Let me begin with a cite from my fa...

Let me begin with a cite from my favorite market prognosticator:

My take out the bowels of instinct is that although equity markets have further latitude on the upside, 1997 will mark the beginning of a period of market disappointment.

Me Canadian Shareowner (January/February 1997)

The force of truth is now at hand. The U equity market tacked upon an impressive 6.1 in January, and has now gained several hundr since late November. In in the way that doing, the stock market has exhausted plenteous of the upside potential I foresaw last fall. The valley of market disappointment is now at our feet The spectacular gross mistake market of the past several years has post its course.

This assessment is being made against formidable left over s Two compelling indicators foretell that manna will continue to fall from the heavens in the month to come:

(1) The Super depression Theorem The fact that the Super receptacle hails from the old National League assures investors that the market is headed higher in 1997 Note that the predictive accuracy of this indicator has been lay the foundation of wanting only once in all of Super beaker history.

(2) likewise Goes January, So Goes the Year According to its advocates, this control has applied in 42 of the past 47 years. It combats that an upside January ensue will yield positive gains for the well stocked [i]or[/i] provided year. Even more comforting to the risk averse, is the fact that single in 1950 did the market furnish a negative result for the entire year when January [i]finale[/i]ed on the plus side.

What I find in sober earnest scary is not the predictive accuracy of these weather vanes, however the fact that investors use this nonsense to rationalize their investment decisions. The popular stock market feeding frenzy is thus illogical that a growing community of revisionist equity market historians have begun to recast the 1987 stock market crash in a positive light. Not alone is that event seen as an all time great buying opportunity on the other hand it is also used as an example of for what purpose investors with a long-term time horizon ne have no fears.

IRRATIONAL EXUBERANCE

By accusing investors of "irrational exuberance," U Federal store up Chairman Alan Greenspan sent the markets into a temporary tailspin last December. As I view it, the underlying meaning of his elucidations is that the monetary authorities have arise to regard the equity market as a potential source of economic stability.

Greenspan, who is unquestionably the saviest F Chairman in memory, has chosen to apply a dose of moral persuasion, sometimes referr to as "open mouth" policy, to ferret gone out the excesses of market speculation. From the investor's standpoint, "irrational exuberance" is simply digest for Fed tightening. It means that equity market performance is single in kind of the critical economic indicators that the F anticipates at in determining the overall thrust and direction of monetary policy. The dramatic down-draft in the markets in the wake of Greenspan's remarks is a clear sign of the fragility of investor psychology and of heightened sensitivity to interest rates and inflation.

It is here that economic and market fundamentals underscore my angst. The economic signals point to stronger than calculate uponed economic growth. In the U stronger economic germination and tighter labour markets leave little doubt that cyclical constraining force on inflation is upward. Furthermore, weather induced spiral in diet and energy commodities will reinforce the upward compressing on wage costs just when more and more calling contracts are up for renewal. I doubt that there is enough productivity potential left in the method to restrain upward pressure forward wages and prevent narrowing of profit margins. The inference here is that the economic and inflationary factors are potential negatives that are overhanging the markets.

There are also political risk factors to strive with in 1997. In the first year of his final mandate, President Clinton-ever conscious of his place in history-is going to tilt back to the "liberal" economic agenda in succession taxes, budgets, government spending and health care. apply the mind for the upcoming budget debate to be a major turning point in Clinton's position election honeymoon with Wall public way

While the strong economy is not incompatible with continued pious gains in company profits, there is a business that at current levels, the stock market is attaching far too high a value to the at hand worth of those earnings. Indeed, at today's 20 times price/earnings multiple, the U equity market has not been in such a manner generously valued at this stage of a business circle of time in over 40 years.

Many of these market challenges will also not absent themselves in Canada. The economy is in take-off quality However, with 35 of the TSE in natural resources our market is poised to fare relatively better at this stage of the economic round of years Still, it must be remembered that the TSE 300 has under-performed the U in 12 of the past 15 years-and already trails the S&P 500 by means of 3 through January (61 to 31) Call me a hopeles optimist upon this subject, but I still believe that our market will out-perform the U during 1997