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To: Justa Werkenstiff who wrote (1153)	12/15/2001 12:22:35 PM
From: Les H	Read Replies (2) \| Respond to of 29594

Ned Davis comments by Tim Hayes, Global Equity Strategist at Ned Davis Research Inc., a $16,000 per year research service (is our service a bargain or what?) that we have great respect for, in a report received last night: "Here in the waning stages of what may be the mildest recession on record - a recession likely to end in January - the most relevant question no longer has to do with whether the stock market has bottomed ahead of the economy. The more pressing question concerns the upside potential. In the stock market's case, a valuation ceiling remains a major limitation, and this is not liable to change unless earnings bottom next year. . . . Growth oriented indexes like the S&P 500 could find their uptrends cut short by investors' new risk aversion and valuation awareness. Likewise we expect the economic recovery to be less than robust, with subdued expansion possibly giving way to another phase of weakness. Our economic concerns are the debt overhang, excess factory production capacity, inhibited capital spending, and questionable conditions in the automotive and housing sectors." Further on, Ned Davis himself has this to say: "It may very well be true that the bear market and the recession are over. If so it will bolster the long historical evidence that the U.S. and its free market system have amazing resilience. Yet some of my key indicators continue to caution me, as a self-described "risk manager", that there may be unfinished business on the downside for stocks and the economy. So, rather than a U or V bottom, we may end up with a W in 2002. Six things concern me: 1. Stocks are still selling at 39.2 times latest 12 month earnings on the S&P 500. That is a record high and earnings are estimated to be even lower at the end of the year. Thus the market is priced for perfection and there are a number of factors that argue the environment is not perfect. [Ned then goes on to list and comment on those concerns: The low level of cash being held by mutual funds, the way stock offerings (supply) have outpaced mutual fund inflows (demand) by a record mount over the last six months, the new all-time low in the personal savings rate, the record household debt relative to GDP (a record 75.1%), record levels of corporate debt relative to GDP, the great overcapacity of factories (which indicates there will be a continuing decline in capital spending for new plant and equipment).] Davis concludes by saying, "This opens up the possibility that we may see a double-dip bear market and economic correction." You can see why we have great respect for Ned Davis Research, seeing that we raised the same concern in "Now a New Question" in the current newsletter, pointing out why conditions may be setting up for a "double-dip" in the economy. Our reasoning was a bit different, concern that too much of next year's economic activity is being pulled into this year by the Fed's aggressive rate cuts, the government's tax rebate, 0% financing by the auto companies, and the probable lag in economic recoveries in international markets. Put together the reasoning of both of our research efforts and odds rise that we will see a double-dip economy and a double-dip bear next year. All the more reason to continue to go after the intermediate-term rallies and corrections, after gains from both directions, and to use technical analysis (overbought/oversold conditions, support and resistance levels, investor sentiment, and momentum reversal indicators), as our guide rather than trying to guess what surrounding conditions may be three or six months ahead, and then how the market might react to them.