gold soars to $860 per ounce on the futures markets, there is a general cause for caution and concern. The news on the first trading day of the year was not a bull's dream.
The Institute for Supply Management's report that its manufacturing index fell to 47.7 percent for December from 50.8 percent in November raised concerns that the economy could be slowing at a quicker pace than some investors had estimated. The reading below 50 signals economic contraction, whereas readings over 50 indicate expansion.
Analysts polled by Thomson/IFR had anticipated that manufacturing would expand modestly in December.The economic reading and rising oil prices were unwelcome for investors wading into the first trading session of 2008 and indicated the concerns that weighed on stocks in the second half of 2007 will for now persist.
"It certainly is a soft number and the declines in production and new orders are eye-catching," said Alan Levenson, chief economist at T. Rowe Price Associates Inc. "Overall, the ISM has generally been a decent guide for the economy. This is a sharp decline in one month."
Stocks failed to gain momentum after an initial bounce after minutes from the Federal Reserve's last meeting. Central bankers, who voted to raise interest rates a quarter percentage point, called the economic outlook "unusually uncertain." While that strengthened the case for lower rates, it also confirmed some of the market's worst fears about the economy
Buffett, Ichan, Cramer and T.Boone Pickens always "vote with their wallets" and they are buyers. But they know this is a stock-pickers market. "We cannot say with certainty what most averages will do in 2008. Our guess is that the Fed will do what it must to support the economy. As long as the economy does not enter a recession, we are safe from a bear market. Instead, we expect stocks will remain in a trading range, flirting with all-time highs, but never experiencing a broad-based rally. Inflation will prevent a bull market from arising" said one of the gurus.
In a non-verbal way and verbally, Buffett and Cramer are saying "choose your stocks very carefully". They say they are looking for value, with international money to be made, and themes that can withstand a downturn in the economy. That is why they like companies that have similar profiles to Trinity Industries (NYSE:TRN) and Yamana Gold (NYSE:AUY).
As the stock market starts the new year on a sour note, they are looking for bargains, takeover themes like Alcoa (NYSE:AA) and Steel Dynamics (Nasdaq:STLD). The gurus know that the Fed can't afford to be indecisive at such a critical time like the monetary crisis that the western world finds itself in right now. And they know that inflation is upon us and can keep the bull market from going forward in a robust fashion.