Eric Roseman's Eruptions: Stocks, Global Markets and Commodities BLOG

The Dow Jones Transportation Average: False Signal?

According to Dow Theorists, including market maven veteran, Richard Russell, the Dow Jones Transportation Average (DJTA) continues to provide bullish price action confirming the primary trend of the market – up since mid-March. Even as the broader market and other U.S. benchmark indices have declined since last fall, the Transports have been relatively strong and are now up an impressive 14% in 2008 compared to a loss of 5.3% for the S&P 500 Index and -3.3% for the Dow Jones Industrials Average.

From its all-time high last year, the Transports is just 4.3% off its best level and, at this rate, will probably surpass that high even as the economy stumbles and oil prices remain near record levels.

What is going on here? Why are the Transports rallying this year amid skyrocketing oil and diesel prices? Is the economy not heading into recession?

I have been trying to explain this dichotomy in the Transports’ behavior all year. This morning, my colleague Mike Burnick and I discussed our rationale for the big move and drew the following conclusions.

The rails are leading the Transports over the last several months as costs to move goods by train are less expensive and faster than truck transport. Companies are cutting shipping costs and prefer rail to ground transport. Also, the big move in the grains has loaded up cars to the hilt, pushing capacity to the limits as earnings increase for companies like CSX (NYSE-CSX) and Burlington Northern Santa Fe (NYSE-BNI).

The rails are a major reason why the DJTA is higher this year; but despite soaring diesel prices for trucking and jet fuel for aircraft, ground and air transport company shares are also in the plus column in 2008. That is also bizarre considering earnings are uninspiring.

Recently, Federal Express (NYSE-FDX) and UPS (NYSE-UPS) reported lower revenues for the first quarter. Yet despite poor results, both stocks are higher this year and command lofty premiums compared to the broader market. U.S. domestic revenues declined in Q1 for both companies while overseas revenues grew sharply. I think that is a major theme for S&P 500 Index corporations in 2008 as exports continue to grow the lion’s share of large cap company earnings at the expense of a cheap dollar.

But, if foreign economies slow this year -- and we’re seeing a marked slowdown now in Germany and elsewhere in Europe, should these economic sensitive stocks not form a secular peak and start heading to the basement? Even Asia is slowing – not sharply, but it is slowing. I have got to believe the DJTA is overvalued.

Is the Dow Jones Transportation Average discounting a quick v-shaped recovery for the American economy? So far, this index is definitely bullish for the market.

If the Transports continue to rally and take out the all-time high over the next few weeks, then odds are the Dow and the rest of the market will follow suit – a phenomenon that will confirm Dow Theory. If one major Dow index breaks to new highs, then it is highly probable that other constituents will follow suit. Let’s wait and see.

My Pantry Portfolio in Panama

Candy is definitely dandy this spring.

Mars’s takeover of Wrigley’s (NYSE-WWY) will create a global powerhouse in the candy business and investors have a sweet tooth.

Warren Buffett, the world’s greatest investor, helped finance the $23 billion deal – a classic Buffett investment whereby the Sage of Omaha plows into cash flow rich companies with leading brand name power. Combined, Mars and Wrigley had 2006 sales of $17.5 billion dollars.

What is great about this deal is that it is recession-proof.

Primary bankers financing the deal, including J.P. Morgan Chase and Berkshire Hathaway, had no reservations to lend capital, even amid a credit slump. Consumers might balk at taking a vacation in an economic recession or splurging for an expensive meal at Morton’s, but it’s highly unlikely they will refrain from spending on chewing gum or a candy bar.

Since February, I have been plugging global household names in the confectionary and food business. In the May issue of the Sovereign Individual, I am recommending one of the best managed global food companies that recently raised earnings guidance and commands over $274 million dollars worth of gross sales every single day.

But I am not stopping with just one recommendation in the food business.

I am convinced the subprime and ensuing global credit crisis will be a long-term affair that will drain economic growth, particularly in the United States and, to a lesser extent, Europe. Since mid-March when the Federal Reserve effectively bailed out Bear Stearns, stocks and some credit markets have been behaving like this will be a swift v-shaped economic recovery in the United States; I think it will be more like a slow and painful u-turn.

In a slow growth economic environment, defensive brand name companies should continue to post solid earnings. Even amid soaring food inflation, the majority of these great franchises are raising prices and consumers are absorbing higher costs.

At The Sovereign Society’s Total Wealth Symposium in Panama City (May 14-17), I will be introducing my Global Pantry Portfolio for long-term safety, income and capital gains. These world-class companies probably inundate your kitchen cabinet and I am sure you already consume their arsenal of formidable products. But best of all, I will show you how to build a low-cost Pantry Portfolio and receive an annual dividend yield that is greater than Treasury bonds – especially on an after-tax basis. Combined with double-digit gains from stock appreciation, it is a super recipe for all-weather market profits over the next five years as industry consolidation gains momentum.

See you in Panama City!

Food Riots Imply Government Intervention; Might Temporarily Halt Grain Bull Market

At last count, the United Nations pegs food riots and shortages in 33 countries. With supplies growing rapidly scarce for everything from wheat to rice and world inventories at 30-year lows, governments are getting more aggressive with speculators and the exchanges that trade coarse grains.

In Washington last week, the CFTC, or the Commodity Futures Trading Commission, was grilled by lawmakers trying to understand why rice and other grain prices continue to trade at record highs. One lobby group, the American Bakers Association, blames hedge funds, index funds and other speculators for the growing supply shortages.

For the record, grain prices have indeed more than tripled off their lows in 2006; but, adjusted for inflation, since 1980 remain 60% to 150% below their highs. Still, that is no comfort for countries and consumers struggling to gain access to dwindling inventories as a result of plunging supplies. Many emerging market nations, including the Philippines and Haiti, now impose rice rations. Other countries have begun hoarding rice and other grains to counter bulging price increases this year.

The argument among the agricultural bears is that grain prices are too hot, too widely publicized in the popular press and eventually will draw some sort of government response to control prices. That might be true, if only temporarily. High oil and gas prices have already made headlines for the last several years, yet prices remain at record highs amid a shortage of about 2 million barrels of crude daily. But when it comes to food, investors should probably take notice because voters have to eat. They do not necessarily have to drive.

I have been long and strong the grains in my Commodity Trend Alert (CTA) service since late 2006 and I am still very bullish. We went long DBA over 15 months ago and I am still long this multi-grain and sugar index fund.

Hedge funds, index funds and other traders certainly play a part driving prices higher; but that is not the heart of the bullish case for the grains.

The facts are that global supplies are shrinking. The rapid industrialization of the emerging markets in Asia this decade has resulted in more than 2 billion consumers vying for healthier diets, including rice, corn, soybeans and wheat. Combined with chronic shortages caused by plunging harvests in several grain belts since 2006 – namely Argentina, Australia and the Ukraine, prices have skyrocketed. Also, the biofuel boom has diverted food supplies to alternative energy sources like ethanol and biodiesel. I do not expect that trend to change, either.

Global governments will try to coerce prices lower to pander to their electorates. I expect the grains to correct this summer – wheat prices have already plunged from their highs. But longer term, I have no doubt that prices are heading much higher as more people join the food chain in Asia and other emerging markets.

Quite simply, we are outgrowing the Earth’s resources. Unfortunately, food is becoming scarce and nothing will change that for the foreseeable future.

Don’t be Fooled by this Sucker’s Rally; Buy Gold on Weakness

It is no surprise that the U.S. dollar is finally mustering a bear market rally in late April. And it is no surprise that gold prices are pulling back, either. But what is quite shocking is the newfound consensus on Wall Street this week that the Federal Reserve is approaching the end of this easing cycle.

Investors are growing increasingly optimistic that the United States will escape this recession quickly, similar to the 2001 recession. I think they are dead wrong.

With housing prices still plunging, job losses mounting each day at major corporations, and a contraction in credit to both companies and individuals, it is almost lunacy to believe the Fed has reached the nadir of this monetary easing cycle. In fact, I am projecting the Federal Funds rate will head to at least 1% or maybe even 0% before this bear market is over in 2009.

Why am I so bearish? This economic cycle marks the first time in the post-WW II period whereby inflation and deflation are running side by side. It is unprecedented. Consumers are spending less, losing their jobs, increasingly denied credit and blown away by soaring food and energy costs.

Housing, however, is my primary concern. New home sales tanked 8.5% in March to their lowest levels since 1991. Housing shows absolutely no signs of bottoming; it is the biggest deflationary tug on the economy.

What we are seeing now is a long overdue bear market rally for stocks, including the homebuilders and REITs. This is the biggest sucker’s rally since April-May 2001.

After topping out earlier last month at $1,033 an ounce intraday, the June gold contract has pulled back to $887 an ounce this morning in New York, a 14% decline. This marks the second time in six weeks that gold prices have corrected below $900 an ounce on the heels of a U.S. dollar rally. The dollar, of course, has been dumped relentlessly for the last several years with a brief bear market rally in 2005. This will be no different.

The Fed is under immense pressure by world central banks to stabilize the dollar because of resultant inflation now spreading just about everywhere. The Fed talks a good game, but, in the end, has no choice but to grow the money supply to arrest housing and credit deflation. The broadest monetary aggregate available to the public, M2, shows a massive 16% gain year-over-year. That tells me the Fed is desperate to grow inflation at all costs.

I would use any intermittent weakness in gold prices to accumulate positions. Gold should hold above $850 on this correction. Supplies remain very tight, especially in South Africa. Plus, new mined supply is virtually nil, with the majors absorbing huge input costs to replace declining reserves or net new supplies.

In 2005, gold prices rallied 18% even as the dollar posted a bear market reversal. I expect the same to occur this year, especially as the European Central Bank (ECB) starts cutting lending rates over the second half of the year. As the ECB starts cutting, gold will head off to the races once again as that part of the world joins the Fed in reflating the money supply. Germany is now slowing and several other countries are faring even worse, mired in real estate deflation.

Investors have seriously miscalculated a bottom in financial markets. The Bear Stearns bailout was not a “buy” signal. Instead, it marked an acceleration of desperation as the Fed prints money like there is no tomorrow. The war is against deflation. Buy gold on weakness.

Have a good weekend.

Has the Bernanke “Put” Saved the Banking System?

March 17th was a seminal day in U.S. financial services history. That was when the Federal Reserve, in an unprecedented move, guaranteed Bear Stearns’ assets and effectively placed a floor on the banking crisis.

Credit derivatives based on insuring bank defaults have rallied sharply since late March and indicate the worst is over for the U.S. and European banking system.

The Bernanke “put” is now in play. The Federal Reserve has effectively assured that no major U.S. bank or investment bank can collapse. Though the Fed concedes that it expects many smaller banks to go under as the economy continues to slow in 2008, larger institutions cannot fail.

The cost of insuring banks against default through the CDS markets, or Credit Default Swaps, has plunged recently as investors pay a lower premium to insure their portfolios from bank failure. The Bank of England’s latest policy initiative this week to essentially provide collateralized loans to member banks, similar to the Fed’s ongoing initiatives, has also acted to stabilize fears of financial Armageddon.

Insuring the senior debt of J.P. Morgan Chase, Citigroup and Merrill Lynch has plummeted 58%, 59% and 51%, respectively, since March. With the Fed literally guaranteeing the solvency of each of three behemoths, investors have started to bid some of the large cap bank stocks higher since last month.

But, like I said yesterday and previously in these pages, the long-term business model for the banks is uninspiring.

The securitization model will be totally revamped going forward – home to bulging profits for banks over the last decade. The loss of future revenues from synthetic derivatives means most banks will have to reinvent their staid business models. Plus, with regulators eventually introducing new laws and financial watchdogs surveying bank lending, it is hard to believe profits will be anything short of unimpressive going forward.

The Fed and the Bank of England have placed “puts” on the demise of the financial system. That is a good thing. The financial world we live in will continue to exist. However, banking and finance will never be the same as the wounds inflicted since last July severely crimp banks’ business models in the years ahead.

Banks will lead the upcoming stock market rally later in 2008 or in 2009; beyond that short-lived spurt, I expect banks and most global indices to post dull returns over the next several years. With banks representing about one-third of total global stock market capitalization, investors will have to look beyond simple global indexing and wager concentrated bets on countries, sectors and asset classes.

Another Big Dent in British Banking as RBS Dilutes Shareholders’ Equity in 2008

The United Kingdom’s second-largest bank is about to follow Union Bank of Switzerland (NYSE-UBS) down the same path of shareholder dilution. Royal Bank of Scotland, or RBS (NYSE-RBS), announced it will seek to raise a hefty $23.8 billion dollars and book an $8.6 billion write-down in 2008.

Though the distressed bank stocks will eventually lead the upcoming rally in world markets following months of protracted declines, the longer term picture for investors looks increasingly bleak. That is because more banks, pounded by credit woes, are literally selling off their future earnings through equity dilution or rights offerings.

The United Kingdom and Switzerland have been among the hardest hit countries since subprime caused credit markets to explode last July. Though most Swiss banks, including Cantonal banks, remain unaffected by subprime, UBS holds the booby-prize responsible for about 20% of total subprime write-downs, or about $38 billion dollars.

More banks in the United Kingdom and in the United States are expected to announce rights issues this quarter and, in some cases, might cut dividends. Citigroup, UBS, Wachovia and Washington Mutual have already sliced or omitted dividends over the last several weeks. There is more to come as banks struggle to conserve capital amid a continuing rash of write-downs.

Despite the tidal wave of rights issues this year, some banks are worth buying ahead of a powerful, liquidity-based rally later this year. I am focusing on those banks that will continue paying dividends and that have little or no subprime mortgage exposure. My favorites include U.S. Bancorp (NYSE-USB), Lloyds TSB (NYSE-LYG) and Toronto-Dominion Bank (NYSE-TD). I disclose owning all three in my retirement account.

The #1 Indicator that Correctly Predicted a U.S. Slowdown is Flashing Red Again -- Overseas

Back in 2006, when most stocks were still hitting new all-time highs in the United States and credit markets were soaring on the heels on ultra-low borrowing costs, one important leading indicator was flashing red. Nine months later, that same indicator correctly predicted a U.S. economic slowdown that morphed into the subprime mortgage monster by July 2007.

Bond yield inversion is an anomaly historically associated with an impending recession in the major industrialized economies. It occurs when short-term government bond yields trade higher than long-term interest rates, usually suggesting an economic recession or slowdown lies ahead. More often than not, this indicator has accurately forecasted a U.S. recession in the post WW II period. This time was no exception; it was right on the money, predicting a bear market in U.S. stocks and credit starting last July.

Starting in September 2006 until March 2007, benchmark two-year U.S. Treasury bonds started to yield more than their respective ten-year Treasury counterparts. It was a classic inverted yield curve, whereby short rates yield in excess of longer term rates. At the time, many pundits on Wall Street dismissed this bond anomaly as a short-term phenomenon driven mainly by foreigners accumulating quality short-term U.S. Treasury paper, thereby reducing the available supply in the marketplace. They, however, were quite wrong.

The Father of Yield Curve Inversion

Professor Campbell Harvey of Duke University was of the original fathers depicting the relationship between yield inversion and economic recession. He published his dissertation in 1988 in the Journal of Financial Economics. In 1989, he published a follow up article in the Financial Analysts Journal.

Harvey's prediction about the usefulness of the yield curve was right on target. In 1991, after the 1990 recession, he noted that inversions of the yield curve have preceded the last five US recessions, suggesting that the curve can accurately forecast the turning points of the business cycle.

Indeed, the yield curve turned negative, or inverted, in late 2006 and successfully predicted the current U.S. economic slowdown. In some respects, the current slowdown has ballooned into the worst credit crisis since the Great Depressions, as several segments of the mortgage-backed market and other synthetic derivatives have clogged the financial system since last July.

Eight Countries Approaching or in Actual Yield Inversion

Although no in-depth analysis or research has been conducted on the universality of yield curve inversion abroad, recent evidence suggests that once it hits the United States, the world’s largest credit market, it does spread to other industrialized economies.

As of mid-April, eight foreign markets are currently dogged by yield curve inversion or are approaching yield inversion. And, last year, the United Kingdom became the first G-7 economy after the United States to suffer yield curve inversion for the better part of the year until last fall. For the record, the U.K. is now slowing sharply in 2008, as several banks come under pressure. One mortgage bank has failed and the housing market is unravelling.

Currently, six industrialized markets are mired in yield curve inversion. These include Australia, New Zealand, Austria, Norway, Portugal and Switzerland. Two other markets now sport the same interest rates along the short and long end of the yield curve, including Denmark and Italy. This strongly suggests that an increasing number of mature economies are gradually being infected by America’s subprime slowdown as interest rates narrow.

Historically, the Anglo-Saxon economies have typically followed similar economic cycles, whereby expansions or contractions in economic activity have been simultaneous events occurring within months of one another. This was the case in 1989-1990, when the United States suffered a recession and the United Kingdom, Australia and New Zealand soon followed suit. In the early 1980s, all three countries suffered the same economic hardships as the United States following a period of surging interest rates and inflation in the late 1970s. The same was true for most developed economies.

Decoupling or Re-coupling?

In the late 2000s, analysts have been quick to surmise that emerging markets and other economies in Europe have finally decoupled from the U.S. economic cycle. Although the emerging markets have shown incredible resilience since last July, when subprime first exploded credit markets, other major or mature economies have not been as fortunate.

The United Kingdom is probably heading into a recession or a severe slowdown. The country’s credit markets have been bottled up for months, mortgages are turning sour and a leading mortgage bank collapsed last September (later rescued by The Bank of England). British real estate is now contracting, especially in overheated London. The pound, though still relatively firm versus the beleaguered dollar, trades at an all-time low against the euro. The United Kingdom, in all likelihood, will join the United States and suffer a slowdown in 2008 or, worse yet, a recession.

The majority of industrialized countries, including the European Union and Scandinavia, will increasingly share the same bond yield inversion phenomenon that occurred in the United States 18 months ago. Over this period, benchmark 10-year Treasury yields have plummeted from 5.25% in late 2006 to 3.42% recently – a sizable gain for investors.

I expect yield curve inversion and economic re-coupling to occur this year as the majority of mature economies suffer the same fate as the United States. Bond yields in Europe are poised to decline sharply despite the European Central Bank’s (ECB) adamant stand against inflation. With more euro-zone bond markets inverting, it is only a matter of time until interest rates come down sharply across the continent and the ECB abandons its inflation fight.

Bond yield inversion is spreading. For European bond investors, this marks a good entry point to buy long-term government debt and investment-grade corporate paper ahead of a steeper yield curve by 2009 or 2010.

More Pain: Top-Rated Borrowers Increasingly Denied Credit

In this space last week, I covered several indicators in the markets to track the development or contraction of the credit cycle (see my April 16 blog). My reasoning is that despite an impressive rally in stocks since March 10th, credit markets have not improved to the extent that this rally can be justified. In fact, several credit indicators have deteriorated over the last six weeks with a marked slowdown in lending joining my list of bearish developments.

Lending to some of America’s top rated investment-grade companies has slowed as banks increasingly refrain from lending to even quality credits. As banks’ capital ratios continue to bleed this year amid a deluge of credit write downs, traditional forms of lending have contracted – affecting the ability of companies to finance or rollover existing loans. What is alarming is that credit is now harder to secure for prime borrowers.

U.S. investment-grade loan issuance declined 26% in the first quarter compared to 12 months earlier, according to Reuters Loan Pricing Corporation and The Wall Street Journal. That is definitely bad news for the economy, businesses and overall corporate liquidity, as companies struggle to refinance or seek new funding. In 2006 and 2007, companies borrowed more than $1 trillion dollars; the first three months of this year tallied just $68.6 billion in loan growth – a significant plunge compared to 2006 and 2007 levels measured on an annualized basis.

Investment-grade borrowers are companies with BBB credit ratings or better.

As I also noted last week, the current default rate among junk bond borrowers or companies rated below BBB, is still historically low at 2%. Previous recessions have resulted in an average 5% default rate, suggesting more pain lies ahead for those troubled companies that missed easy access to credit before July 2007, when subprime halted the “easy-money” train.

This story gets worse…

Moody’s reported last Thursday that an increasing number of American companies are now in their weakest financial position since 2001, as they struggle to pay bills and other operating expenses. Moody’s reports that 47 companies are in the midst of liquidity troubles, more than double the rate compared to June 2007.

The above data, combined with my Credit Check-List last week, shows that most credit indicators are actually deteriorating, not improving. This strongly suggests that the stock market is mustering a bear market rally, and eventually will head to new lows as the economy continues to contract this year.

The Federal government’s spending bill, which will hit American consumers this summer, will only temporarily boost the economy. The big picture for this economy is dominated by the contraction of credit, and that story still has a long way to play out before it is safe to aggressively buy stocks again. Remember, the smart money is in credit, not stocks. That is where I am looking for clues this bear market is bottoming.

While Most Bank CEOs Proclaim End to Credit Crunch, Merrill’s Thain Remains Skeptical

The ongoing credit crisis reminds me of a horror movie. You sit in your chair, freaked-out, covering your face with your hands and peaking only briefly to see if it’s safe to watch again. Well, that’s exactly how I feel about bank stocks these days.

Over the last ten days approximately 20% of all companies in the S&P 500 Index have reported Q1 earnings. As you might expect, the markets have been glued to bank results. The numbers, of course, are lousy, with more write-downs plaguing all the majors while some smaller regional banks have actually fared much better amid the worst credit storm since the 1930s.

It’s interesting to note that several high-profile CEOs, including Jimmy Diamond of JP Morgan Chase, just proclaimed the “end of the credit crisis” this week. Other CEOs have also suggested the same believing the worst of the squeeze is behind us.

That might sound reassuring to some investors, but not to me. Remember, these are the same guys that just days before Bear Stearns collapsed were telling us the investment bank was “liquid and solvent.” So, if there’s one thing this credit crisis has taught us, it is that we cannot trust Wall Street. In fact, we must suspect everything they say or print because they obviously do not have a grip on this runaway credit train.

I do, however, have respect for Merrill’s top-boss, John Thain, former head of the NYSE.

In a Financial Times article this morning, Thain claims his peers are probably too early in calling a bottom to this crisis: “I hope those who say we are at the end are correct – I am skeptical. Consumers are just beginning to feel the impact of higher food and energy prices. We haven’t yet seen the full impact on the real economy.”

It is true that some segments of the credit markets are now stabilizing, but others are still simmering to a dangerous boil. These include the most dangerous of all – credit derivatives or CDOs, which have a notional value of about $45 trillion (with a “T”) – more than the combined value of U.S. bond markets and housing values.

We still have a long way to go before the credit crisis draws to a conclusion. What we are seeing now is a lull in the ongoing storm, or a bear market rally for stocks after five straight months of losses. Stocks remain an underweight position in my portfolio.

See you on Monday. Have a good weekend.

Don't Count on the Fed to Save Stocks in 2008

The Dow and most foreign stock-markets enjoyed a blistering rally on Wednesday but heading into this morning’s trade the futures look pretty ugly. Earnings from Merrill, Lynch, Motorola and Pfizer all point to poor results and the markets are heading lower in the United States and Europe. No surprise for this bear…

Stocks can still muster a significant bear-market rally. The S&P 500 Index and the MSCI World Index have logged almost six consecutive monthly losses; in previous bear markets, including the 2000 to 2002 period, equities did manage to post some big rallies. Of course, these intermediate or short-term advances were just opportunities to sell stocks as markets eventually broke down to newer lows.

What’s amazing about the last bear market is that stocks continued to plunge even as the Federal Reserve aggressively cut lending rates. Turn the calendar ahead six years and we’re pretty much in the same pickle.

The bulls point to the Fed as our stock-market savior. I’m not so sure. Yes, it’s hard or even futile to “Fight the Fed” when the central bank is printing like mad and desperately trying to reflate the money-supply; but investors forget that despite its best efforts starting in January 2001, the Greenspan Fed unsuccessfully halted a massive slide in stock values. From January 2001 until December 2002, the Fed cut rates from 5.50% to 1.25%, yet the S&P 500 Index still plunged a cumulative 36%.

Since the Bernanke Fed began cutting rates last September, the S&P 500 Index has declined a cumulative 10% -- not exactly a successful rescue.

I still think this market will form a bottom sometime in the fourth quarter – not before. But even then, I don’t expect a bull market to return because the contraction of credit has fractured the economy, corporate earnings and the consumer. It’s hard to be bullish on the market for an extended period amid these conditions and especially when oil is trading north of $100 per barrel.

Earlier last summer when the sub-prime credit crisis first erupted, I predicted stocks would still finish higher 12 months later. I was wrong. The depth of this crisis is enormous and although we’re probably 2/3s of the way through the worst of this debacle, its implications for the economy will linger for many years.

Bank stocks will ultimately lead the next rally since they represent about 35% of total global stock-market capitalization. It’s pretty likely that as stocks form a bottom later this year the market will enjoy a blistering 12-month gain. But beyond any rally, which shouldn’t be interpreted as a new bull market, most stocks will be poor investments over the next several years as inflation, deflation and a long-term contraction in bank credit slow the world’s largest economy to pre-1995 levels.