Leading Economic Indicators Are Now Showing Signs of a Return to Confidence

   The market appears to be creeping back off its lows, and the economy is showing some signs of life. In fact, two reports today suggest that the second-half turnaround many analysts have predicted may indeed be around the corner.

   The ink is still drying on these reports, which covered factory orders and home sales. Let's review the data, then get to the fun part: How to make money off the news.

Factory Orders
   This morning, the Census Bureau said new orders for durable goods -- expensive stuff that's made to last more than a year -- jumped +3.4%. That was the biggest bump in more than a year and the first uptick of any kind in seven months.

   Durable goods are a leading indicator, that is, they have predictive value in determining how the economy will perform in the months ahead. It makes some sense: The more stuff that gets ordered, the more stuff that gets made, the more people work to make it, et cetera and so forth.

   The news actually gets better: A closer look at the data shows that, excluding transportation equipment, orders actually rose +3.9%. That's the best showing since August 2005.

Housing
   There was also good news in the housing sector.

   New home sales rose +4.7% in February, the Commerce Department said this morning, announcing the first increase since last July. The sales figures added up to a seasonally adjusted annual rate of 337,000 -- better than the 323,000 economists had forecast. The sales activity burned off some inventory: Commerce estimates a 12.2-month supply of new homes versus a 12.9-month supply the month before.

   The previous month's data actually got a little better, too: Commerce revised January sales to 322,000 against the previous 309,000.

   The news is getting better, but housing still has a long way to go. New-home sales are off -41.1% from year-ago levels. The median prices has dropped -18.1% in the past year and now stands at $200,900.

How You Can Profit in this Market
   I don't think this news should be interpreted to mean that you should look at stock in manufacturers or homebuilders. What I do think these indicators suggest is that confidence is returning to retailers and, just as importantly, to bankers.

   Factories don't respond to orders from individuals. You or I don't call Lexus and order a new LX460.  Rather, factories respond to orders from the dealers and retailers that sell the goods. They've ordered more goods because they think they can sell them. They foresee demand down the line and are reacting to it. That's why this leading indicator bodes well for the economy.

   The same is true for housing. Who makes housing decisions? As much as we'd like to think it's us when we pick out the house we want, the fact of the matter is that it's the bankers who call the shots. If they're worried about a house's value or a borrower's ability to repay the loan, they're not going to lend. The housing indicator tells us that bankers are more willing to lend. Prices have fallen, that we can prove, but we can also infer from the fact that the loans were made that bankers' overall outlook is improving.

   Both of these indicators speak to confidence, and confidence is the ball game.

   What governs the market right now? It's not confidence. It's not optimism.

   It's panic.

   How do I know? Because volatility measures are still through the roof and the S&P's aggregate earnings multiple has plummeted. The PE factors in reduced earnings, and the drop from the five-year average 16.7 to a current 12.3 is based purely on a lack of confidence. Lo, but there is good news here, too, my friends: The cost of a dollar of earnings has risen +20.7% since March 6, and it still has +35.8% to go, just to be fairly valued.

   So how do you make money on this news?

   Easy.

   If you think that confidence is going to return -- in fact, if you even think that confidence might someday return -- then you need to be buying stock. Though a rising tide lifts all boats, I recommend looking for the best values, as the shares that have been hit the hardest have the most to gain.

   I made one such call in late November, when I put a strong buy recommendation on Whole Foods (Nasdaq: WFMI) in this very publication. Whole Foods has since returned a very filling +76.0%, and that's some showing in a market that has only continued to tank.

   If you want ideas on profitable value stocks that you can buy right now, then visit this link. You'll learn how you can get immediate access to the names and symbols of each of the stocks listed in the table below.

   These 15 securities -- boasting price appreciation potentials of +84%, +128%, +133%, +230%... and even up to +352% -- comprise Nathan Slaughter's "Deep Discount Portfolio", which is found in his Half-Priced Stocks advisory. Visit this link to learn more.


 

-- Andy Obermueller
Co-editor
StreetAuthority Investor Update

Warren Buffett's Berkshire Hathaway may lose its "AAA" credit rating from Standard & Poor's because values have fallen in its equity portfolio and capital has shrunk at the insurance operations.

The rating could be cut in the next 12 months, S&P said. An S&P downgrade would be the second for Berkshire after Fitch stripped its AAA rating March 12. S&P said any downgrade probably would be a one-level cut.

-- Bloomberg

The price of oil continues to show signs of strength, another signal from investors that a turnaround is imminent. Crude started the year at $48.58 and fell beneath $35 in late February. Crude has since rebounded +54.2% to $53.40. The price of oil a year from now, based on NYMEX futures prices, is nearly $65 a barrel.

-- Andy Obermueller

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