Don Hays

Top 40. May 14, 2001 12:50 PM

» Kirk - May 12, 2001

Saturday May 12, 7:30 am Eastern Time
Luxuriating in Summer Bull Market?
By Pierre Belec

NEW YORK (Reuters) - Looking ahead for something positive? How about luxuriating in a bull market this summer? Yes, this is the stuff that some people are predicting.

But be careful. It all could be a mirage engineered by those economy-saviors -- the Federal Reserve bankers -- who are desperately pumping up the nation's money supply to save the economy from a recession.

``The dynamics for a big rally are in place,'' says Martin Roberge, quantitative strategist for National Bank Financial, a unit of National Bank of Canada.

``First we've had interest-rate cuts by the Federal Reserve and investors are now starting to take the view that things will not get worse. The final leg will be the expectations that corporate earnings can only recover with the Fed continuing to lower rates,'' says the Montreal-based strategist.

Indeed, the mood on Wall Street has been more upbeat than it has been all year long. Investors are actually putting a positive spin on bad news. The view is that things can only get better from now on.

For example, the market for initial public offerings of stocks is slowly coming back to life, and the junk bond market is stirring a bit. The capital markets are coming back from the dead after getting booster shots from Federal Reserve Chairman Alan Greenspan who has slashed interest rates by 200 basis points in four big cuts each of 50 basis points. Another rate cut is expected from the Fed's policy-setting meeting on May 15.

If those deep interest-rate moves don't work, then the politicians in Washington are waiting in the wings with tax cuts.

MAY BE TOUGH FOR BEARS TO FIGHT THE TAPE

Roberge says investors' fear of missing out on the next bull market will be one of the catalysts for what he called a ``monster of a summer rally.''

``But this rally will be special,'' he says. ``It won't be a six-month market comeback but a compressed rally lasting only about three months.''

The upturn will be magnified by a rush by short sellers to buy back stocks. The market's rubber band-like reaction could be spectacular because the number of short positions in both the Standard & Poor's and the Nasdaq 100 futures contracts hover at record highs.

Also sparking the bounce will be the return of nervous money, which has been sitting in the safety of bonds and cash while the market went through a nail-biting plunge during the past year, Roberge says.

``What will help the market will be the 'New Equity Culture,' which is the new reality of managing money,'' he says. ``Even though people may not like the fundamentals of major names like Nortel Networks (Toronto:NT.TO - news; NYSE:NT - news) or Cisco Systems (NasdaqNM:CSCO - news), their biggest fear will be in missing the next run-up and having their investment portfolios underperform.''

Roberge says deeply oversold markets have historically been fertile ground for counter-trend rallies, which is what happened last month.

The Standard & Poor's 500 index has risen 15 percent since April 4 and the Nasdaq composite index has surged 34 percent from its 2-1/2-year low set on April 4. The Dow Jones industrial average is flat after shaking off a drop of more than 10 percent.

The snapback suggests that a lot of investors believe that a market bottom has been established.

Roberge reckons that the summer rally will push the Dow to between 11,500 and 12,000, putting the ``Old Economy'' index in record territory while the S&P may climb to 1,350 and 1,400 and the Nasdaq to 2,800 and 3,000, both short of their record highs.

FED'S FREE-FLOWING MONEY, THE STUFF OF BULL MARKETS

The rocket fuel that will get the next bull market off the ground will be the Fed's huge injection of cash into the system to stimulate economic growth, says Don Hays, president of Hays Advisory Group, an investment consulting firm.

``The next bull market, which could be substantial, will depend on how long Greenspan keeps pumping money into the economy and how long people think that he can pull miracles to save the economy out of near recession,'' he says.

Greenspan, who knocked the wind out of the economy by raising interest rates six times between 1999 and 2000 to slow growth, now hopes his policy shift will do the trick.

But the prospects that the economy will rebound may not be the prime factor in driving stocks up this summer, he says.

``Don't look for the economy to strengthen any time soon because there are things that have to be cured, such as the massive consumer debt and other excesses,'' Hays says.

The veteran Wall Streeter expects Greenspan will continue to pump up the money supply right through the end of 2001. His views though are at odds with some Wall Street firms, where most dealers look for an end to Fed monetary easing soon.

Greenspan has opened up the Fed's money faucet, sharply increasing the nation's money supply, which is the most powerful tool the central bank can use to stimulate the economy. The Fed manages the money supply by raising or lowering the reserves that banks are required to maintain.

Hays says that over the last 13 weeks, growth of the Money of Zero Maturity or MZM -- cash that can be readily used by consumers -- has jumped by some 25 percent, a record increase. By comparison, in the months leading up to the feared Y2K computer bug, the Fed boosted money supply by 15 percent, which was then a record.

MZM is a neat measure because it counts all money not tied up in checking and savings accounts, thus the reference to Money of Zero Maturity.

GREENSPAN'S ORGY OF LIQUIDITY

``There is an orgy of liquidity currently building up all at the same time,'' says Roberge. ``As we learned from the Y2K episode, this liquidity could easily find its way into financial markets.''

In the autumn of 1999 prior to Y2K when the world's computers were expected to confuse the year 2000 for 1900, the central bank greased the banking system with plenty of cash to prevent a seize-up in the financial system if panicky Americans made a massive run on banks.

Y2K fizzled like a wet firecracker but Americans who had stashed away spare cash for an emergency that never happened now found they had lots of change rattling around in their pockets. The money that could not be spent on buying a second sleek red sports car or a villa in the south of Spain found its way into the stock market. Some analysts say this propelled a speculative bubble in the technology-rich Nasdaq market.

The Nasdaq composite index was up a whopping 87 percent by the end of 1999 -- a record for any U.S. stock market -- as buying of tech stocks on credit or margin became a national pastime.

``I don't expect a replay of 1999 when we had an explosive market because since then the pyramid schemes -- margin debt and companies' use of their high-priced stock to buy other companies -- have been destroyed by the crash in technology stocks,'' he says.

``The tech stocks have a chance of rallying but I would play them cautiously because there is a high risk their earnings will suffer in the coming year,'' Hays says.

Financial stocks will lead the parade, thanks to falling interest rates, followed by health care stocks and energy shares.

``The Fed money growth level is obviously creating excess money sitting on the sidelines,'' Hays say. ``So far, it seems that most of the glut of cash has been parked in money market funds.''

Roberge says the last time all of the Fed's money gauges rose in sync and as fast was in 1995-96, which was a bullish period for stocks.

``Unfortunately, it will be a Fed-engineered market bubble,'' Roberge says. ``It will be a new speculative mania with new money because the Fed wants to fight a recession rather than tackle inflation.''

NOW BAD NEWS IS GOOD, LATER BAD NEWS WILL BE BAD NEWS

``The bull market should be in a topping phase around October or November, which will probably be about the time that Wall Street will realize the economy is not going to bounce back up and there will be a recession, regardless of what Greenspan does,'' Hays says.

Hays' bet: The Nasdaq has the potential of rallying to 3,000 while the Dow could take a stab at 12,300.

For the week, the Dow Jones industrial average dropped 130 points to 10,821. The Nasdaq composite index lost 84 at 2,107 and the Standard & Poor's 500 index fell 21 to 1,245.

-- posted by Kirk

Top 41. May 16, 2001 8:19 AM

» Kirk - May 16th, 2001

Author: nomar
Date: May 16, 2001 8:05 AM
Subject: Hayes- Sound Familar?

Its easy as 1,2,3.(1) 2 wk pullback,(2) 4-6month bull (3)Corection and wait for start of super cycle bull market!....... But the bottom line is that the next couple of weeks should cure the cracks in the wall of worry. Keep that little bit of powder that we took out two weeks ago good and dry, because just about the time that the rattling reaches its intensity, that will probably be the time to jump back into the battle.

My own rattling above only involves a few of my “inner-thoughts” about the evolving trends. Don’t hyperventilate. This still fits our long-term strategy to a tee. A bull market that will last for another 4-6 months, and then another dose of reality as we start to cure the excesses of the last few years, and prepare for Deflation and Democracy in the world. And then the fantastic great news, that should set the stage for the next super-cycle bull market.

In most persons life-time, they only have one chance at a total super-cycle bull market. Mother and Dad times me just right, because if the old ticker hold out to give me a normal life-span, I'm going to be blessed with two of them. But remember, it is going to be extremely hard to tell that is here with all the rattling that you will be besieged with.

-- posted by Kirk

Top 42. May 17, 2001 7:06 AM

» ourisman - a quote from Hays market comment for 5/17

But how is [Greenspan] going to rein in that runaway money supply? This is totally opposite of how most people feel about dropping or raising interest rates, but I believe he has been forced to drop short-term rates until signs begin to show up that the money is starting to being redirected out of that “safe” haven into the market, into consumption, or into bonds.

Today’s market rally should help this boost in confidence that is needed to draw the money out of their bomb shelters. Since the cracks in the wall of worry were not repaired sufficiently, it is my guess that this rally is starting the last big move in the market that could last 8-12 more weeks....

I suspect that the next few weeks will witness a similar kind of advance. I also suspect that the next few months will see the Dow approach that target of 12,600 that I had given you back a few weeks ago, and now confirmed by this break-out. As it climbs to new highs, as I expect, the enthusiasm should start to crumble the all-important wall of worry.

But you know, nothing is easy, so I don’t expect an immediate resumption of trouble either at the end of that time. The market will want to really squeeze those bears before it starts any downside.

-- posted by ourisman

Top 43. May 17, 2001 7:22 AM

» nomar - Re: Hays I was wrong

I Sacrificed For the Bull Market
If You Believe That, I’ve Got a Cheap Bridge For You

I did it for all us bulls. As you know, I laid out in neat detail why the next few weeks would see very little action, as it repaired the cracks in the wall of worry. Well, so much for my short-term call. These are always ripples on the tide, and even though I try to call them, sometimes I get blindsided as I obviously did in yesterday’s blast-off. I just knew that if I really wanted the market to move up as our asset allocation model had said it would, I needed to turn a little negative on the short-term. Since the market always does something to mix us all up at times, I knew it was my turn, so I sacrificed.

Let me get back away from that tomfoolery, now. As you know, I did do a little pruning, but I never base anything but just those relatively minor pruning and planting decisions on trying to predict the ripples. My main discipline is always based upon the asset allocation model’s message as to the direction of the tide—and that major part of my discipline is almost always right.

Yesterday’s move was very impressive, and the Dow broke through that 11,000 resistance as if it wasn’t even there. That was a strong message, especially as the volume moved up.

-- posted by nomar

Top 44. May 17, 2001 7:30 AM

» Kirk - Re: Re: Hays I was wrong

In response to message posted by nomar:

Thanks nomar and David.

I like hays. He says what he thinks and then tells us when he was wrong and why. That is EXACTLY what I want from someone I listen to or read.

It will be interesting to see if he still believes in a CT rally as time goes on and how he "surfs" the rally to extract profits or is he a "floater" and just rides it up and down. Nothing wrong with either strategy unless he does something silly and the wave breaks on him and he drowns.

Keep us posted!

-- posted by Kirk

Top 45. May 21, 2001 7:33 AM

» ourisman - the status of Don Hays' asset allocation model

Very briefly, let’s discuss the asset allocation model. To begin with, the valuation model for the S&P 500 is showing an extreme level of valuation of around 25% overvaluation. As I broaden this study, and review the Value-Line median estimated P/E ratio, I find it is now up to 17.4. It was around 12 in March of last year as the NASDAQ topped out and the typical stock bottomed out. When I look at the range of this “typical” stock valuation in the recent past, I see at the peak in April of 1998, it moved up to 19.8. I am guessing that this bull market will once again move this broader-based valuation measure back to those levels in the next few months....

The psychological leg of the asset allocation model will get a lot of press in the weeks ahead as the bullish sentiment moves up. I will be watching that closely, and when the American Association of Individual Investors bullish sentiment moves above 60%, while the bearish sentiment moves under 15%, it will turn ONE component of our psychological basket of indicators negative. But don’t forget, that is ONE component, and not the total message. I will be watching the CBOE VIX volatility gauge, to see if it does drop under the extreme 20 level that indicates too much optimism. I will especially be watching the Smart Money Index. This index is still very bullish as the smart money continues to buy this rally. So taken in totality, the psychological leg is still attached.

And the monetary leg is still rock solid. Obviously the long-term rates have moved up, but that is not nearly as important as what continues to occur in the short-term rates. It is my opinion that the action of short-term rates are at least twice as important to the stock market and the economy as long-term rates. So until I see the short-term indicators move up to dangerous levels, monetary liquidity continues to be extremely powerful and bullish.

One last thought, and I know I’m making a huge mistake by giving these observations out. But before I do it, here’s one of my numerous hedge clauses. I always give targets, because to the incessant demands for them. But even though I sometimes manage to pull one off successfully, they have nothing to do with my market scenarios. It will not matter one whit whether or not the market hits these targets, as to when I turn more bearish. That will SOLELY be based upon the asset allocation model.

But the breakouts that occurred last week do give technical chart projections that I will keep out there in my peripheral vision. Let me share them with you. The NASDAQ’s breakout projects a target of 2820. From another chart observation, I see the most formidable resistance at 3000. The S&P 500’s breakout now projects a move to 1430. This is close to the chart resistance level as well. The Dow’s breakout projects a target of 12,600. This, of course, will be out there in all-time record territory, so no chart resistance target will be possible. The Wilshire 5000’s breakout projects a move to around 13, 500.

-- posted by ourisman

Top 46. May 21, 2001 10:11 AM

» burkmorz - Re: the status of Don Hays' asset allocation model

In response to message posted by ourisman:

Thanks, Ourisman....please keep us updated on Hays...I really find his stuff interesting and useful...

-- posted by burkmorz

Top 47. May 22, 2001 6:07 AM

» Not_Normal - Re: the status of Don Hays' asset allocation model

In response to message posted by ourisman:

ourisman, thanks for the Hays update. Keep them coming.

-- posted by Not_Normal

Top 48. May 22, 2001 6:41 PM

» Kirk - Aaron Task on Don Hays

Don Hays of Hays Advisory Group in Nashville, Tenn., reiterated his ongoing support for the bullish argument (although not necessarily for big-cap tech) in a conference call today.

The new bull market is "not over yet," he declared. "We still have plenty to go."

then another bear

If a repeat of the 1980 scenario continues to unfold, Hays said the Dow won't peak until sometime between August and October, and broader market indices not until November-December. The averages will then fall into a period of volatile, range-bound trading, he forecast, paving the way for another bear market beginning as early as next June. The next bear will be generated by growing evidence the economy remains weak despite the Federal Reserve's aggressive easing, he suggested.

Full Article: http://www.thestreet.com/markets/aaronta...

-- posted by Kirk