Conference nyoss1::market_investing

    
    In addition, Barron's quotes Marty Zweig as saying that he weights
    evidence in the following fashion to come up with his market timing:
    
    	.45	Monetary Indicators
    	.15	Price & Volume data (momentum)
    	.30	Sentiment
    	.10	Valuation
    
    interestingly, this appears to omit any factor for the business cycle,
    except to the extent that the FED's policies are a function of the
    business cycle.
    
    also interesting is the high weighting for monetary indicators (.45);
    what this says to me is that Zweig (and maybe the rest of the market)
    is primarily a FED watcher...  No 2 other factors account for more
    than the monetary indicator.
    
    in other words, a sneeze by the FED might easily make Zweig et.al.
    change their positions entirely.  yikes.
    
    For yuks I tried using the checklist with 5% weighting on the business
    cycle, and the others a similar relative magnitude as Zweig uses; the
    results I get (somewhat subjectively) are:
    
    	Bullish Index:	60%
    	Bearish Index:	25%
    
    btw, there's no reason that these two should add up to 100%.  The
    interpretation of this is questionable, at least, but I'd tentatively
    draw the conclusion that:
    
    	o  As usual, there are conflicting signals in the market, but
    	o  To my surprise, the signals are predominantly bullish
    
    that having been said, let me also add two more:
    
    	o "Experts" can't even tell what the major trend is most of the
    	   time, so take this with a big grain of salt, and
    	o  If the FED gives any indication that there will be a tightening
    	   of monetary policy, then the indicators are decidedly bearish.
    
    /jim
    

    One of the signs that is currently viewed as very bearish
    is the secular decline in new credit creation. Apparently
    there has never been a recovery in recorded history that
    wasn't also accompanied by expanding credit. 
    
    I suppose one could monitor consumer and corporate debt 
    by sifting through the thick stack at the end of Barron's 
    - I wonder if anyone here has attempted this.
    
    - Ganesh.
               

    In response to Ganesh's point about credit creation being fundamental
    to every recovery from recession, I just read the other day (and I'm 
    sorry I don't have the EXACT figures in front of me) that consumer
    credit DROPPED in 1991 in this country for the FIRST TIME IN 31 YEARS.
    I believe consumer debt dropped by something like 1.3% last year.
    Given that this is the case, Ganesh's point (which I have read many
    times as well) may be a harbinger of a tough recovery (does anyone have
    any doubts at this point :-)  ).
    

Wouldn't increase profits from operations reduce the need for credit expansion?
It seems to me that DEBT is the problem that caused the recession, with interest 
payments creating a drag on the economy.  This recession is very different from
past "business corrections".  Time will tell.

    Re .4
    
    Your point re. reduced debt service for corporations potentially
    leading to increased profits is reasonable, however it seems to me
    at some point presumably the consumer is involved in the equation
    for sustained growth (along the lines of plankton at the end 
    of the food chain). 
    
    I also get the feeling many (former) consumers have been 
    paying down accumulated debt and buying stocks instead of cars 
    and houses like they used to. This wouldn't be much of an issue 
    except the outlook for an export-led recovery seems rather bleak
    given the worsening conditions in Europe and Japan, not to mention
    protectionism seems to be getting back in favor. Japan is
    particularly worrisome as it's not quite clear if the 
    Japanese have completely bailed out of our equity markets 
    at this point, or if they have more of our stocks to dump 
    in order to ease their situation at home. 
    
    But I digress.. this one is about "indicators"..
    
    Ganesh.
 

    Traditionally, housing leads the way out of recessions. Once people
    have a house they start racking up credit to buy appliances, carpeting,
    paint, wallpapaer, furniture, lawn equipment, housewares, etc. etc.
    etc.. All this buying on credit by people stimulates manufacturing in a
    zillion different areas. This forces business to hire people. This in
    turn provides more poeple looking for housing and the cycle revs up.
    
    In this economy, despite low interest rates and lower housing
    prices, people are still not out there buying big time. Therefore, no
    credit growth means that all these manufacturing companies are not
    seeing growth in demand for their products. Thus people are still being
    laid off rather than being hired. The cycle revs up in the downward
    direction.
    
    So even though companies may be producing higher margins for the
    products they are selling (due to lay-offs and other cost-cutting
    measures), without having stimulative demand (fueled most ofter by
    consumer credit), the economy is doomed to remain in its' current
    morass.
    
    After all recession is defined by the level of Gross Domestic Product,
    or how much we produce. And if people ain't buying (cash or credit),
    then we ain't producing! So as long as retail sales and new consumer
    debt levels are low, you can bet your butt this country will remain in
    recession.
    
    This recession is different exactly because of all the personal debt
    accumulated over the recent past. And that is why we can't expect to
    see any improvement near term (I don't care what the experts say),
    because until people pay down/off their debt in the face of lay-offs,
    and until there is stimulative growth to demand for product in this 
    country and jobs then become more secure, people are not interested in
    taking on any new debt, period!
    
    So the first contraction in consumer debt in 31 years IS a big deal to
    all of us.
    
    

    
    maybe this is a naive question, but if consumer debt goes down, doesn't
    that mean that purchasing power goes UP?  
    
    frankly, i'm surprised to hear that it hasn't gone down in 31 years...
    i would have expected it to go down (in constant dollars) at the end of
    each business cycle.
    
    as usual, one man's bear is the next mans' "bull" ;)
    

	Re: .7

	The short-term and long-term effects of the paying down of debt is
indeed different.  Long-term, yes, peoples' purchasing powers will go up due 
to both having a larger available credit line and/or having to spend less
money on the interest payments of their current debt.  That is indeed goodness
for purchasing power.  But in the short-term, the picture is the exact opposite.
Where are these folks getting the money from to pay down their debt?  Not
spending the money at the local mall or car dealership!  This results in a
short-term drop in purchasing power.

	Re: general discussion of debt

	What we're seeing is how debt, if used to excess, can be a narcotic
drug to the economy.  The economy got addicted to an ever-expanding debt load
in the '80s.  We could not afford to continue the increasing addiction, but
didn't like the results of trying to stop it even if we realized how self-
destructive the addiction was.  We're now in an economic "cold turkey" with
everyone trying to turn away from debt at the same time.  This isn't a normal
recession.

							-craig

    
    Here's what Marty Zweig says about installment debt (reproduced without
    permission):
    
      "Loan demand has an important effect on interest rates.  When demand
    for loans rises excessively, it puts upward pressure on rates.  When it
    drops dramatically, it works to lower interest rates.
    
       There are several major sources of loan demand, including federal,
    state, and local government borrowings; corporate borrowings both in
    the short-term money markets (commercial paper and bank loans) and in
    the longer-term bond markets; mortgage debt; and consumer installment
    debt.  The latter figure has maintained one of the best records at
    calling the shots for the stock market.  Also, since it is reported
    only once a month, it's a very simple tool to use.
    
       ...
    
       The figures are reported both on a seasonally adjusted basis and a
    non-seasonally adjusted basis.  Use the latter... the non-seasonally
    adjusted number.
    
       Take that total for the month and divide by the total for the same
    month a year ago.  Then subtract 1.000.  That leaves you with the
    percentage change in installment debt on a year-to-year basis.  When
    done this way you don't need the seasonal adjustment...
    
    ...it is readily apparent that an expansion in installment debt tends
    to be bearish, as it was in late 1968, 1972, and late 1976. 
    Conversely, when the trend of such debt plunges, it's bullish for
    stocks, as it was in late 1966, 1970, late 1974, and 1980.
    
       The important question is, just how much of a year-to-year change in
    installment debt is needed to signify a bullish or bearish condition
    for stocks?  It appears that 9% is the key level.  At the least, the 9%
    mark offers an easy method of generating good signals.
    
       RULES:  A buy signal is given when the year-to-year change in
    installment debt has been falling and drops to under 9%.  A sell signal
    comes when the year-to-year change has been rising and hits 9% or more.
    That's it."
    
    
    From "Martin Zweig's Winning on Wall Street", 1986, Warner Books pub.
    
    

	Reply 6 cites info that says that this year is the first time in 31
years that consumer debt has gone down.

	Reply 9 citing of Zweig says that there have been "debt plunges" in
1966, 1970, late 1974 and 1980.

	Will the real datapoint please stand up?  :-)

							-craig

    Re .10
    
    I suspect they're both right.
    
    One would include mortgage debt as well, the other is just
    plain installment debt (credit cards etc.).
    
    Ganesh.

    
    
    Other general market timing indicators:
    
    When:
    
    	a)  The advance/decline ratio is 2:1 or more over a 10 trading-day
    	    span, and
        b)  The prime rate has been lowered by a full 1% sometime in the
    	    most recent 6 months, and
        c)  The discount rate has been lowered 2 or more times in the last
    	    6 months, and
        d)  The Value Line Composite has increased by >= 4% from one weekly
    	    close to the next (30-Dec-91), then
    
    	==> extremely bullish for stocks
    
    however!  
    
    	e)  The P/E of the S&P 500 is over 23.  There are only 2 times
    	    since the 1920's when it was this high:  in 1961 and in 1933.
    
    	    In both cases, the P/E ratio fell to about 16 in bear markets
    	    before the market recovered.
    
    note that the DOW, with a smaller base than the S&P 500, has reached
    lofty heights before when earnings went underground, but the heights
    are truly dizzying for the S&P 500.
    
    Nature abhors a clear market signal.  ;)
    

    
    Another reputed timing metric is the 'bullish sentiment' (contra-)
    indicator.
    
    Does anyone here have access to Investors' Intelligence reports?   Are
    there other sources for the bullish/bearish sentiment level?
    
       /Jim

    The following table lists historical data on the Federal deficit.
    It was originally posted on usenet. I've written to the author and
    obtained his permission to repost it here.
    
    
    
<posting header deleted>
 
Figures are in millions of dollars.
 
Year    Federal Revenues   Net Federal Defecit (-) or Surplus (+)   % of revenue
1789
-1791                  4                           -                     -
1800                  11                           -                     -
1810                   9                          +1                   +11%
1820                  18                           -	                 -
1830                  25                         +10                   +40%
1840                  20                          -4	               -20%
1850                  44                          +4	              +9.1%
1860                  56                          -7	             -12.5%
1870                 411                        +101                 +24.5%
1880                 334                         +66                 +19.8%
1890                 403                         +85                 +21.1%
1900                 567                         +46                  +8.1%
1910                 675                         -19	              -2.8%
1915                 683                         -63	              -9.2%
1929               3,862                        +734	             +19.0%
1933               1,997                      -2,602	              -130%
1939               4,979                      -3,862                   -77%
1943              21,947                     -57,420                  -262%
1944              43,563                     -51,423                  -118%
1945              44,362                     -53,941                  -121%
1950              36,422                      -3,122                  -8.6%
1956              74,547                      +4,087                  -5.5%
1960              92,492                        +269                 +0.29%
1965             116,833                      -1,596	             -1.07%
1970             193,743                      -2,845                  -1.4%
1975             280,997                     -45,108	             -16.1%
1980             520,020                     -58,961                 -11.3%
1985             733,996                    -202,813                 -27.6%
1986             769,091                    -202,698                 -26.3%
1987             854,143                    -148,004 	             -17.3%
1988             908,953                    -155,102                 -17.1%
1989             990,691                    -123,785                 -12.4%
1990           1,031,462                    -220,388                 -21.4%
 
Sources:
Dept of Treasury Fiscial Management Service
Budget of the United States Government Fiscial Year 1991


 
<poster's comments follow..>
 
Notice how when income tax was implemented in 1862 (in order to support
the Civil War) by how much the fed income jumped. Likewise with the first 
sales taxes in 1812... which were later dismissed in favor of higher
tariffs because of easier bookkeeping and collection.
 
Around 1870 (before the addition of the 16th amendment allowing income tax)
the supreme court tossed out income tax as unconstitutional because
revenue was apportioned unfairly between states. And looking at how the
Fed got by on less for the next two decades, its becomes obvious that 
people would have much rather had the money in their pockets than sitting
around in the Treasury for the then gluttonous Fed (Back to the theory on
democratic governments runing at surplus-- yes you can, but its better to
cut taxes. Unfortunately instead what we most often get is "expanded
services", sometimes of questionable value.)
 
Notice how the Feds income halved with the stock market crash of 1929. So it
*is* in the Feds interest to foster a growing economy to increase its own
revenues. ;-)
 
Yes, -262% is correct for the start of WWII. In 1943 a withholding from
wages was started, doubling income by the next year.

<end posting>



    At first, I figured one should be able to combine the first two columns
    (annual revenues and annual deficits) starting from the late 1790's,
    and get a snapshot of the total deficit at any point in time. 
    Unfortunately, the data is reported at ten-year or five-year intervals 
    during the earlier periods so some fudging may become necessary. 
      
    - Ganesh.

    
    The Investment Company Institute publishes a monthly cash/asset ratio
    of stock mutual funds.  Is this reported in Barrons or the WSJ?
    
    In Barrons this week I found some statistics in the mutual fund section
    which included a 'liquid assets ratio' for (all?) mutual funds; the
    statistic was reported by the Investment Company Institute, but that
    value was over 8%, so I don't think that's what I'm looking for.  The
    featured section on sentiment included an estimate of cash position of
    4.5%, which I assume would correspond to a cash/asset ratio of
    (.045/.955)*100, or 4.7%.  Yet another candidate for cash/asset ratio
    was the reported cash holdings, which Barrons in Barron's poll comes
    out to be 10.2%
    
    Will the real cash/assets ratio please stand up?  Where do I find this
    statistic, short of subscribing to the Investment Company Institute
    directly?
    
    
    re: .12 (place your bets)
    
        I made an earlier comment about the S&P 500 P/E begin historically
        high.  That may or may not be true, because I was comparing the 
        current P/E with a historical *six month average* P/E.
    
        Unfortunately, I can't find the current 6-month average P/E of the
        S&P 500, although I suspect it is quite high.  One year ago the
    	P/E was over 17, today it's over 23; a 6-month average above 18 is
        considered very high, so I think the conclusion was correct even
        if the numbers were not quite accurate.
    
    
                             

    
    Another indicator which I've heard has been a good predictor of general
    market direction, or which has at any rate been good at calling tops,
    is stock dividend yield.
    
    I've heard of several ways of using yield figures:
    
    	a.	Moody's AAA Bond Yield - 6mo Commercial Paper rate
    
    	b.	Top grade bond yeild / DJIA div'd yield
    
    	c.	"Yield Gap" reported in Barrons (similar to (a)?)
    
    I have no historical data on these or other similar metrics, but I'd be
    interested to hear if anyone else does.  
    
    /jim
    

    A book every investor should read (if not own) is _Stock Market Logic_
    by analyst Norman Fosback.  He studies many classical indicators and
    describes how well each of them works, if at all.
    
    I'm going to quote from one particularly relevant section, because on
    the 18th of February the Federal Reserve lowered reserve requirements
    from 12% to 10%, the first such change in 12 years, but the market 
    seemed to ignore that.  (Maybe it's waking up today).
    
       "When the Federal Reserve System really means business and desires
    	to force a significant change in the trend of interest rates and/or
    	the monetary aggregates, it changes the bank reserve requirement.
    	The reserve requirement is SO POWERFUL AND SO RARELY USED THAN A
    	CHANGE INVARIABLY HAS A SIGNIFICANT AND CONTINUING IMPACT ON STOCK
    	PRICES."  (emphasis added)
    
    		[much discussion omitted, see the book for details]
    
       "In conclusion, it may be stated categorically that a reduction
    	in the reserve requirements on demand deposits for large 
    	money center banks is the single most bullish event in the world 
    	of stock price behavior."
    
    You can purchase _Stock Market Logic_ at most bookstores or probably
    get one for free by subscribing to Fosback's "Mutual Fund Forecaster",
    discussed at length in the archived INVESTING conference.
    
      John

    
    re: -.1
    
    I believe that the reserve requirements were changed in Dec 1990,
    shortly before last spring's bull market.  The most recent change
    prior to that was sometime in 1980, I believe.
    
    When the reduction was announced, the bond market reacted on fears of
    inflation, and the stocks responded to the bonds rather than to the
    Fed...  but a reduction in the reserve requirement is the most
    stimulative thing that the Fed could have done.
    
    I'm in a quandry about understanding the current market.  On the one
    hand, monetary indicators are screaming "BULL MARKET!!!", and on the
    other hand, valuations are in orbit, speculation is rampant, yields are
    low, and the "Herd on the street" is extremely bullish.
    
    When you have very bullish and very bearish indicators flashing
    simultaneously, what do you do?  Perhaps the answer is to bet that the
    market will not stay still, and take "straddle" positions, etc.
    
       /jim
    

>    I believe that the reserve requirements were changed in Dec 1990,
>    shortly before last spring's bull market.  The most recent change
>    prior to that was sometime in 1980, I believe.
    
    In 1990 the reserve requirements were lowered only for a small base of
    cash, something having to do with non-USA-based funds.  Anyhow, it wasn't 
    a general lowering such as we just had.
    
    One consequence is the money supply figures have been zooming up at a
    high rate, soon to be an alarming rate.  Looks like 1993 will be a year
    of high inflation.
    
      John

	Given the propensity that banks have had lately to invest their
available cash in short-term treasuries instead of loans to consumers, why
will this lowering of the reserve requirement do anything other than free
up more money for the banks to lend to the treasury?

								-c

    C, it's all supply and demand.  Banks may just park extra reserves in
    Treasuries, but that will cause the price of bonds to rise i.e. a fall
    in interest rates.  Which in turn will cause a few more lenders to
    qualify for loans and a few more banks to want to lend rather than earn
    fairly low Treasury interest rates.  If you can quantify all this with
    any precision, you can name your terms to any of a thousand employers...
    
    Of course all of this goes up for grabs next quarter when Treasury
    borrowing needs are made known (in May).  If the package is HUGE, as
    I expect, the extra demand will easily swamp the $8G added to the money
    supply by Tuesday's announcement.  If Congress can keep spending down
    (hey, quit laughing!) then we can look forward to a vigorous recovery
    led by the marginal borrower.
    
      John

    
    One of the most important considerations of market timers
    and traders is to select industries and stocks which are
    timely relative to the current phase of the market.  
    
    Closely associated with this are the indicators that are
    watched at different phases of the market, e.g. interest
    rates are the most significant indicator in the earliest
    stages of a bull market, but the focus changes to earnings
    after the recovery is well underway.
    
    I've read about heuristics which apply at one stage of
    the market or another, but I've never seen it all pulled
    together in one place.  I think it might be a useful
    addition to this note if someone could describe:
    	
    	a) the indicators to watch most closely at each
    	   phase in the market cycle, and
    
    	b) the screening criteria which are likely to be
    	   the most effective at each phase in the market
    	   cycle.
    
    Norman Fosback outlines a few general rules in "Market
    Logic", which I'll enter as a reply if I get some time
    later on.
    
       /Jim