You must avoid the tragedy of losing your savings in a bear market!
Sell all oil stocks
Keep money in cash and T-Bills
More adventurous investors add to short positions in stocks already going down

Even now it is still not too late to sell stocks, and we strongly recommend selling even those that have been strongest, whether utilities, financials, drug company stocks and any others that have still been forging ahead. The reasons are clear for those that know their economic history. It is true that in the early stages of a bear market there is a flight from the high flyers into stocks perceived to be safe. That is exactly what has been happening since our first general sell signal in early September. However, history also shows that the broadening out of selling leads to a narrower and ever narrower list of advancing stocks. When people have stocks that have gone down by 75 percent or more and they have to raise money, they simply sell what they can sell. So even if the companies behind the stocks going up seem to be prospering, they cannot hold out when selling pressure finally overtakes buying pressure.

First, let's look at what has been happening in high tech, which has been taking the brunt of most of the selling so far. Here we have many stocks like Nortel which have halved, and many more stocks representing very good companies, like Gateway, which actually made its high in November last year at $84 and is now down to $29.50 on tonight's close, for a decline of 65 percent. We mention Gateway because it announced after the close today that its profits for the current quarter will be some 25 percent below the consensus expectation. Although its P/E is a seemingly low 21 for a high tech stock, what is it worth when growth slows or even turns negative? For our money the stock could decline from here by a further 65 percent before it finds its eventual bottom.

Take Dell for another example, in the same line of business. The stock has fallen from $50 to $22 and there it has an apparent P/E of 30. Not bad, you might think for stock in a company that has seen its profits grow by 50 percent or more for the past n years. Look at the monthly chart, however, and you see that even a decline of 63 percent does little to correct the graph of a stock that has come from 22 cents in the past seven years. Anyone who bought at the low merely has one hundred times his money instead of three hundred times. There is a lot of room on the downside for the early buyers to bank their profits. What is that stock worth. Well, we expect the currently emerging profits recession to remove all its profits for a time. Let that happen and we could see the stock back under $10 and maybe even lower.

Remember that stocks go extremes on the upside in a really big bull market. In the subsequent bear market, they are likely to go to a corresponding extreme of undervaluation. We love the company for the long term, but we recognize that some of the companies in the industry simply may not survive at all in the event of a more serious recession. We saw what happened to the dot coms. Well, the same can happen, and is now happening to the suppliers to the IT world.

The Impending Recession

The news is coming in fast that the US economy is slowing, and also that several significant economies around the world are in varying degrees of trouble.

Today we received the news that overall corporate profits for the Q3 2000, for July to September, grew by just 0.6 percent. That translates into annual growth no more than perhaps 3 percent. By comparison the behemoths of profitability, the companies listed in the S&P 500 have had profit growth in recent years of the order of 20 percent or so. Overall, however, corporate America as represented by all companies including the mom and pop operations are not making money even as the economy has been booming.

What happens to profits in the event of a business slowdown?

We have also the news today that GDP for Q3 slowed to 2.4 percent on an annual basis, the slowest in the last four years. More recent data such as the monthly durable goods numbers and consumer confidence suggest further slowing since September.

The news from Gateway, referred to above, included the observation that sales of their computers are way below expectations. People just don't seem to be setting up to buy computers this year for Christmas. And why not, one might ask? Well, of course, because who doesn't yet have a computer that is ever going to have one?

Similarly, the auto market has been slowing, which fact has been noticed by shareholders in all the auto companies and particularly DaimlerChrysler. If everyone has a late model SUV and a late model saloon in the double car garage, then who is left to buy?

In sum, there comes a time when consumption must in due course, however long it takes, gag on its overindulgence. Having lasted a full decade, the hangover is likely to be more severe than most economists are expecting.

One thing we know about markets is that a trend in force can be excepted to remain in force. This applies to stock and commodity prices as well as to behavior and consumption patterns. Once a trend ends, it seldom merely takes a rest. Especially after a long-lasting trend, the probabilities strongly favor the establishment of a trend in the opposite direction. You might expect economists and stock market analysts to be telling you this seemingly obvious truth. Fact is, though, that most of them have a vested interest in believing in the perpetual endurance of a prosperous economy and the perpetual bull market. Particularly those who have not lived through a severe recession or a savage bear market are likely to have difficulty identifying the end of the good times when it comes.

We must say emphatically that we are not predicting the end of the world. However, we are saying that the currently slowing economy appears likely to turn in negative growth some time in the next six months or so. In that case, corporate profits will come under immense pressure and the pressure on stocks will seem incredible when regarded in hindsight.

There is no safe haven in stocks

In times of general business contraction, there is no sector that is immune to the impact of declining business activity, with such few exceptions as debt collectors. The stock market is currently driving many financial stocks to new highs. Don't kid yourself about this area as a haven of safety. With consumer debt at recede highs, you had better believe that much of the debt on the books of the banks is uncollectible. In a severe recession, bad debts could amount to more than the entire shareholders' equity. If you don't think that likely to happen, then think back to what happened to Citibank as recently as the 1990 recession. At one point it looked as if that huge ship could go down drowning in bad loans. But then cam along the Fed with liquidity enough for the banks to refloat the creaky fleet.

Then there are utilities, which have been riding high. The telephone companies for the most part have been taking gas for months, as a result of intense competition and price-cutting. But what about the power companies, for another example. Well, electricity prices look to be setting up for a major decline as deregulation collides with overcapacity. The inevitable outcome must be lower prices, lower profits and, for shareholders, lower earnings per share and even threatened cuts to dividends.

Downside Targets for the Bear Market

These are possible targets for some of the major stock indexes:

Dow Jones (Last at 10,585):

First target the July 1998 High and now support level 9,367
September 1998 Low 7,400

S&P 500 (Last 1333):

October 1999 Low 1233
June 1998 Breakout Level 1150
October 1998 Low 923

NASDAQ 100(Last 2539):

Swing Objective 2000
1998 Breakout Level 1420
October 1998 Low 923 (!)

Russell 2000(Last 453)
October 1999 Low 406
October 1998 Low 304

New and Renewed Recommendations

None.

Stocks to Sell/Exit

Sell all stocks including now all oil and oil service stocks. See the list below. It looks to us as if the regular seasonal high in oil prices may be at hand. Even if we are premature or outright wrong, the risk no longer compensates adequately for the diminished potential for reward. many oil companies are a bargain on a valuation basis but only if the public has the money and the desire to buy them and to push the price higher. That may not happen in the sufficiently near future.

There are many examples of stocks that seem to have great fundamentals, strong balance sheets and strong profit growth but the stocks are out of fashion. Look at the major airlines. Look at General Motors. Look a bit more closely and there could perhaps be reasons for investors' lack of interest. However profitable the airlines, they always seem to need to spend all the profits on buying new aircraft. So there's nothing there for shareholders anyway in the way dividends. Should a recession come, then they are particularly vulnerable to shrinking capacity utilization. Much the same goes for the car industry. Already the worldwide industry has immense overcapacity for good times. In lean times, there may be no profits at all.

List of Current Stock Recommendations:

Action Ratings

The following is the legend for designating immediate action for our stock recommendations. The first is B, meaning the stock is timely to buy but the case for doing so right here is not overwhelming. Either the stock may have got ahead of itself and may be vulnerable to a retracement or else the stock has been performing disappointingly but may simply be regrouping. B+ and B++ indicate stocks for which there is a technical case to buy now, with plusses adding weight according to how many there are, up to a maximum of five. Stocks rated H are ones to hold, awaiting confirmation to buy more or to sell. SELL, of course, means what it says. It seldom pays to override this designation.

Stocks marked # are eligible for Canadian RSP funds. Otherwise there is a 20pc restriction on foreign stocks held in these accounts.

First bought Entry Last

5/15/00 Alberta Energy(AOG)# 38.63 38.63 SELL
5/15/00 Apache Corp.(APA) 59.88 57.00 SELL
5/15/00 British Petroleum Amoco(BP) 54.44 48.50 SELL
5/15/00 Chieftain Development(CID)# 20.50 22.56 SELL
5/15/00 Global Marine(GLM) 26.38 23.56 SELL
7/10/00 Suncor(SU) 23.06 21.63 SELL
8/7/00 Talisman(TLM) 32.25 31.19 SELL
5/15/00 Transocean Sedco(RIG) 51.13 58.63 SELL

Short Sales
First Sold

11/13/00 Cisco(CSCO) 48.81 51.69 Sell Short +
11/13/00 EBay(EBAY) 45.00 37.13 Sell Short +
11/13/00 IBM 91.81 99.81 Sell Short +
11/13/00 Microsoft(MSFT) 66.89 65.06 Sell Short +

Stockscom