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VANCOUVER - How fitting that it's a gloomy afternoon in Vancouver when we meet
Bob Hoye for a late lunch and the timing couldn't be better for one of his most contrarian market calls: It's Thursday and General Electric stock, which
Hoye and his associates at Institutional Advisors say might tumble to US$12 from the high of US$60 in 2000, falls almost 10% to US$33.75 when its earnings disappoint Wall Street. The Dow Jones industrial average tumbles more than 200 points.
So the Hoye universe is unfolding as it should as we grab a bite at Da Pasta Bar, a funky kind of restaurant on busy Robson Street we've been frequenting for about seven years. It's a good place to go when you're dining alone, sitting at the counter watching the culinary show unfold in the open kitchen, chatting to the chefs. We once ran into David Duchovny of The X-Files there when he was filming the show in Vancouver.
On this day, Hoye is saying, as he did 18 months ago when we last had lunch, that the truth is still out there, that GE, the stock market, the economy and even house prices are headed for a fall triggered by the easy-credit financial asset boom and bust. If you buy into the
Hoye scenario -- and he's been gloomily correct on his calls -- you'll want to preserve your capital by getting into cash, with the three- to five-year maturities in U.S. treasury bonds a good defensive position.
"We don't toast the [decline of] the markets, but to our continuing success in forecasting them," he says raising a glass of rough and reddy French merlot. With no hemlock on the menu, Lunch Money reckons a glass of wine will help take the edge of
Hoye's dark view of unfolding events.
Anyway, it's a suitable accompaniment for the pastas we order at Da Pasta Bar, where pastas and sauces can be mixed and matched to order, and lunch can he had for as little as $7. It's penne with mushrooms, pancetta and artichoke hearts in a parmesan cream sauce for our companion, penne arrabiata tossed with roasted chicken for us. With some focaccia bread to start, the food is good and plentiful.
"We've been riding GE up and down since the top in 2000, comparing it to the Dow in 1929 [and thereafter]," says
Hoye, a market historian and technical analyst who runs Institutional Advisors out of his home in Vancouver, working with two like-minded associates,
Tom Peterson and Ross Clark. Clients buying their research range from
pension fund, mutual fund and hedge fund managers in a growing number of
countries.
The advice has been well worth the price. For instance, their model gave a sell on GE on March 12 at the recent top. Similar calls have helped clients recently
sell some gold stocks after a 95% rally since 2000 and exit the U.S. home-building sector, which topped out in February and,
Hoye says, presages a drop in residential real estate prices.
"The hot real estate market will likely fall within a month of commodity prices."
Commodity prices are a good proxy for all tangible assets, he adds, of which the average home is one.
"In effect, what is the most exciting thing for a generation of players is really nothing more than employing rising asset values in a leveraged and reckless fashion,"
Hoye says, the market historian warming to his subject. "The consequence of that is that falling asset prices force the contraction of all the credit that was enthusiastically employed on the way up."
While we appreciate his enthusiastic employment of such elegant turns of phrase to illuminate his views, we ask him to cut to the chase: The Nasdaq composite, where most of the excesses crystallized, is headed down to 1130 by November from 1756 now and all the way from over 5000 two years ago.
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Projections like the one for the Nasdaq will have many investors reaching for a jereboam of merlot spiked with Prozac. But
Hoye suggests the coming declines and the attendant focus on Wall Street and management practices are
typical downside episodes of a great financial boom.
"A boom is when all the population gets excited and they consume more. Within the population a certain percentage buys into the stock markets and that mania to buy must be rationalized. The analysts' job is to come up with forecasts that show prices are not out of line. Eventually, management finds it has to meet the expectations of the analysts and that eventually corrupts managements."
"This was summed up in an April 2000
essay that concluded that "Bull markets corrupt, and great bull
markets corrupt absolutely".
Hoye saves his most scathing criticisms for Federal Reserve chairman Alan Greenspan, his fellow central bankers and policymakers, whom he labels "financial adventurers."
Once the events he sees play out, Hoye is hopeful the policymakers will be diminished: "It's not just going to be a bear market for stocks but a bear market for the ideology of intervention."
Meantime, with the afternoon all but gone, it's time to intervene for the check at Da Pasta Bar, which will suffer if the consumer is going into an era of less spending and more hoarding of cash, as
Hoye suggests. The bill comes to a modest $53 with tax and tip.
As we head out on to Robson Street, we note that Hoye concedes that he and his associates have not been able to call every market move precisely to the day or level. But they have made no major blunders since 1997, he says, and the fact that
Tom Peterson's model portfolio has returned 28.4% so far this year speaks for itself. We hope they're wrong in their bearishness, but Bob Hoye's last, cheeky words about the U.S. economy stay with us: "Although the cage is still spinning, the gerbil is dead." |
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