Cary:
1. I am 40% cash and falling. Buying high quality companies at PEGs<1. No semis or semi-equips.
2. the bear market started in April 1998, when the NYSE A/D line started to fall. A few stocks quadrupling since then, have hidden the 2-year-long grinding decline of most stocks in most industries. We are much further into the process than you think, and closer to the end.
a. the bear market will end when the economy slows enough so the fed quits raising. Follow consumption, unemployment, wage/benefit costs, commodity prices for signs of the turn. No sign yet. We have at least 3/4% more to go from the Fed.
b. significant slowing of the economy is a certainty, because Greenspan has explicitly said he will make this happen. Recession in 2001? Too many variables to even make an educated guess, but I will anyway. 6 Fed raises over 11 months so far, and no sign yet of lower consumption or less-tight labor markets. So far, they have erred on the side of too much liquidity and too-few raises. That may be changing now, to a too-aggressive posture. Strange that they would do that going into an election, though.
c. Again, too many unknown variables. My guess is that the market bottoms sometime in 2000, Greenspan gets his soft landing, and the bull market resumes in 2001, with semi-equips a bit past mid-cycle. Semi-equips then will hit new highs before the cycle ends in 2002 or 2003. We are right on the verge of 300mm, which should prolong this cycle. If we get a hard landing in 2001, then the semi-equip cycle may end just as the general economy starts to pick up. That would make these stocks about the worst possible investments in 2001-2002.
4. I will buy semi-equips, if stock prices get low enough. I'm not really smart enough to know what the Fed will do, or whether we'll have a recession next year. But I am smart enough to recognise value. Guessing that the peak cycle price will be about 125 (=5$/sh. X 25PE), I need to get in at about half that price, to have enough margin of safety. However, I'm seeing a growing list of quality stocks that I think will double from current prices, over the next 2-3 years, so I may not buy much AMAT even if we get to 62. Probably buy some, just for sentimental reasons, because AMAT was responsible for the first doubling of my portfolio, in 1997. |
