moneycentral.msn.com/content/P62345.asp
SuperModels Market prophet is battening the hatches advertisement Analyst Michael Belkin called the bubble, the crash and the rally. Markman Rumors of the imminent death of the 2003 stock-market rally have been greatly exaggerated time and again in recent months. But according to one analyst with an enviable track record, the end days are finally here, and its time to prepare for a sickening plunge into December and beyond. The doomsayer is Michael Belkin, one of the few investment analysts who has emerged from the recent boom, bust and re-boom markets with his reputation not just intact, but aglow. Most independent researchers build careers as all-bull or all-bear, but not this guy. The report rises above the straitjacket of specialization to treat the global landscape holistically as an interlocking economic, political and social system. Two weeks ago, Belkin abandoned his yearlong and initially very lonely bullish posture and put on the fur. He expects the broad market indexes to sink significantly through the end of the year, led by cyclical industrial stocks, and does not see much of a recovery on the horizon for 2004.
In mid-1999, he advised clients to buy into the Nasdaq $COMPX bubble through the first quarter of 2000, noting that the Federal Reserve had printed so many billions of dollars to battle a non-existent Y2k problem that money would spill into stocks and fuel a boom. On March 2, 2000, he turned around and advised clients to bail out of tech stocks and buy United States government bonds, contending big market indexes could get cut in half. A month later, after the Nasdaq had plunged 1,000 points from its March 20 peak, he stunned clients who thought the worst damage had already been done by proclaiming the tech-heavy index would sink at least another 65. After the Nasdaq had fallen about 70, he turned full circle and advised clients to aggressively buy the most-volatile tech and gold stocks, sell low-volatility defensive stocks and sell bonds. In an interview last week, Belkin said that everything that made him bullish last November now makes him bearish. His forecasting model, which consists of a non-linear set of probability distributions, shows equity markets in every developed country around the world wanting to turn down. At the same time, he sees emerging markets such as Brazil, Chile and China, turning up in parabolic fashion. Liquidity is analyst-speak for money, particularly dollars that the Federal Reserve prints and pushes into banks in a variety of ways for a variety of economic, political and social purposes. When the Fed makes new money, its like counterfeiting, only its legal, he quips. He long ago learned that it made sense to buy into a liquidity bubble while its happening, such as the one that preceded January 2000, but that you needed to be able to identify its final days and get out a little early. Belkins bearish case He defines major bubbles as excessive deviations from stocks 200-week trend, while major crashes entail reversion to their 200-month trend. Thats not information you can use to day-trade, but it helps with the big picture.
In October 2002, the Nasdaq rebounded off that level, which was around 1,180. In November 2002, his belief in a Nasdaq rally to 2,280 was predicated on a belief that it would rise to its 200-week moving average at that level amid a business-cycle bounce. Now, he thinks the index will fall short of his predicted move because private-sector credit growth is declining sharply in spite of the Federal Reserves neutral-to-slightly-stimulative stance. Nothing magical, he says, except that it has worked to define levels of support and resistance in every major bubble and crash he has studied over the last 100 years. A bear-market bounce in a stock index or commodity from its 200-month average to its 200-week average, he says, is relentless, takes about a year and ends with low volatility - all characteristic of the recent United States rally. Belkin abandoned his Nasdaq 2,280 target because he noticed that money-supply growth had begun to contract as credit markets froze up - an event that, in his words, has drained the economy of bubble fuel: In July, the three-month annualized rate of growth of money had reached a peak of 14. But money-supply growth two weeks ago had fallen to 1, and last week, according to Federal Reserve data, it actually turned negative. Fed data shows that banks are dumping their holdings of government bonds right and left;
In his latest report, Belkin told clients to shift from buying dips to selling strength to avoid having egg on their faces during a fourth-quarter downturn. For mutual fund managers obligated to be long, he recommended they overweight defensive consumer stocks such as Colgate-Palmolive CL , news , msgs and Procter & Gamble PG , news , msgs . He calls these chicken longs, because he believes they will fall less than market benchmarks in a broad downturn - though they probably wont provide positive returns. Among his top shorts are the home builders, which he called so overowned, overvalued and undershorted theyre like Yahoo! YHOO , news , msgs at the top, but with fundamentals that are deteriorating every second under your eyes. Others on his list for short-sellers are cyclicals such as machinery makers Ingersoll Rand IR , news , msgs , Cummins CUM , news , msgs and chemicals makers Eastman Chemical EMN , news , msgs and Hercules HPC , news , msgs ;
Shares of Sirius Satellite Radio SIRI , news , msgs and XM Satellite Radio Holdings XMSR , news , msgs have spiked to new highs in the past week as optimism has swelled that subscribers are coming on line faster than expected see my May 21 column . I have become hooked on Sirius service, especially since its ESPN2 stream has been the only outlet in my area for all the baseball playoffs and World Series play-by-play, and its United States 1 stream is a great alternative to Radio Disney for my pre-teen kids.
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