Don Hay's Comments
We made it, the nice round number of 10,000. What a story is
unfolding, as we see the similarity with the previous breakthroughs of
those nice round numbers, i.e. 100, 1000, and now 10,000. It appeared
to me the celebration was somewhat muted, but then most of the bulls
had been celebrating already for the previous two weeks, since the
inter-day penetration on March 18, 1999, so I suppose the hangover
prevented the loud exclamations. Not too many people noticed that the
Dow was all by itself. None of the other indices followed it into the new
high territory.
When you look at the old Dow Theory, you see that the Dow Transports
not only failed to break through that 3686 high level that was reached
on April 16, 1998, but at 3294 it even failed to reach the short-term
peak of 3433 that was reached on March 18, 1999. Isn't it
mind-boggling that on the day that the Dow burst above that 10,000
level, there were actually more stocks (88) that made new 52-week lows
than new highs (44). The NASDAQ composite, at 2492, is trying
mightily to move above its previous all-time record high of 2510, that
was reached on February 1, 1999. But even more amazing, only five
trading days ago the NASDAQ had the most stocks (100) making new
52-week lows of any time this year, and excluding one day in December
1998 when it had 101 new lows, it was the most new lows of any time
since the October, 1998 panic decline.
But the camouflage being produced by the headline fodder of the Dow
10,000 penetration is certainly molding the thought process of the herd.
We have observed something in recent weeks that we wish we could
quantify. Over the last 30 years, I have been blessed with many more
complimentary notes from my readers than curses. My guess is that
this is not a testimonial to my brilliance, but more of a testimonial of the
natural tendency of most people to be nice.
In the period from 1982 to recently, even though we did not like the
description, many referred to us as the perpetual bull. On each stormy
day in the market, as the herd was warning of higher inflation rates and
a plunging market, we continued to exhort our readers to remain bullish.
I still have in my files, a note sent to the CEO of our company from one
of our readers at a very significant buying juncture in 1990, exhorting
him to tone my bullishness down since it was threatening our Firm's
reputation and ruining the asset value of our clients. The receipt of that
note was almost perfectly timed with one of the best buying junctures in
US history.
Now with e-mail making the transmission of notes so easy, we have
very gratified by the many complimentary notes sent to us in the last six
months. These came after our very cautious stance of last spring
preceded the April-August top, and then our very bullish signal moved
us into a fully-invested stance on September 7, 1998, right at the
bottom. But something happened in early February of this year to
enrage a few of our readers. The herd was reading the headlines about
the perpetual bull market, and the day-traders were getting all kinds of
publicity about their enormous gains in the internet stocks. In the midst
of this rush of bullish enthusiasm, our asset allocation model had the
nerve to start turning cautious. This red light that we were trying to flash
to stop the bullish stampede must have inflamed a few of the
rampaging bulls. In recent days we have received a few suggestions
that we should try selling used cars, or maybe go back to our
engineering career.
Of course, I have placed these notes in my file. I'm quite sure that
these are long-standing "experts" sending them. For all you nice people
out there, please don't take this as a measure to gain sympathy. Even
with these few complaints, I have received many more compliments. I
am very upbeat, so please don't send me a sympathetic note to try to
soothe my spirits. I've been here many times before, so I wanted to
share this important psychological indicator with you, the same as I
would a major signal from one of our other psychological contrary
indicators. As a side-note, I note that as I receive these few notes
condemning my caution, I hear some other "fly-by-night,
seat-of-the-pants" investors such as Warren Buffet and John
Templeton who are almost exactly quoting my comments. Maybe you
have heard of these old-time investors who also are finding today's tulip
bulbs a little risky.
Last night ended the Japanese fiscal year, and their March madness.
April is often a turning year, and we expect it to be this year as well.
Since we still believe that this year will closely mimic last year's April, let
me once again refresh you with last April's performance. The market
rallied into the first few days of April 1998, then started a 3-week
backing and filling process that finally broke down at the end of the
month. The next three weeks will encompass most of the earnings
releases, and the market has strangely enough rallied in many of these
periods for the last 12 months, even with rather dismal releases. But as
the news was finally out, then the trouble has erupted. We expect that
again this April.
At the same time as the world begins to see the economic troubles
re-ignite in the world in the next few weeks, we expect the bond market
to rally. In our opinion, now is the time to buy long-term government
bonds, with the eventual target of 4% during the next 18 months.
I have to go now, I have a nice used car that I'm trying to move at a
great price. I've been advertising it as a once-in-a-lifetime "lemon.com".
I've just tripled the asking price, and I have customers waiting in line.
See you Friday. |
