FWIW: Sometimes, for perspective, it's nice to step back and look at the bigger picture - even for traders. I've mentioned Don Hays recently regarding Arms Index readings. Although I have not followed him very closely over the years I find him to be a very interesting writer. He is basically an investor as opposed to trader and is a firm believer in using market trends for making money. To this end he uses technical analysis. I am posting here something he wrote 4/2/01, in case someone else might also find it of interest. It's rather long, but with his buoyant writing style it shouldn't take too long to read.
Morning Market Comments
www.haysmarketfocus.com
April 2, 2001
Twisting the Noose
CRB index and Currencies
by Don R. Hays
"I’m back in good old Nashville, and I know all you will be surprised--but the skies are
cloudy. (But don’t gloat too much you Floridians, we don’t have any dimpled chads.) Yes,
I’m talking about the skies above, but could just as easily be talking about the investment
skies. And if I was in downtown Tokyo, I could probably say that the hurricane warnings
are out. You see, it is now April 2, 2001, and the banks have to come clean, for maybe the
first time in the last 40 years. This is the year that they have to mark their vast holdings of
cross-held stocks to market, and this is the date when that is to be done. Of course, I’m
not sure how many smoke and mirrors they can quickly build. They are masters at that,
but the market will continue to spank them until they do come clean.
They brought out all the gun powder they had left to try to buoy their stock markets up, and
did manage to rally the Nikkei Dow from its 11,819 low of two weeks ago, to almost
13,000, but that is chicken feed as it has plummeted from its 39,000 level of 11 years ago,
and from the 20,000 only one year ago. The chart of the Nikkei Dow made a very definite
lower low, and I will be surprised if it doesn’t eventually retrace all of its 1982-1990 move,
which would take it back to 8,000. If this proves correct, it would happen sooner rather
than later.
This is part of the noose, in my opinion, that the markets are starting to tighten to force the
next big change that will be the foundation of the next big super-cycle bull market. As you
know, the indicators are intact, in my opinion, for a new bullish move, but I do not, repeat
DO NOT believe this will be the next big super-cycle bull market. I almost hope not, as I
believe natural forces have not had time to work their magic.
My best guess is that this will be similar to the March 1980 example, that was a relatively
strong rally, but really was only a prelude to more trouble in 1981-82, which set the stage
for the new super-cycle bull market. Natural forces are indeed amazing--much more
amazing than any manipulation. And in today’s world, there are so many promising
potentials out there, but in my opinion the stage is not set as of yet to unleash their magic.
Good sound basic change only occurs as a result of adversity, it seems. Sadly, easy times
breeds corruption and excess. So if manipulation temporarily postpones adversity, and the
herd begins to believe that adversity has been outlawed, greed really takes over. That’s
why bear markets are a necessity to help temper greed and corruption and expectations.
Japan is a classic example of manipulation to keep the herd at bay. It has been said that
the current Japan, and especially in the peak times of 1990, was an example of how the
government, corporate leaders, and the mafia all teamed up together to blow the bubble
up. The bubble blew up so dramatically, and the contentment of the herd that had been
guaranteed life-time employment was so sedated, that here they are 11 years later, and
they have not yet deflated all those excesses. But I believe they are very close to the finalgive-up. I’m not sure how much more tough times that they will have, but my guess is that
the herd will rise up and kick the L.D.P. majority out in the next two years.
It is not just in Japan that the noose is tightening. I believe the deflationary forces that are
evolving, and the weakness in the currencies of virtually every country ex U.S. will
eventually do the trick. I would cite the Euro as the key currency to watch, but you can
almost take your choice. It is my opinion that in the next year the major countries of the
world will get in a contest to see who can drive their short-term interest rates down the
most to try to stave off their economic problems. Japan is in that mode already, and the
news this morning is that the U.S. will not accept a lower yen policy to solve their ills.
As you know, almost all the real
statisticians have looked at the huge
and growing current account deficit, and
predicted the demise of the dollar. We
simply do not expect that. The reason
is that virtually every country in the
world is behind the U.S. in the
Technology Revolution and in the battle
to build productivity enhancers. In the
natural forces that I expect to produce
deflation in the world, these advantages
will prove to be so powerful in the
decade ahead.
The biggest potential problem is that some of the political leaders in some country will try
to hold on to their power, and start some conflict to try to divert their herd’s attention. So
for the next few years, any time I see some conflict like today’s collision between the
Chinese Fighter and the U.S. spy plane it will send a few cold shivers up my spine. But I
believe that economic considerations will over-ride the ability to produce a meaningful
international conflict. But don’t rule out the “crazies,” so the next few years of this
transition that I envision into deflation and democracy for the world will be nerve-wracking
from time to time—just as it was in that 1980-82 period that conditioned the herd to make a
major change, politically and economically. I’m a big believer that things happen when
they are supposed to, not when humans get together to manipulate them into happening.
Men (and women, of course) can create ripples on the tide, but not the tide.
My vision is that the signal from my asset allocation model, and now from the Arms index,
will produce a rally based upon the sedated herd’s faith in Greenspan, (Ugh!) But by
2002, the world will be in a mighty battle of currencies, every country in the world being
hurt by the loss of exports to the rich U.S. consumer who has pulled in their horns. The
dollar will remain king, of course. Maybe a better way to say it would be that the U.S.
consumer who has lost their confidence in the stock market’s perpetual money machine
has taken a big break from their incessant spending to rebuild their empty pocketbook. To
try to boost those exports again, those countries will start cutting short-term rates, and the
U.S. will be pulled right along.
With a mundane U.S. economy, and recession in most of the world’s economies, I expect
short-term rates to eventually fall to 2%, and the 10-year Treasury note’s yield to fall under
4%.
And as country after country roots out their dictators, corruption, and socialism, and
democracy finally allows those billions of oppressed non-workers in the world to get jobs
and become consumers, then the stage will be set for a new super-cycle bull market that
will reward the productivity enhancer producers.
That was the message that one of the most foremost visionaries in the financial world,
John Templeton, shared with the world in 1989 when the Berlin World came down. At that
time, he really made an impression on this “blind” visionary, when he said that in his
opinion, that single event will prove to be the third most important event in the history of
the industrialized world. In other words, he said that would affect you, me and our
descendants as much as the Printing Press.
But it has been 12 long years, and the world does not really seem that much different. But
it is, and only waiting for the last catalyst to break those that are not yet free into the open.
The manipulation (flooding the system with free money) of the last four years by our
Federal Reserve has done nothing more than delay the natural forces in my opinion. If
you remember, the corruption was starting to be rooted out right after that Asian Pacific
crisis, but the surging stock markets quickly rekindled that greed and corruption.
But Japan is at the end of their rope, and I believe Greenspan is not far from his. But
timing is almost everything, and my indicators say that the market is due one more fling.
Based on the historical examples, I suspect that we probably have a couple more weeks
before the new bullish move breaks out into the clear. I’m going to be watching today’s
market very closely. As you know, Friday’s rally could loosely be interpreted as the
confirming rally of 1%, with increasing volume, that confirms the bottom of March 22, 2001
was a genuine one-day reversal, and a low point of the decline." |
