Don Hays' Nasdaq Comments..
Guru Don Hays thinks the NAZ is right about where the Nikkei was in the first half of Aug/90, and will see 1800 by year-end..
sharelynx.net
Here is a larger look at the Nikkie crash..
sharelynx.net
And here is a comparison of both the Nikkei and Nasdaq Bubbles..
sharelynx.net
Don Hays' Analysis ...Eyeing the Bear
As reflected by the gurus' call last Tuesday, the general feeling on Wall Street is that Monday's lows will prove to be the "final" bottom investors have long been groping for. But every bottom so far this year has ultimately proven porous.
That being the case, prudence dictates we give equal time to those with a far more pessimistic view, which Don Hays, president of Hays Market Focus Advisory Group in Richmond, Va., certainly expressed in a conference call Friday afternoon.
Hays began the call by noting an "amazing correlation" between the Nasdaq Composite's performance throughout this year and Japan's Nikkei Index in 1990.
Most recently/prominently, Hays noted there was a 32-week period between the Nikkei's peak in late 1989 and when it ultimately broke through the lows established in what he dubbed "phase one" of its post-bubble bear market. Last week marked the Nasdaq's first break of the lows it hit during its first big downturn, or 35 weeks since its peak in mid-March.
Additionally, both averages reached previously unmatched valuation heights at their peaks, he said, noting price-to-earning ratios of both markets were justified by talk of "new eras" that made old rules obsolete.
If the Nasdaq continues to follow the Nikkei's example, the index will continue to decline for the next six to 10 weeks before it reaches the ultimate bottom of this "second phase" of the bear market, Hays predicted. He forecast the end of phase two will come after a "climactic four-five days that will really knock the stuffing out of the market" and take the Comp to as low as 1800 -- or more than 40% below Friday's close.
Hays' draconian market view is accompanied by an expectation the U.S. economy will soon enter a recession and that the world economy faces additional deflationary pressures for several years. Reflecting such pressures, long-term U.S. Treasury bond yields will approach 4% by next October, he predicted.
The veteran market watcher -- who recanted a long-held bullish outlook in early 1999 -- also warned the Comp's P/E, while well down from its peak of 264, is still a historically high 124. Additionally, the earnings yield of the S&P 500 (12-month earnings vs. 10-year Treasury note yield) is 28% overvalued, he contends.
On the monetary front, MZM money supply growth fell under 7.5% on an annualized basis in the first quarter of this year, Hays noted, calling that a key "trigger level" signaling "excess money has dried up." MZM growth has picked up a bit recently, but the trend is of "withdrawing fuel from the bull market machine," he said.
Regarding psychology, consumer confidence remains high, in conjunction with low unemployment and as reflected by workers' confidence in their ability to change jobs voluntarily. That outlook, plus higher oil prices, is key to the Fed having to maintain a restrictive monetary policy, Hays said.
But at the same time, benefit costs are rising in the employment cost index, which is pressuring corporations' profit margins.
Other psychological indicators he cited included the still-high bullish sentiment and continued heavy selling by corporate insiders. The equity put/call ratio is recently suggesting investors are becoming more cautious (which is good from a sentiment standpoint), "but it by itself cannot keep psychological indicators afloat," Hays said.
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