Heinz, interesting commentary in the Worden report tonight:
TIP: Our Coveted "Think for Yourself Award" Bestowed
The User who sent us the following email will be
knighted and sent a bottle of Veuve Clicquot Ponsardin -
a rare honor. So here it is, not that we agree with a
word of it.
I have always distrusted the masses, so if everyone says
the weather is nice, I feel compelled to say that it
isn't. Consequently, I needed to determine if it wasn't
just some misanthropic perversity that compelled me to
be bearish. Since I am an academician by trade, I sat
down, like a good Cartesian, to list what I knew to be
clearly and distinctly true. Well, this didn't work,
since there is nothing about the stock market that I
could claim to know with absolute certainty. Thus, I was
compelled to turn to Hume and the estimation of
probabilities in a probabilistic universe. I sat down
and listed the evidence that would indicate that we are,
with a high degree of probability, in the beginning of a
major bear market. Below is what I came up with:
1.Dow Theory, which has a 90% track record, flashed a
bear market signal a few weeks ago.
2. The collapse in the advance-decline ratio, and the
fact that, every time in the last 70 years the Dow's
advance-decline ratio has failed to hit a new high when
the Dow did, there was a bear market.
3. According to Elliott Wave theory, the Dow has
completed a fifth wave of a fifth wave. This signifies a
significant trend change. The decline from the high in
the Dow was a five-wave decline, which also usually
indicates a trend change. Thus, from this perspective,
the Dow is in the second-stage rally in a bear market,
which is the strongest bear-market rally and is a
preparation for the third-stage washout. The NASDAQ is
in the process of completing its fifth wave. When it
does, there will be a significant first-wave decline in
this market.
4. Stochastics has failed to confirm any of the tops in
1999. Each new top was met with lower stochastics. The
head and shoulders technical formation is still intact.
This projects a decline to 1,100 or lower in the Dow.
5. The money supply has declined. Real M3 hit a peak
last February. Peaks in money supply have been followed
by significant declines in the stock market in 1929,
1946, 1968, 1973 and 1987. There is an approximate
six-month period between the peak of M3 and when the
market begins to decline. The August highs in the market
fit into this time frame.
6. Credit is tightening. At its peak in the first
quarter of 1999, new credit was being churned out at
the yearly pace of $1.2 trillion. Now it's down 24%, to
$942 billion per year. That's the worst quarterly
decline in new credit in six years.
7. The extremely high valuations in the stock market
from a historical perspective are reasons to be bearish.
According to the Fed, the market is over 50% overvalued.
8. The fact that the Fed perceives the market to be
extremely overvalued, and Greenspan has warned
repeatedly about "irrational exuberance" and the need to
act before the market becomes so intertwined with the
rest of the economy that, when it does fall, it brings
the rest of the economy with it. If the tail begins to
wag the dog, then we are all in serious trouble.
9. Gann found that there were many market peaks the
ninth year of a decade in an increasing stock market. In
this century, this occurred in 1929, 1939 and 1969 in
the United States and in 1989 in Japan. These declines
are especially significant when combined with the 70-,
60- and 30-year cycles, which saw declines in 1929, 1939
and 1969.
[what happened to #10?...very un-Cartesian...]
11. Accounting manipulations are running rampant as
businesses attempt to maintain the appearance of
continued growth in order to draw in additional
investments. Besides all the manipulations that the
Internet stocks use to justify their valuations, more
classical ones are also in play. Mergers often are used
to provide the appearance of greater earnings so as to
overstate them, and there has certainly been a plethora
of mergers lately.
12. Finally, one of my colleagues at the university is a
classical scholar who has lived in an ivory tower for
over 30 years and who has traditionally raved against
the corruption of classical virtue by modern
materialism. When at a faculty meeting he started raving
instead about his stock market returns and began to give
stock tips to others, I knew that the party was soon to
be over. This was confirmed when my secretary, who has
no background or experience in investing, also started
issuing stock tips to the faculty in the department. -
MG |
