Mother-of-all-LEI Recovers

Did you find the sharp turn in the market upward last year surprising? Is the continued thundering stampede of bulls running upward still totally baffling to you? Yes. Well then, take a look at one of America's most accurate predictors of future economic health (above).

The LEI index (leading economic indicators) has gone straight upward,for one year. It now stands at a new four year high. A high point above the 2007 level when the DJIA reached the 14,000 level.

This has been the mother of all LEI recovers. While we're not experiencing a V shaped employment recover we sure had one of the sharpest V shaped LEI recovers in history.

Hopefully this sharp 2009 market reversal, which was even greater than the 2003 bull run has convinced everyone that, if you're going to invest in the market, you need a long-term plan. No, your plan shouldn't be: I'll only invest after everyone agrees the economy is firing on all cylinders and sell only after I've watch my portfolio decline by 50%.

Over 35 years of market experience has taught me, more than all my finance classes, that stock markets are forward looking not backward looking.

Too many people choose to liquidate all of their stock holdings during the horrible market down days of November 2009 through February 2010. Worse yet, many choose to lock in their market losses AND take the money out ignoring their Uncle Sam's 10% early distribution penalty.

So, they: 1) Locked in there market losses; 2) Where not able to take any capital loss deductions on their tax returns; 3) Had to pay a tax 10% penalty for early withdrawal; 4) Most likely where pushed into a higher tax bracket which resulted in more tax due than normal; 5) Missed out on a once-in-a-life-time market turn around.

Below are the micro details of the LEI along with economist comments. The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.1 percent in February, following a 0.3 percent gain in January, and a 1.2 percent rise in December.

Ataman Ozyildirim, Economist at The Conference Board: “The LEI for the U.S. has risen rapidly for almost a year now and it has reached its highest level. But, the sharp pick up in the LEI appears to be stabilizing. As the economy moves from recovery into early phases of an expansion, the leading economic index points to moderately improving economic conditions in the near term. Correspondingly, the coincident economic index has been rising since July 2009, albeit slightly because of continued weakness in employment.”

Adds Ken Goldstein, Economist at The Conference Board: “The indicators point to a slow recovery this summer. Going forward, the big question remains the strength of demand. Without increased consumer demand, job growth will likely be minimal over the next few months. ”

The Conference Board Coincident Economic Index® (CEI) for the U.S. rose 0.1 percent in February, following no change in January, and a 0.1 percent increase in December. The Conference Board Lagging Economic Index® (LAG) increased 0.3 percent in February, following a 0.2 percent decline in January, and a 0.4 percent decline in December.

Note: I'm still sticking to my prior post regarding caution, buying more conservative dividend plays and selling the biggest winners into this advance now. It's possible we can hit Dow 11,000, before any pull back. But I'll be selling into advances and still betting we see another 5-10% pull back beginning no later than May. See prior post for more details.