The Next
Great
Bull Market Is Underway Now
By Donald Rowe, editor
The Wall Street Digest
It
is always good to say goodbye to August, September and October,
the three worst months of the year for the stock market. For
some reason, global problems seem to unfold during that three
months period. Saddam Hussein invaded Kuwait in August of 1990,
and none of us will ever forget the September 11th attack on
the World Trade Center and the Pentagon. The stock market has
crashed or experienced sudden steep losses so many times in October
that investors are never comfortable until November arrives.
Poor market performance
in October has the net effect of setting-up the stock market
for impressive rallies in November, December and January.
Three reliable technical
market indicators have all confirmed a major market bottom on
September 21:
First, the 10-day Arms
Index, second, the McClellan Oscillator and, third, the CBOE
Options Volatility Index (VIX). The technical indices are aggressively
bullish and so are the fundamentals. I have never seen a more
bullish set of fundamentals:
1) Interest
rates are falling and, according to the Federal Reserve, they
will fall even more. Economic turnarounds don't usually occur
until real interest rates are negative. They are still positive.
Fed Funds at 2.5%, minus inflation at 2.0%, equals a plus 0.5%
interest rate level. Another 50-basis point reduction is still
coming.
2) The latest
cut in interest rates ignited home sales everywhere with the
lowest mortgage rates in recent memory. Homeowners are flooding
mortgage lenders with refinancing applications, which will cut
mortgage payments and provide homeowners with more spendable
cash.
Economists say this
is more effective than a tax rebate because the spendable cash
is available month after month, compared to a one-time check
from the U.S. Treasury.
3) Oil prices
are falling. The last time Middle East tensions were this high,
oil was $40 a barrel and forecasts (by the experts) of $100 a
barrel were common. Oil is currently at $21 a barrel. Demonstrations
of pollution-free hydrogen fuel cell cars have been launched
from Middle East countries in an apparent effort to send OPEC
a message about the future declining worldwide need for oil and
its polluting products.
Ford, Honda, and Toyota
will introduce pollution-free hydrogen fuel cell cars in 2004.
The demise of OPEC will be obvious by 2005.
4) Bank liquidity
is at an all-time high with Fed Chairman Greenspan encouraging
bankers to open-wide the lending windows.
5) The bull
market of 1995-2000 began with $500 billion in retail and institutional
money market accounts. Today, $2 trillion is sitting in those
same accounts.
6) President
Bush and Congress have agreed on an additional $60 to $75 billion
economic stimulus package. President Bush wants a $60 billion
tax cut that immediately reduces payroll taxes for both the employee
and the employer.
7) The one-year CD yields 2.94% today, compared to 5.33% at the beginning of the year. Money market yields have fallen to 1.55%. The motivation to stay in the safety of a bond fund or a money market account is evaporating. The bond market balloon is now deflating into the stock market, which has been soaring ever since the September 21st bottom.
I expect the stock market balloon to inflate with increasing pressure due to the points explained above. The next great bull market is underway now. You and I will probably not see values at this level again. Deflation is now the worldwide problem, not inflation. After the market bottom unfolds, some stocks will bounce from undervalued levels and then level off at fair value.
However, some stocks that are essential to the economy and the Technology Revolution will do much more than just bounce off the September 21st lows.
With soaring sales and earnings, even during an economic slowdown, these rapidly growing companies have impressive upside potential. The following ten companies have emerged as the leaders of the new bull market: AdvancePCS (ADVP), BEA Systems (BEAS), Check Point Software (CHKP), Enzon (ENZN), PeopleSoft (PSFT), Siebel Systems (SEBL), VeriSign (VRSN), American Home Mortgage (AHMH), eBay (EBAY), Taro Pharmaceutical Industriess (TARO). All listed on Nasdaq. Editor's Note: Donald Rowe is editor of The Wall Street Digest, One Sarasota Tower, Ste. 602. Sarasota, FL 34236, 1 year, 12 issues, $150. Wall Street's most widely-read financial advisor, has been hailed by Predictions as "one of the two top money managers in the U.S. today." Mr. Rowe is an economic and investment advisor to bankers, brokers, and investors in the U.S. and 29 foreign countries. Visit the Web site at www.wallstreetdigest.com.
