Great Article making a profoundly bullish case:
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THE LAST BEST BUYING OPPORTUNITY OF THE DECADE
Prepared by The Wall Street Digest, Inc.
(May 2001) Seasoned investors know that fear drives your emotions at a market bottom while
greed keeps you in the market long after it tops. At this moment, the bears are taking maximum
advantage of investors' fears about the market. Many investors could not handle the steep market
sell-off on Tuesday, April 3rd, when the Dow plunged 292 points and the NASDAQ plunged 110.
The bottoming process of the market was an extremely difficult experience for many investors who
decided to "think long term" and did not use a stop-loss to limit market losses.
After surviving April 3rd, investors were further frightened by bearish newsletter advertisers who
warned that the technology sector was going to face another steep sell off and the Dow Industrial
Average would suffer a devastating crash from Dow 9000. That is simply not going to happen. The
market was oversold and undervalued on April 3rd, which I think will eventually be the date of the
final market bottom.
Our April issue cited the case for a market that was very close to a final market bottom. As we
move into May, the bullish case has even more merit.
Keep these bullish points in mind when you read frightening mail forecasting a market crash: A) The
Fed is cutting interest rates rapidly. Three 50 basis point cuts in the first quarter and more rate cuts
are coming, probably a 50 basis point cut by May 15th and another 50 basis point cut at the next
FOMC meeting. B) More importantly, the Fed is creating money at the fastest pace in history. Also,
liquidity is at record levels.
Three trillion dollars is sitting on the sidelines waiting for further confirmation of a market bottom.
Wall Street pros know that the stock market will not crash when the Fed is creating new money on
top of $3 trillion on the sidelines. C) The major brokerage houses are telling clients to buy stocks. At
the very least, that probably means that you don't have to worry about computer sell programs from
the bullish brokerage companies.
D) Fed Chairman Greenspan has already called the large money center banks and told them "don't
be stingy with lending policies."
The Fed chairman is actually telling the banks to lend money, even though consumer credit is at
record levels. The banks are responding. Proof is in your mailbox every day. How many
pre-approved credit card mailings have you received? The next leg of this powerful bull market
probably began on Thursday April 5th when the Dow jumped 402 points and the NASDAQ
jumped 146 points, or 8.9 percent.
There is so much cash available to buy stocks that investors are going to be shocked at how fast
market indices roar back to new highs.
I am very disappointed in market analysts who are telling clients that it will be two, possibly even
three years before the technology sector will be able to recover. That is pure nonsense. Technology
is the driving force of the U.S. economy. Some internet sectors will recover immediately and roar
back to new highs before many investors will be able to get back into the market. Other technology
sectors may lag for six months or so while working off inventories.
The technology sector growth that is coming is so enormous that it is impossible to comprehend.
1) Less than 300 million people are logging onto the internet today. Forty percent of the globe, or
2.5 billion people, will be using the internet before the end of the decade. Obviously, you should own
the companies that will build-out the internet infrastructure. 2) Technology will lead the market to
new highs. The MRM Asset Allocation Group is forecasting NASDAQ 8000 on this next leg-up.
Harry S. Dent is forecasting NASDAQ 25,000 by 2009. The internet is still the driving force, of the
global economy.
3) Peter Huber, editor of the Digital Power Report, says, "The next great surge in the market will be
propelled by streaming audio, followed quickly by streaming video. The Napster generation is
already addicted to them, and the rest of us will follow soon enough. Everything we currently call
radio and television is going to migrate to the web's digital platform, because that platform offers far
richer capabilities and far more choice.
We can track the new crowd as it forms. Streaming audio and video require broadband connections
to the web.
About six million Americans have such connections today, and their ranks are growing fast. The
critical mass of broadband subscribers will be in place before the end of 2003. The transition from
20 million to 100 million will then occur before 2010. Which means the industry will sell more
hardware and service in the next 10 years than it sold in the last 30.
That means more microprocessors, audio cards, graphics chips, disk drives, flat-panel screens,
digital radios, etc."
4) The market leaders will be in the technology sector. However the market leaders from one
decade seldom lead the market in the next decade.
The market leaders of this decade will be in the information/technology sector, where vast amounts
of information must be moved rapidly and stored conveniently. E-commerce and the wireless
explosion will also contribute market leaders.
So will broadband, fiber optics and the companies that will build-out the internet to allow 2.5 billion
people to use the internet without crashing the system or slowing it to a crawl.
Technology Stocks Are Leading The Market Lift-Off To New Highs
All of the best performing stocks since the market bottom on April 3rd are from the technology
sector. Do not listen to analysts who are telling clients that the internet/technology revolution is over.
It has in fact just begun.
Microsoft Is Now A Blue Chip Company
Not A Market Leader Or Rapid Growth Company
Having lived through 15 years of Microsoft experiments, I have not been excited by Windows XP,
the new Windows operating system scheduled for release late this year. But as I have read reports
by colleagues who saw the Microsoft demo, I am increasingly impressed. XP is the most
highly-integrated software from Microsoft in six years. It is potentially as important as Windows 95.
It will ultimately replace all Windows in the home and most Windows at the office. It takes Windows
in the direction it should be going--making it more reliable, more serviceable and more useful. Users
will better-link DVD players, digital cameras, camcorders, hand-held organizers (PDAs) and
high-speed internet access.
This means big support from the makers of these gadgets. There are some neat features. You will be
able to use the internet remotely. There is "music management," video movie-making, a built-in
software firewall (great for people on DSL or cable modems) and the ability for many people to use
the same machine (great for the "connected home").
Windows XP won't be a huge boost to Microsoft's profits: it already has a virtual lock on PC
operating systems. But it does demonstrate a lot about its continuing commitment to be a great
company. Gates said he's invested $1 billion in XP. (Source: Harry Newton's Technology Investor.)
Technical Indicator Signals Market Bottom
The best technical indicator of all, in our opinion, flashed one of its super signals on Friday, March
16, 2001: the 10-day moving average of the Arms index moved to 1,517. We are going to name this
new signal a counter-balancing "Sign of the Bull." In every case in the last 40 years, a significant low
in the market occurred within the next 20 market days. In the last 19 years, the lows have occurred
within the next 4 days. That does not mean that you always plunge in immediately. You might get
slaughtered, as on October 19, 1987, when the Dow plunged another 22.61 percent. There has
been only one time when the signal occurred on its low day.
On the opposite side of the ledger, there have been four occurrences when the bottom was 15-20
days away. The value of this signal is to put up your antennas and try to second-guess what exactly
will cause a bottom, and to focus your full attention on the bullish forces that are building under the
surface. (Source: Don Hays, Morning Market Comments.) (WSD Editor Comment: The market
bottomed on Tuesday, April 3rd, 12 days after the March 16th signal.)
Best Buying Opportunity Of A Lifetime
This correction is all about bringing the tech stocks back to normal valuations, based upon realistic
growth targets. NASDAQ stocks will be valued in the future just like other stocks. Since they should
continue to grow faster, the average P/E will be higher than on the S&P 500, but a NASDAQ stock
growing at the same projectable rate as General Electric will be valued at a similar multiple.
The internet and tech bubble is over, but the above average growth rate, due to its S-curve
penetration, is not over. The internet S-curve penetration is at 44 percent and should continue to
progress towards 90 percent by 2008. It is still progressing on the same S-curve as cars from 1914
to 1928. Bandwidth is still around five to six percent, poised to explode from 10 to 90 percent from
about 2003 into 2008 or 2009.
The last new economy also had a shakeout and stock crash between 1920 and 1922. Likewise, this
is clearly not the end of the tech rally. That is why we consider this to be the best buying opportunity
of this entire boom and, perhaps, of our lifetimes, especially in tech stocks. We had an extreme crash
in the leading sector of our economy, but during a bull market with 7 to 8 years of technology
explosion and an economic expansion ahead, it doesn't get better than this!
To summarize: We should be buying the strongest stocks in the technology sector, up to 50 percent,
then in financials and Asia, 20 to 25 percent, and not be favoring health care, which could be five to
ten percent. Otherwise, get ready for the greatest buying opportunity in our lifetimes! (Source: Harry
S. Dent Forecast.)
NASDAQ 25,000 By 2009
Chart courtesy of H.S. Dent Forecast.
The Bottom Line--What To Do Now
U.S. STOCK MARKET: Become fully invested now. Use Fed Chairman Greenspan's master plan
for the U.S. economy to double your wealth before he retires.
Alan Greenspan's final term as Fed Chairman expires in August of 2003. When he retires at the age
of 78, two years and four months from now, you can bet for sure on a few things:
1) Inflation will be only a minor problem if at all. At this moment he is "killing inflation" in the
economy and in the stock market by staying "behind the interest rate curve." This will stall demand
while inflationary pressures die.
2) He is counting on rapid money supply growth and a highly liquid banking system to prevent a
recession.
3) He knows that cutting interest rates too fast will send the housing and refinancing markets into
orbit. Auto sales would also accelerate.
4) The real problem is the stock market. With $3 trillion cash on the sidelines and the major
brokerage houses now telling clients to buy stocks, he knows that cutting rates too fast could create
another stock market bubble and a repeat of "excessive exuberance."
5) He intends to cut interest rates gradually so that the best of all possible worlds will unfold on his
retirement day in August, 2003:
a) Inflation will be dead.
b) Economic growth will be 4 to 4.5%.
c) All stock market indices will be at record highs.
d) The global economy will be stable and growing steadily.
e) Everyone will be calling for his re-appointment, but it won't happen.
f) Lawrence Lindsey is the next Fed Chairman.
g) You will be a lot wealthier.
May 2001
Donald H. Rowe, Editor and Publisher
The Wall Street Digest, Inc.
One Sarasota Tower, Suite 602,
Two North Tamiami Trail, Sarasota, Florida
941-954-5500
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