer electronics company) have been doing some brisk business the last few years and their stock prices have been reflecting it. Most of the growth has been coming from Asia where the Chinese and Indians are using their new found disposable income to scoop up designer bags, watches, jewellery and high-end cars to show off their new gotten gains. Walk into a Harry Rosen, Holt Renfrew or a Saks on a weekend and you can barely move. The media has picked up on this and there are many articles talking up the hourglass retail demographic (Uber luxury, and deep discounters like Big Lots, Ross Stores and Wal-Mart) which has held on quite nicely in the Great Recession.

From an investment perspective, this is a problem as when the media starts running with these types of stories it usually signals that the big money has been made. Add also another factor that is emerging in Asia is the watering down of luxury brand names like an LV and Audi which could have long-term negative impacts on the luxury segment. We haven’t even talked about the rampant counterfeiting industrial complex in China which is a whole other threat to the segment. Long-term the 1 %’ers will always be shopping and like all retail, trends play a big component. One day everyone wants a Coach bag, another they won’t. So one always must tread carefully and research the fundamentals, competitive threats, and social landscape before venturing out.

The Fed was the latest central bank to go negative in their 2012 economic forecasts, ratcheting down their 2012 GDP estimates GDP growth estimates to 2.5 to 2.9 percent from 3.3 to 3.7 percent they were forecasting in June. They join the Bank of Canada who revised their estimates from 2.6 percent to 1.9 percent in 2012 as well as the Bank of England and the European Central Bank.

At the start of the year these same Soothsayers were calling for strong economic growth and the stock market was pricing it in. Retail investors were jumping only to find yet again it was an oasis. Result: Most major stock market indexes have been in the deep red this year.

So now the Central Bank Consensus has decided to go negative and take everything down a notch and the result is again the stock market is pricing in a discount in share prices, which from our perspective could create opportunities to accumulate great companies on the cheap. We could be in a Jump the Shark moment as when the Soothsayers take a position either way, it often doesn’t translate the same way from a stocks persepective.

It only took less than a week before the latest agreement in Euroland to stop the debt crisis fell apart. This time it’s Greece calling for a referendum to vote yea or nay on the austerity package (or something that resembles it). And why not. Greece is the birthplace of democracy so it’s natural to take it to the people. Unfortunately, by the time they get around to it, the world may not be the same. In fact, the world might have moved on by then with help from the ratings agencies, bond vigilantes, the BRIC countries, and the plethora of bureaucrats from where-ever. The EC may have no choice but to pull their debt solution and say “Yia sou! You’re on your own”.

The implications are that any referendum would take months to organize and hold which means months of volatility in the financial markets. It is quite realistic that other players may just call it a day and boot Greece out. Ultimately, this means stocks could continue to trade at discounts, creating some interesting buying opportunities.

Checking out the year to date performance of the world stock market indexes, only one index is having a positive year. The index? That's right, the old reliable Dow Jones Industrials, which is up 2.9%. Coming in second was the S&P500 with a loss of -0.2%. Every other major stock market index is down, with 15 out of 21 indexes down at least 10%. Considering the fear and volatility that has been oozing in the world economies, it appears that the US is the home of stability, relatively speaking, which is ironic considering most of the Soothsayer Consensus have been telling us to stay away from US assets.

"An unofficial gauge of human misery in the United States rose last month to a 28-year high as Americans struggled with rising inflation and high unemployment."

"The misery index -- which is simply the sum of the country's inflation and unemployment rates -- rose to 13.0, pushed up by higher price data the government reported on Wednesday."

This is what stagflation does. It puts everything into a slow motion burn, which becomes painful and when things get tough, the last thing you want to do is buy stocks. So we are seeing retail investors stay out of the game which is putting some great durable, wealth creating companies. We're seeing many articles talking about how companies like Wal-Mart, Intel, and Cisco have been dead money over the past decade. True, however, if you've been picking up these stocks during the latest malaise this year, you would be enjoying double-digits returns (Intel up 16%, Wal-Mart over 10% etc). The malaise is likely to continue so opportunities to pick up these best of breed firms cheap will continue to present itself.

Bank of Montreal’s Canadian private bank is starting to see investors shift money out of stocks amid mounting concern related to Europe’s debt crisis and a global economic slowdown. This shift began 6 weeks ago as we were in the midst of the debt ceiling debacle in the US. According to Paul Taylor at BMO, "The retail investor has been like a deer caught in the headlights of an 18-wheeler, and they have been moving money back to cash most recently."

When the retail investor gets the yips and exits the market, it usually marks a contrarian moment where it can be lucrative to start building positions or average down on existing high quality positions.

The latest Blue Chip Survey of economists and soothsayers are calling for GDP growth in the US to ramp up to 2% in 2012. Sounds better than the malaise we've been in, but alas the estimate at the start of the year for 2012 was 3.1%!

As we know when the Soothsayers take a strong position in anything it usually doesn't pan out. Bless their hearts for trying. So now they are seeing a trend upward.

Don't tell this to the good people at the Economic Cycle Research who are taking the other side of the trade and stating that “If the United States isn’t already in a recession now it’s about to enter one,” according to Lakshman Achuthan, the institute’s chief operations officer. Their conclusion is based on a set of indicators which include:

"The institute’s U.S. Leading Diffusion Index, for example, has dipped into territory that, with only one exception, would have signaled the recessions of the last 60 years. The single exception was in a short-lived downturn in 1966-7."

U.S. Coincident Index has moved into territory that would have signaled recessions over those six decades, with three exceptions. Those were dips in September 2005, after Hurricane Katrina; in March 1993, after a huge storm on the east coast of North America, and in July 1952, after a steel strike. In none of those cases did the two indexes reach recession territory at the same time, as they have now, he says.

All this and we haven't even thrown in the Europe slow burn, but the Soothsayers have of course factored this all in and are assuming that the rest of the world will be immune just like the real estate debacle in the US. Oh...

Today the world is celebrating and embracing the contributions of Steve Jobs and how he has changed the way we view technology. I'm right up there with the legions of Appl'onians as I've pretty much implemented the Apple echosystem in my world with a MacBook Pro, iPhone, iPad, Apple TV, and MobileMe. While these products are fantastic and integrate seemlessly, the real heart of Apple's success is the software specifically iLife and iTunes which integrates the 3 forms (image, music, video) magically like no other technology has. Apple's been associated with gadgets but it's core strategy is about dominance in content with meticulous execution and cannibalizing it's own through innovation and iTunes has been the core.

My first foray into computers was with a Mac and after a 15 year exile in the Windows world, I've returned home. Yes Mr. Jobs (I can't call him Steve like everyone else is) was the face, the grand marketeer, and the soul. Shareholders have been rewarded, analysts such as Gene Munster from Piper Jaffray have built careers off Apple.

With Mr. Jobs no longer with us, whither Apple? The stock has been priced to perfection meaning any micro-slip up could throw it into a RIM-like situation. It's been reported that Apple has over 313 patents with Mr. Jobs name associated. He really did create these tools and now with him in the big iTunes store in the sky, is there that X-factor in the organization that can carry on? For the next few years, the answere is yes, as their are numerous projects that have his touch waiting to roll out and John Ives, the Chief of Design will be at the forefront. The company has so much cash on it's balance sheet that it can finance the US deficit and still have change left over to pay a decent divident. After that?

There's a lot of love for Apple. It's the people's company and the people's stock. With it's soul gone, we're not sure we like their odds. Wal-Mart hasn't been the same since Sam Walton passed on. Since Bill Gates has taken a lower profile, Microsoft hasn't been all that. Could the same be in store for Apple?

"Listening to commentary surrounding the seemingly intractable sovereign debt and banking crisis in Europe, the stimulus/austerity battle in the United States and even hard-landing risks in China, gloom is fast becoming the consensus."CNBC

It appears the experts (or we like to call the Soothsayers) are resigned to the fact we are and will be living in a Depression, it's just a matter of what kind of flavour. We're hearing the word Depression used more openly and casually these days. Whatever it ends up being called, the sentiment is clear. We always sit up and take notice when we hear the Soothsayers take a position as it often represents an opportunity to take the other side and profit from it. The Soothsayers are clearly negative now, which implies that we could be closer to a move up.

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:

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.

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: