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Monday, January 03, 2005

Asia Market Watch 2004 10 Oct 19

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Bob Brinker appeared on CNBC Asia Market Watch on Monday October 19, 2004. Below is a quick summary of what he said.

INFLATION

Bob was asked about the inflation numbers that came out today. Bob said he thinks the Federal Open Market Committee will have a lot of smiles when they meet next month in Washington. The CPI year-over-year rate is 2.5% and the core rate is only 2.0%. When you dissect the CPI, other than energy, the main culprit is medical expenses. All in all, however, the CPI remains tame.

Bob predicted that the FOMC would raise the Federal Funds rate by 25 basis points at the next meeting because they want to get rate up to 2.0% to give them a cushion to lower rates in the event they need to. If there is anything that can slow down the Fed's "measured pace" its the price of oil which they will be watching closely -- especially at the December meeting.

EC (Editor Comment): You can read the CPI report at this link:

http://stats.bls.gov/news.release/cpi.toc.htm

TERROR RISK PREMIUM

Bob was then asked whether the "terror risk premium" built into the market was going to dissipate by election. Bob said investors are looking forward to November 2nd which is only a couple of weeks away. Once the election passes, the incentive for a terrorist strike to impact the election process goes away.

EC: That question must have been either scripted by Bob, or perhaps Bob got that idea off CNBC Asia. It is pretty much verbatim to what Bob discussed on Sunday's show as set forth in my October 18-19, 2004 newsletter. (E-mail me if you didn't receive it)

VALUATION

The interviewer then pointed out that despite some good corporate earnings being reported, the market didn't seem to be responding favorably presumably due to the election and the price of oil.

Question: How does this impact the market's valuation?

Answer: Bob said he is very comfortable with his Marketimer estimate of $68 for next year's earnings for the S&P 500. With the market's current price, that gives the market a price-to-earnings ratio of about 16.2 which in Bob's opinion is a very reasonable valuation metric.

EC: This jives with the interpretation of Bob Brinker's timing model that SteveT and I did a few newsletters back. With the S&P 500 closing today at 1103, it is just a few points away from Bob's most recent "buy signal" of 1100 in the S&P 500.

That was about it for the interview.

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