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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: nextrade! who wrote (30035)	12/13/1999 8:08:00 AM
From: nextrade!	Read Replies (1) \| Respond to of 50167

Don Hays Market Comment December 13, 1999 We now have only 18 more days until we put a cap on this 1000 year millennium, and move into whatever the next 1000 years bring us, it is very exciting. But unless I'm totally out of my tree, the fireworks of today will have a sobering up time before the next millennium can really show its stuff. Do you think when the year 2999 comes around that Uncle Sam will still be the powerhouse it is? When you look back 1000 years, and see the humongous changes that have occurred, can you imagine what the next 1000 will look like? The velocity of technology changes are picking up speed, so I don't think this old earth can hold the results, so look out universe. I thought I would talk about 1000 years from today, since forecasting the next 6 months is so difficult. But let me make a stab at it. Three months ago when the put/call ratios signaled that the market had another rally in it, I suggested that mid-December would be produce a topping action, the final little mini-top for the advance/decline line. Of course I never dreamed that the NASDAQ would scream to current levels, but the advance/decline line has been even weaker than anyone would have expected. So now, here we are at mid-December, and the stage is set in my opinion for an impending change in the market's direction. With the biggest divergence in market action in US history, the past tells us the bigger the divergence the bigger the reaction. The past examples are 1929, and 1972 so if this one has any message it says that "new era's" come and go, but markets always remain the same. With the exploding money supply obviously distorting the personality of the stock market, and with the Producer Price index moving above the Consumer Price index for the first time in the last three years, Mr. Greenspan has 18 more days to see if his huge reservoir of unprecedented liquidity is to be needed to calm Y2K emergencies. With the huge bubble of money floating out there, much more than the economy can use, the velocity of money supply is plummeting but still enough to keep the unemployment rate at a 30-year low. But the big question will be, how will he reduce the almost insatiable growth of money and what effect will it have when the 1.5 billion shares of NASDAQ volume starts to dry up? All of that liquidity, despite the higher fed funds rate almost guarantees higher short-term rates in the future. Using the 1972 example, we believe the recent rally will have produced the last mini-rally in the advance decline line, even as disappointing as it has been. The McClellan oscillator is treading water at the oversold level of -99, so we might see--as we did in January 1973--one more unconfirmed rally by the large-cap indices. Whether or not Y2K proves to be a problem, I believe that the extreme economic optimism about next year will prove to be misplaced. As of the first few weeks of the year, I suspect that reports will turn much more negative, and by the end of the quarter we will see the first negative comparison with this year. And when the US catches a cold, the rest of the world catches the flu, so our US economic weakness is expected to spread to cool the expectations of the recent resurgence in those reviving economies. Of course, the stock market looks ahead, so even though the major signs of economic weakness are not expected to be revealed until March or April, I still expect the Fed to raise interest rates at least once, and maybe twice before then. I also expect the bond market to pick up on the impending slowing of the economy by starting a strong rally. As I mentioned in last week's market comment, my bond momentum gauge has finally fallen to a -100 level. I know that doesn't mean anything to you, but just let it suffice to say that in every example in the last 20 years this level of long-term oversold condition in the bond market has been the trigger for a tremendous bond market rally. To confirm the buy zone, we wait on the momentum to turn upward, but even buying on the first downward penetration of -100 has produced huge capital gains. Nothing is perfect, of course, but once again we believe this sets the stage for one last decline in long-term interest rates in the next two years under the 4% level. With our valuation model now showing the S&P 500 to be 52% overvalued in relation to the 10-year Treasury note, this signal is a powerful inducement to buy bonds. We have also seen the highest bearishness on bonds in history, which adds a little frosting to the cake.