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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: TigerPaw who wrote (30548)	10/26/2003 6:42:20 PM
From: stockman_scott	Respond to of 89467

Finally, Market Comments from Ned Davis Research... sptimes.com Past tells analyst that bear market continues By HELEN HUNTLEY, Times Personal Finance Editor Published October 19, 2003 -------------------------------------------------------------------------------- Ned Davis is among the best at mining the past for clues about the stock market's future, but even he has a hard time figuring this market out. He calls it a short-term bull within a long-term bear. "I'm cautiously optimistic that we still have some room here" for stocks to go up, he told members of the Financial Analysts Society of Tampa Bay last week. But he said he is not convinced that the serious bear market that began in January 2000 is over. The way he looks at it, stocks never fell far enough to produce the kind of solid market bottom that gives birth to new long-term bull trends. The research Davis has been producing since 1980 at the Ned Davis Research in Venice, Fla., is a mother lode of information for those who wonder how heavily to invest in stocks or who just want to understand the market's behavior. Davis and his colleagues are high-level numbers crunchers, tracking a host of economic and financial indicators through history and turning out complex graphs. The difficult part, both for Davis and the company's clients, is interpreting what those patterns might mean for the future. Price momentum, a key Davis indicator, has been clearly positive this year. Gains on blue-chip stocks are approaching 20 percent, with the Dow Jones Industrial Average up 17 percent and the Standard & Poor's 500 Index up 19 percent. Tech stocks have been on a tear, with the Nasdaq Composite Index posting a 46 percent gain. The Dow is now within easy striking distance of 10,000, the psychological milestone it first crossed in March 1999. Technical analysts such as Davis have a slogan that applies in these conditions: "Don't fight the tape," they say. That means if momentum is taking the market strongly in one direction, it's a mistake to bet against it. Falling short-term interest rates also have been a bullish indicator. Analysts call that one "Don't fight the Fed." More recently, rates have moved up, but they are still historically low, which makes stocks a relatively attractive investment. The presidential election cycle is also favorable since stocks tend to do well in an election year and in the first year of the presidential term. But Davis, 58, sees lots of other things that have him worried. At a true bear market bottom, he said "stocks should be clearly cheap based upon time-tested, absolute valuation measurements." While stock prices fell over the past three years, they never got to bargain levels. Recently, stocks in the Standard & Poor's 500 index have been selling for 27 times their earnings per share and three times their book value per share. By comparison, when the market bottomed out in 1982, stocks were selling for eight times earnings and for less than book value. Davis doesn't buy the argument that today's low interest rates justify the higher prices. Other economic and financial indicators also worry him, from rising consumer debt and low savings rates to the ballooning trade deficit and the excessive optimism of investment advisers. "Debt is my biggest concern," he said. "It's a very high-risk situation." And in spite of the downturn, investors never abandoned stocks the way they did in previous bear markets. Stocks still represent about a third of household financial assets, not including pension fund reserves. That's down from 49 percent three years ago, but still far above the 16 percent share in 1990 or the 11 percent stake in 1982. Davis said investors who want to make money in the market should rely on objective indicators, such as the trends he follows, instead of buying and selling stocks based on emotions. Davis has written two books expounding on his theories, Being Right or Making Money, published in 1991 and revised in 2000, and The Triumph of Contrarian Investing, scheduled for release next month. Gabelli Funds also has launched a new mutual fund that invests based on Davis' computer models. Since the launch of the Ned Davis Research Asset Allocation Fund six months ago, it has attracted a relatively tiny $11.3-million in assets. Fortunately, Davis said investors don't have to be able to predict the stock market to make money in stocks. "I've never seen anybody who could consistently and reliably forecast the stock market," he said. "But there are a lot of people who make money year in and year out." - Helen Huntley can be reached at huntley@sptimes.com or 727 893-8230.