I've been reading and hearing so much negative stuff on where the economy and the market are heading that I thought it would be worth letting you know that there still are some bulls out there.

About 10 days ago, Ms. Abbey Joseph Cohen, a stellar analyst and forecaster, appeared on Ms. Maria Bartiromo's show on CNBC. Maria asked Ms. Cohen about her prediction of the S&P500 closing above 1600 this year and, realizing that it wasn't going to happen, Ms. Cohen said she had made that prediction a year ago. She does expect it to close well above 1600 in 2008, however. While admitting that the first six months of 2008 could be slow, she expects the economy to improve in the second half and gave a number of reasons why. Ms. Cohen didn't try to overstate her case, but she is worth paying attention to.

Mr. Don Hays, another stellar forecaster, was interviewed by Ms. Sandra Ward, Senior Editor of Barron's magazine, (12/03/07). Although he was cautious in mid-October, he currently is 100% bullish. Here are some of the things he tracks:

Investor psychology was a key factor in turning him bullish. It was too high in mid-October, but had gotten too negative in late November and the market was oversold.

Insider trading was also giving bullish signals. He said Corporate insiders are buying at the highest rate of anytime in the past four years and that's bullish.

He then turned to monetary conditions. He likes to look at a yield curve defined by the 90 day T-bill and the 10-year T-note. Right now, he said, it's about perfect with the T-bill at about 3% and the T-note at about 4%. The ratio of 1.33 will ensure that the economy will be humming along a year from now. He too sees a weak economy in the first half of next year.

He is critical when he talks about Bernanke. He says Bernanke, like Greenspan, is still fighting inflation and "inflation will not be a problem until you get this huge (worldwide) glut of labor absorbed. He says the dollar is weak because of restrictive (monetary) policies and a dumb Federal Reserve. He says the Fed should cut rates to between 3-1/4% to 3-3/4% and count on productivity and technology to keep inflation down.

He then looks at the relationship between the yield of the 10-year T-note and the S&P 500 earnings yield. This tells him that stocks are about 42% - 43% undervalued. (VectorVest has been saying this for the last two years.) The market has been this cheap only five other times in 28 years. He also asserts that profit margins will not be coming down because our companies farm out low-margin businesses overseas and keep the high-margin businesses over here. S&P 500 earnings are expected to grow 11% next year.

Ms. Cohen and Mr. Hays are both long-term veterans in the stock market forecasting business, so I give their views a lot of weight. But I am also disturbed by the Fed's incompetence. Stock prices would have gone up this week had it not been for the clumsy way the Fed announced the rate cut and the cash auction program. They couldn't have screwed things up more if they had planned to. Nevertheless, it was good to get the views of Two Old Bulls.

INFLATION.
It was interesting to read Mr. Hays views on inflation and then encounter the PPI and the CPI reports this week showing the worst inflation numbers in more than two years. One might think that the 3.2% y-o-y gain in the PPI and 4.6% y-o-y gains in the CPI are bad, but I've been wondering why these kinds of numbers haven't shown up earlier.

Many people believe that the inflation numbers reported by the Labor Department are biased to the low side. For example, Mr. Rudolph-Riad Younes was quoted in the December 10, 2007 issue of Barron's as saying that the 1980s decision to remove house prices from the CPI calculation and replace them with equivalent rents cut about 4% to 6% from the annual inflation rate. In other words, the CPI inflation rate under the old system would be 9.6% instead of the 4.6% now being reported.

MORE MONEY MACHINE.
If you're interested in learning how to buy low and sell high, sit in on this week's "Strategy of the Week" presentation on the VectorVest University. You'll love it.