What's Next?

October 2000

Is this how a Bear Market starts?
Is the Market going to Crash or will we have a soft landing?
Our previous doubts about the accuracy of the CPI calculations have now been confirmed.
What have company insiders been doing with their cash?

 

Update for the Week of October 16th 2000

We are starting to hear a great deal of doubt and debate in the media about the future of this market. We know one thing for certain, our subscribers have very little doubt and nothing to fear about the near term future of this market. I advised them to get out of stocks and into bonds a long time ago and this advice has been very profitable and very safe. Let the market do what ever it wants in the next few weeks or months and we’re going to profit. If it crashes our bonds will explode in value and those of us who wish to use leveraged instruments will realize once (twice for some of us, REMEMBER’87) in a lifetime profits. If the market drifts into a debilitating bear market, our bonds will grow safely in value. So, Mr. Market, bring on the best you’ve got because we’re ready for anything you can throw at us. And after you’re truly finished (see note) confusing and mauling investors and ready to move higher we’ll be there to take advantage of the profits that will surely come.

Note: In 1929 the market crash was the thing that we talk about today. But the real devastation came immediately after the crash. The market recovered slightly and then gyrated up and down until 1932 when it reached it’s final low. It went from a high on the Dow of 381.17 in September 1929 to a low of 41.22 in July of 1932. It did not regain its previous high until 1953.

Take care,

Jim Shepherd

 

Update for the Week of October 9th 2000

Inflation or Deflation?

In my April update to my clients I made two observations on the subject of inflation. My ongoing calculations had been showing that inflation was more of a problem than most believed and a real danger to the markets.

Two of the key gauges that measure inflation are the Consumer Price Index (CPI) and the Producer Price Index (PPI).

When these numbers were presented by government agencies they were seasonally adjusted and report a month-to month reading as the headline number. However my calculations were done on a year over year basis, which is less prone to error and gives a truer picture of the inflationary climate. Real Inflation when calculated and presented properly has been running at a rate of nearly 5% annually.

Last month the government released the news that this years CPI figures had been "botched" and the CPI number was actually much higher than they had previously been reporting, which is what I have been saying for months.

Will they soon admit that the real rate of Inflation is much higher than they have been reporting? We should know soon. This type of news could have a profound effect on an already weak market.

Our subscribers are awaiting the Models next signal (in safe investments that have increased over 16% year to date) to tell us what our next move should be.

Take care,

Jim Shepherd.

 

Note: The information contained herein is only to give visitors an idea of the services that we offer. It does not give our current recommendations that we have provided to our paid subscribers. In order to have the benefit of the Model's current signal and our recommendations it is necessary to become a subscriber. Subscription rates start at $375.00 per year.

Investors use our signal to:

1. Protect their portfolios against any sudden move to the downside in US markets.

2. Maximize their investments by being fully invested in the proper asset classes during either a Bull or a Bear Market.

 

September 21st 2000

There's a new "Darling on Wall Street" these days. Juniper Networks (JNPR) makes routers for the Internet. They now have a market cap of $70 Billion, which is twice the size of General Motors, if you can imagine that. They also have a P/E of 1500/1. But they also have joined the exclusive group of marquee companies that we have written about below. In June the officers and insiders in the company started selling in a big way. Are these insiders now seeing some of the weakness in their market that was identified by our Model several months ago? 

At the same time that marquee companies were carrying the indexes to new highs, insiders were selling their shares in record numbers. We frequently heard the "Who's Making Money On Wall Street Today" (which has now changed to Who's Losing Money) reports on CNBC at the end of each trading day. These reports came at a time when insiders in these same companies were selling massive amounts of shares. If you'd like to see for yourself go to http://finance.yahoo.com/ Type in MSFT, YHOO or CSCO. Click on Insiders and you'll see what we mean.

You'll also see that the selling started early in January when these insiders recognized the very high valuations of their own company's shares. The next big question to be answered is whether these insiders are now ready to begin buying at these lower levels or whether the selling will continue.

Here are some other companies whose insiders also did some very heavy selling during that same time; VRSN, CMGI, EBAY, AMZN, BRCM, INTC, DELL, AMGN, AMCC, SUNW, DCLK, GBLX, MU, TXN, AMD, Q, ORCL, CS, HWP. 

October Update: The latest filings indicate that selling in the majority of these companies has only moderated slightly and according to some forward dated filings, sales are going to continue.

Of particular interest to us, is the fact that executives have not started to buy their own companies shares again.

It is apparent that late last year, the executives in these companies were in positions to know that the outlook for their companies was starting to deteriorate. The conditions that were starting to cause this reversal, are some of the same things that are identified by the Model prior to issuing a Warning or a Sell. At the appropriate time the Model will identify improving conditions in the market and will issue a Buy Signal. This will eventually be followed by a start up of insider buying again as executives start to realize that improving conditions for their companies will mean rising prices for their stock. In the mean time it is unlikely that these insiders are just sitting on huge piles of cash. It would not surprise us to find that they are now in the same safe and profitable investments (currently up over 16%) that we are. It's a likely scenario that the substantial increase in our investments is the result of massive inflows to  these investment vehicles since we made our purchases late last year.

Insider selling is normally part of the everyday functions of the market. Insiders sell for a number of reasons that should not be of any great consequence. Many use the conversion of options and the sale of shares to be a legitimate part of their incomes. Others sell to buy a bigger yacht, purchase another condo in Maui, pay for a daughter's wedding, get caught up on income tax or to pay off a jilted spouse. There are many other reasons, but in this case the massive amount of selling was a clear warning that all was not positive for the future prospects of some of these companies.

We have been bullish on the markets approximately 90% of the time since first testing the Model in 1982. We move into safe havens only during Sell Signals and Cautions. We have enjoyed a very significant appreciation of our portfolio and constantly beat the investment records of most money managers (see the link at left margin, "Investment Results").

We are now seeing a decline in the value of a large number of popular stocks as they come off their highs of earlier this year. This is starting to effect many areas of the economy as over $3 trillion of "wealth" has evaporated into thin air. This includes over $1.5 trillion of household savings. At present over one half of all American households own stocks, and many have been hurt badly in recent months. This evaporation of wealth amounts to approximately $12,000 per capita and is starting to make a significant impact on the average person's confidence about their own "wealth". As this lack of confidence works its way through the economy it will have a profound effect on the will of investors still in the market.

Some of the large moves up in the value of most stocks in today's markets have not been accompanied by the fundamentals required to validate these values. In most cases their P/E ratios were at astronomical numbers. It is not uncommon to see P/E's of some of the above stocks to still be in the range of 300, 400 and 500 to 1. Several of these stocks have no earnings so their P/E would be even higher than EBAY's 1051 to 1. There have been a lot of stock promoters who have said that a number of the old tests no longer hold true. We have NOT been part of that belief!

Could a large move down turn into a crash? Anything is possible, but the readings generated by the model indicate not only that there could be a move down, but in this case it will most likely contain some sudden climaxing moves. The myriad of internal components that make up the Model, read the micro and macro indicators in the investment world here in the US. These components indicate the future impact on the US stock market. Our subscribers will be notified of any change, especially if the market is about to hit "Critical Mass" and drop precipitously. This will be done in a timely fashion either by a posting on the subscriber's section of the web site, or a special voice update.

Also, at the appropriate time, the Model will indicate whether the economy will begin to inflate or deflate, well in advance to properly position our subscribers.

NOTE: It will only be WELL AFTER a change in this market, that we will advertise to the public the fact that we have received a new signal. This is in keeping with our policy of advising our clients first of any change in market direction. With the last "Buy Signal" of September 25th, 1998 the market took only 10 days to begin its move up following the Model's  signal. This fact was not made known to the general public until over 6 weeks later. So if it is important to you and your portfolio to see this type of signal in advance we invite you to investigate our site and the impeccable history of our Model generated indicators and join us in advance in order to benefit going forward.

We remain confident that the Model will continue to lead us through the coming months and will correctly signal the onslaught of a Crash, a Bear Market or the start of a new Bull Market.

It's at times like these that fortunes are lost and new fortunes are made. We remain confident that our subscribers will always know what's next.

We hope you'll be with us!

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