Zeev: Could not agree more about the dangers of the internet mania and the lack of new highs!
I am posting the latest market commentary of Don Hays of First Wheat Securities. I do not agree with everything he says but his record is very good. Turned bullish near the bottom and now believes we are on the verge of another sharp drop. But bullish long-term because he feels Fed will eventually cut a lot more.
BTW, if market is about to head south again, probably a good time to buy some bonds.
Today's Comments
We have loaded up your mailbox this week, and this morning the status of the market is still very similar
to yesterday morning, so just maybe this epistle will give you a little relief in your eyesore, but judging
from my nature, don't get your hopes up just yet.
We believe the market is at a very critical stage, a stage that will determine the personality of the bull
market of the future. If it follows our projection, we are about to experience a lull in the weeks and
months ahead that will be scary and volatile, but still only a lull in the upside progression. Two days ago
we outlined why the market, the economy, and the 80% of the world that is out of work and
impoverished, are crying out for a few more waves of PAIN. It is a shame that the impoverished also
have to go through more pain, but the net result should be very good for them, their children, their
grand-children, and generations to follow. The logic of the "needed" pain is that it would be the only
stimulus to change the basic nature of the monetary leaders of the world, principally the US Fed and the
Bundesbank, the banking community, and the corporate leaders. They are all firmly entrenched in a long
conditioned anti-inflation stance--which basically is also an anti-growth strategy. The US is flourishing,
blessed by the needed restructuring and improved productivity of the last 18 years. Ronald Reagan,
Margaret Thatcher, and Helmut Kohl were the right people at the right time. The unemployment rate was
given a special boost, as the baby-bust generation has been producing only a token number of new
employees entering the work-force in the US. This has occurred with a very low rate of nominal growth.
For instance, nominal growth in the US has been about 4% for the last four years, one of the lowest
growth rates in history. In this "slow-growth" mentality, inflation, which dropped from 15.7% to 4% in
1984--long before Greenspan came on the scene, continued to ebb as it worked its way through the
time-line of corporate restructuring and cutting of expenses. In the latest quarter, the GDP deflator is
virtually zero--at an increase of only .8%.
So that preface brings me back to my projection of the future. It is my belief that the world is at an
exciting fulcrum point, where all the political leaders, all the corporate leaders, and all the monetary
chieftains gradually adapt an entirely new personality, changing from the anti-growth to one that
aggressively accepts growth. From raising three children, and being married for 34 years, I know that
personalities don't change very easily--mine or theirs. It takes enormous greed, or FEAR to change
long-conditioned trends. Excessive greed is a terrible thing, of course, but moderated greed goes a long
way in defining why capitalism works so efficiently. It has been the Federal Reserve's main mission to
keep the greed under control, but now the Asian Pacific problems, compounded by Japan and China
teetering on the brink of financial collapse, by the nuclear-bearing Russian government edging close to
anarchy, the Iraqi fiasco, and the chaos spreading to Latin America and all the commodity producing
countries has taken the greed-fighting baton from the Fed. These new disciplinary deterrents against greed
have been causing a level of FEAR even higher than the Federal Reserve could have ever generated. But
now, after the severe spanking that these catastrophe's invoked in the last few months, it seems that the
"tough-love" has not quite worked its magic just yet. Optimism is starting to soar again. As noted
yesterday, bullish advisory sentiment measured by Investor's Intelligence moved up this week above
53%. Since it took 18 years to build this greedy little urgin, who believes that good news is bad, and bad
news is good, it will take several more return "trips to the wood-shed" to reverse the well-honed
conditioned reflexes.
That is why we believe that we are at an important mile-stone. If the foundation for a new exciting growth
era is going to continue to be re-molded, we believe firmly it can only happen if "real" short-term interest
rates drop to the more moderate 2% level. Today that "real" level is 3 *% above the recent level of
inflation as recorded by the GDP deflator. That unusual incentive for capital to remain on the "risk-free"
sidelines inhibits the kind of aggressive growth that the present over-capacity of the world is crying for.
With the urgin now thinking that the discipline is over, and starting to test the waters with his old
long-conditioned personality, it is precisely the time for another "whuppin." If it is not applied, the
bull-market will begin to move ahead, but the old personality will once-again give special reward to the
"nifty-fifty," and ignore the small-cap growth stocks that produce almost all the innovation in the world.
That is not what we expect. If we are correct, the bond market will once again start to rally, the
commodity prices will continue to drop, the dollar will rally again against the yen, the retail sales that are
being reported strong this morning will turn very weak as the Christmas season approaches, and the stock
market will decline. The growing optimism of today will turn into trembling fear. Our target date is by the
last two weeks of December in the season of expected negative earnings revisions, and the first few
weeks of January as the final Christmas sales are tallied.
Whether or not we are exactly correct in our timing, the urgin will be retrained. It may take longer than my
"strict" nature would like. I would like to change this naughty personality IMMEDIATELY, and still
believe that within the next 12 months, angelic features will be obvious to all. The market action in the
next two months will determine how long it takes for the new little angel to replace the urgin.
We expect a new breed of government leaders, monetary chieftains, corporate leaders, and investors.
Keep your fingers crossed, we need a little discipline applied NOW!!! |
