Slider:
The following post is from a subscription service; hence this will be my only post from this source.
Don Hays is one of the best market timers in the business and his record over several decades is supurb. Turned wildly bullish just before the 1982 blast-off.
But now has become extremely bearish. Expects one more good rally, possibly lasting though the election, then a brutal decline. But not being nearly as expert on oil as many here, that last rally might be more sickly than he expects.
I Wish I Was Bullish!!
It's Been Easy to Make Money--In Stocks & Bonds
Back in the old days. . . .yes Grandpa, tell us about it. I know it sounds as
if I have my rocking chair warmed up, and about to describe those 10
miles I had to walk to school in the snow, with nothing but cheese and
crackers for lunch, but not really. What I am talking about is how easy it
has been to make money in the last couple of years. What has been
important is to know when to pack it in, and take a very defensive stance
in those periods like August of 1998. Or to know when to take some of
those huge gains in the technology and biotech darlings in March of this
year, and start broadening out your stock selection in the more typical
kind of stocks. It was important to know about a year ago that the long
forgotten energy stocks should be moved up to the buy list. Even in
bonds, it has been important to know in January of this year when the
bullish sentiment for bond investments, as measured by Market Vane,
had dropped to the lowest level in their 20-year record of compiling these
surveys, that it was time to buy the longest term government bond you
could find.
I almost feel guilty, as bearish as I am, to have seen our portfolios appreciate so much. I will continue to
reiterate, that even though I am as strong a proponent as you will find for a quantitative approach to market,
sector, and stock selection, that sometimes it is a feeling you get. In other words, it is as much an art as it
is a science to being a good investor..
But in some ways, the art is a product of the science. I look at all the facts, and the studies, and then as they
make their way through my muddy brain, the answer is never anything you know for absolute sure it will be
correct. So the study has to be intense. You have to really live and breathe this stuff, and hope you can get
in the groove with the rhythms of the financial markets. It is so sweet when you are in the groove, and so
painful when all of a sudden you find the market is not agreeing with what you think it should be doing.
My balding head is a testimonial to those "bad" times, but thankfully so many other aspects of my life, and
my financial gains have been a testimonial that there have been many more of the "good" times. But the
last couple of years have really been an anomaly in my opinion. In almost all times, market asset allocation
is the most important part of the performance game, but I really think that in the last 24 months the most
important part of the equation has been the sector selection, both in bonds and stocks. So I watch the
sectors so closely now for clues. As of now, look at this list. From a pure chart evaluation the following
sectors look great: banking, biotech, brokerage, computer hardware, healthcare, HMO's, insurance, natural
gas, oil, pharmaceuticals, and oil service. Except for a very few of these sectors, the list is 180 degrees
different from this description on March 10, 2000. In contrast, the following sectors look horrible: anything
connected to cyclical or natural resource stocks, internet, retail, semi-conductor, telecommunication, and
especially the Nikkei Dow.
And the sentiment changes so quickly, especially by the average public investor. This is typified by the
survey conducted by the American Association of Individual Investors. You can see from the volatility since
the first of this year, that the respondents to this survey have really been fickle this year. That bullish
sentiment, that tends to be a real danger sign when it moves above 60%, moves up there, the market
corrects for 6-10%, and then they turn unusually bearish. Up and down, up and down. I have never before
seen such a period. These type of flip-flops are a sign that a real change is coming to become more
ingrained one way or the other, but not yet. But last week, when the bearish sentiment dropped to 6.7%, it
has to be meaningful that this is the lowest of any other time in the history of this "contrary" indicator. This is
even lower than the previous record that was made right before the top in the market in 1987, just weeks
before the major crash.
I really have been trying to emphasize that this is a very special time for investors. Two weeks ago, I sent a
report out to you entitled "The Bells Are Ringing-part II." This is only the second time in my 32 years of
following and writing about the market that I have used this "Bells are Ringing" theme. The other time was
8 days before this mighty super bull-market blasted off in August 1982. All the pieces fell into place in my
opinion for the imminent beginning of one of the strongest bull markets in history to lift off. I had been
growing more bullish since the fall of 1981, but for the first time the missing link had been found at that
pivotal time in market history.
Now in the last two weeks, I believe the missing link has fallen into place for the imminent beginning of the
second phase of the bear market-the concern phase-to commence in the weeks ahead. I'm not going to
rehash all the comments form the last two weeks, but if you didn't read last Friday's comments, make sure
you do. I think it is very important to see why I expect one more rally, and then big trouble. The timing? Can't
tell for sure, but my best guess is that the Administration will do everything in its power to keep the bull
market alive until after November 7. They better. If they can, there is a high probability that Gore will be
elected. But if the weak market sets in the next few weeks, his goose will be cooked right along with some
of those Internet stocks that he invented.
The weakness in the market on Friday was very deceptive. It did not even come close to erasing the gains
of Thursday. For instance, on Friday there were 139 new highs and 67 new lows on the NYSE, but only a
few days ago there were only 46 new highs, and 148 new lows. On the NASDAQ that comparison on Friday
was 138 to 164, while a few days ago it was a much weaker 50 and 250. I think a lot of Friday's action was
end of the quarter posturing, but even with that said, you can really see the concern start to emerge.
Since I am headed to Denver, Kansas City, and Saint Louis trying to tell this important message to
institutional money manager clients on Monday and Tuesday, I am writing this on Saturday evening instead
of my normal early Monday morning discipline, so if it seems a little dated on Monday morning you will
know why. But I'll be back home on Wednesday morning, and I will be very surprised if the market does not
look a lot better by then. But don't be deceived, if I am right this rally will be a time to do more pruning than
planting.
See you then. |
