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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (63088)	11/25/2000 3:31:29 PM
From: Crimson Ghost	Read Replies (1) \| Respond to of 99985

I don't know about Bernie, but Don Hays is one of the best stock market prognosticators around and he agrees with Bernie. In fact he is even more bearish than Bernie and projects the NAZ to drop to to the 2000 area by January before a sustainable rally begins On a very short-term basis he does see a bit of a bounce the next few days. But woe to anybody who overstays it. Henry Kaufman's comments from today's Barron's have a similar tone: "In the next six to eight months, Alan Greenspan is going to be more powerful than the President." And that's true no matter whether the President is named Bush or Gore. So Henry Kaufman envisions the immediate future. And there's solid reckoning behind the famed economist's slyly facetious forecast. For Dr. Kaufman thinks the economy will continue to slow, slipping inexorably toward recession, that the stock market still has unfinished business on the downside and that corporate profits are slated to grow much less robustly than most folks expect at a time when corporate balance sheets are leveraged up to the gills. Not the least of the attributes commending his less-than-ebullient view is that it contrasts sharply with the sunny predictions of most economists, who hew unwaveringly to the conviction that whatever is, will be. In the best of circumstances, Kaufman points out, fiscal policy-meaning stepped-up government spending or tax cuts-requires a year or longer to take effect. Come January, with the Congress so evenly divided, whoever winds up in the Oval Office may find getting legislation passed as protracted a process as just getting elected proved. So the burden of dealing with an expansion that's winding down and a spooked stock market will fall squarely on monetary policy and Alan Greenspan. Making the Fed chief's task all the more ticklish, Kaufman says, is that Mr. G. is reluctant to appear overly eager to rescue the market from its euphoria-induced fall and also the fact that the public is so involved in the stock market. "I know of no time in the last 50 years," he sighs, "in which the well-being of the American economy and that of the rest of the world have been so dependent on the strength of the U.S. equity market." If the stock market were to crash, Kaufman comments, Greenspan would find it easier to step in. But if we're in for a "halting" decline stretching out over many months, he'll find it much more difficult to "act decisively," lest he be accused of rushing in to prop up the market and interfering in a natural purging process. As for the economy, Kaufman opines, "the critical question for the next 12 months is corporate profits and expectations about corporate profits." And here he again parts company with the consensus. Instead of the recent double-digit growth and the conventional wisdom's relatively cheery outlook that earnings will climb by 7%-7 1/2 % next year, he sees gains of no more than 4%-5%. A major depressant to earnings, he contends, will be a sharp drop in GDP growth to 2 1/2 %-3%, from around 5%. What bothers Kaufman all the more about the prospect of dramatically shrinking profits is that even during this unprecedented boom, corporate credit quality has been on the decline and balance sheets have become "extraordinarily leveraged" as companies have borrowed heavily for acquisitions and to repurchase their own shares. From 1997 through 1999, corporate debt rose by a staggering $1 trillion, while equity contracted by $460 billion. And much of that debt, Kaufman observes, is of less than stellar quality, and, as a result, the credit status of the banks holding such paper has slipped. Not a single U.S. bank today boasts a credit rating of AAA. The chances of a recession in 2001, Kaufman feels, are 35%-40%, while the chances of a recession within three years are just about 100%. As for a slump lasting a year or more, he calculates the odds at one in three. What could trigger that nastier economic slide would be a bigger-than-anticipated drop in capital spending. (For what it's worth, we think that's a very good possibility, paced by a steep contraction in tech spending.) Where are we now in the stock market? Like most sensible human beings, Henry Kaufman is loath to commit himself too blatantly to where the Dow or Nasdaq will bottom. He contents himself with the observation that "the reversion back to the mean is in process, and that process is probably not completed yet." And then he adds this telling reflection: "When you get into periods of great euphoria, how high is high? You can't quantify it. And when you get into periods of real setbacks, how low is low? You can't quantify it."