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December 29, 2006

Hays Is Way Off

I just got done reading the Hays Advisory [haysadvisory.com] Comment for 13 December, 2006 and I was quite shocked to see Don Hays predicting a 27.5% growth in the S&P 500. I don't think I agree with that number and I wrote my broker explaining why. I thought I would post this for posterity.

Thanks for sending this my way. It's always interesting to see how people in other industries view charts and graphs and try to analyze them, especially with a world view correlation.

That being said I don't think I agree with this report. It seems that Hays is trying to draw parallels between the ramp-up of the last boom and our current situation based on trends he noticed within the S&P moving averages. I'm a firm believer of the saying "There's lies, damn lies and statistics", so I use a wary eye when people start talking about how similar charts look and that since this happened in the past there is a better than average chance that it will happen again.

Second, Hays indicates the pre-cursor of this rise in the moving average will be heralded by an "unwinding" that will drop the price of gold under its 55-week moving average. However, some are saying that gold is in a prime position for an explosion. Some analysts are indicated gold will pass into 4 digits. I'm not so optimistic, but I believe it has the potential of going higher and maintaining.

Also, I can remember in 94-95 baby boomers were thinking very little about the long game and were trying to go for short wins. There was also disruptive technologies that were being integrated into business that generated excitement in fringe companies. This excitement led to people trying to make a quick buck and pumping money into the market that shouldn't have been pumped in. Now we are in the situation where baby boomers are looking at retirement and cannot take the chances of a quick buck.

Without this large pool of cash waiting for investment and no disruptive technologies/industries even near production I don't think the estimated 27.5% is attainable. Energy is probably the next technology/industry that will fuel the next bubble, but I don't see anything coming to fruition in that until at lest 2009-2010.

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Another point I forgot to mention is that Hays seems to think (I'm reading between the lines) the US has the potential to switch from a global consumer to a global producer. I don't think the US has a snowball's chance in hell of being a global producer on the scale of say China or even Korea. The US' economy is more of a services based economy, not one of "widgets". Also, I think that nationalism plays more of a role in consumerism outside of the US, which would also hurt the US' chances of being a global producer.

Posted by Guy at December 29, 2006 9:23 PM