This is Jay Taylor speaking for Taylor Hard Money Advisors, publisher of J. Taylor's Gold, Resource & Environmental Stocks newsletter as of March 6, 1999. This message is normally updated every Saturday at 8:00 PM EST unless otherwise noted.
As always, all monetary quotes are in U.S. Dollars unless otherwise noted and all information contained in this hotline is derived from sources believed to be reliable, but we cannot guarantee its completeness nor accuracy. The opinions expressed in this message are only those of Jay Taylor and they do not necessarily represent the opinions of Taylor Hard Money Advisors, Inc., the publisher of J. Taylor's Gold, Resource & Environmental Stocks newsletter.
MARKET, ECONOMIC & POLITICAL VIEWS
The astounding move by the major markets over the past two days was indeed very impressive. However, some people like Ian Gordon believes this is the finan flow off and that the bull market that began in 1982 is now over. Jerry Favors on CNBC said yesterday that he was also impressed with the market move, but he is not yet convinced we will make significant new highs. He said he would like to see the advance/decline ration at 2.5:1 or higher for two consecutive days before he could believe significant new higs could be made. The advance/decline measure is what most technical analysts have been complaining about for quite some time. As good the market was yesterday, the advance decline ration on the NYSE was only 2.24:1.0. If we do have two consecutive days with 2.5:1 advance/decline days, Mr. Favors holds out the possibility that we could see one final gigantic blow off to a high of 13,000 on the DJIA.
It is my belief that we have either seen the highs or we may be very near to seeing them. There are at least two reasons why I think we may have seen the highs for this secular bull market in stocks. First, I buy into the idea that the 18 year bull market in bonds may be over. This point is argued in this weeks Barron's by Randall Forsyth in his article titled "New Dusk?". The inability for interest rates to decline coupled with disappointing earnings (which I also expect, if not this quarter then the final two quarters of this year) and an already more overvalued stock market in history, will make it very difficult for our market to remain at their current lofty levels, never mind rise to new highs.
I also think that a market that fails to continually rise could give way to something that is mighty ugly, namely a viscous bear market. This could happen when investors begin to understand that instead of the 20% and 30% annual return they are used to in the stock market they "break even" or see their investments begin to decline slightly. When average Americans begin to doubt the idea that "you can't loose with stocks in the long run", a notion sold to them by commission loving stock brokers and mutual fund salesmen, a major washout could take place. As has always happened at the end of prior cycles, stocks become as undervalued as they are overvalued. What that day comes, I may once again begin looking a the general stock market for investment opportunities.
There were some other articles this week that I found to be of significance. For example in this week's Barron's, Neil Martin in the International Trader column of Barron's pointed out that contrary to common "spin" by the Clinton administration and the purveyors of equities, the Asian economic situation is not getting better. This is what I have been saying because not withstanding big shot bankers and CNBC talking heads have said, I have seen little evidence by way of economic data that indicates things are getting better in the world. Most of these countries will see a decline in economic activity this year. According to Banque Paribas, six of 10 countries in the Asian region plus Hong Kong are headed for at least a second year of economic decline. Indonesia leads the way with a 5.9% decline. South Korea will contract by 3.6%, Singapore by 2.2%, Hong Kong by 2.1%, Thailand by 1.4%, Malaysia by 1.3% and the Philippines by 1.2%. The only bright spot is India which is projected to grow by 5.3% and Taiwan by 4.6%. Although China is projected to grow by 6.5%, I do not believe the information that comes from China is sufficiently trustworthy to put much credence in those projections. Also, remember recently the news that came out of China noting that most of their products were in serious oversupply.
It is true that the stock markets in Asia have come back strongly, but it is clear the Clinton Administration and others have been giving us a lot of lies when they talk about Korea's "remarkable recovery". According to Sephen Marvin, head of research for Jardine Fleming Securities in Seoul, "Skillful public relations and slick presentations by a band of policy makers have left may with the impression that restructuring of the corporate and financial sector is nearing completion, when in reality the progress has hardly begun. Another research manager from a large securities firm in Hong Kong said, "People living out of the region have no idea of just how widespread the social economic and political dislocations are. The picture is unfortunately distorted by the research produced in the region, which often reflects pressure on analysts form the underwriting side of their companies to take a less severe view".
Other headline items this week, which I think, are very important and present problems for the United States over the longer term were the following developments.
· Continued bad economic news from Japan including news of a downturn in car and truck sales,
· Earnings warnings from Fujitsu, related to plunging domestic demand for telephone equipment.
· Rising trade tensions between the U.S. and Europe.
· Increasing tensions between the U.S. and China over military issues as well as human rights and trade issues.
· Short-term interest rates forced to zero by the Bank of Japan in an effort to reflate their economy. As discussed before, this is akin to pushing on a string. Confidence is so shattered in that country that no level of interest rate is likely to stimulate borrowing. From an individuals view point, why would you borrow if you think you will lose your job? Why would a corporation borrow when it sees increasing global supplies, declining rates and no takers for its products?
With respect to my closing remarks so far as markets and politics are concerned, I note with interest that since the market has come back over the past couple of weeks, Goldman Sashes, Robert Rubin's firm has, is furiously attempting to sell its share to the public. Remember they were set to do that last year, but withdrew their offer when the market faced a "correction". I'll leave you with this question. Might this firm's urgency to sell its shares a this time by telling us we are at or near the top of the greatest bull market in history? |
