Hello Gene and all,
A comment or two about opinions/arguments expressed with so
much emotion recently.
There is nothing wrong with being cautious about preserving
the outstanding gains made over the last 12 months. The
markets have topped out for now. Short term upside
potential doesn't outweigh short term downside risk, IMHO.
Whether we want to admit it or not inflation is here
and the FED knows it. Oil prices are up, gas
prices are up, real estate prices are up, airline fares
are up, car prices are up, gold prices are up, meat prices
are up, chip prices are up, consumer debt is up, etc, etc,
etc. The trade deficit continues to go up since American
made products are becoming more expensive to depressed
economies and US companies must compete with lower international wages/manufacturing costs which limits
international sales potential to US companies and further
pressures US manufacturing to reduce output.
The markets have topped based on very few participating
mega-corporations while the majority of small and mid-sized
companies have floundered over the last year or so.
The money flow into US markets is reversing course and is
looking at other world economies/markets that have better
upside potential as they recover from the severe "depression" that they have been suffering from. The "allure" of foreign money into US markets has waned due
to the "over-valuation" of the largest stocks which have
become too expensive relative to their potential short
term gains. Some would say that better values exist
elsewhere in recovering world markets/stocks that will
double or triple in value in 1-2 years, barring any
setbacks. Not many US companies can expect this kind of
performance except for high tech manufacturing and service
oriented US companies that will sell to these re-emerging
"Tigers" as they invest for future growth to compete against
US companies at a lower manufacturing cost basis which will
pressure US earnings/margins going forward.
In order for the US markets to continue to grow there must
be a broad based participation from the small and mid-sized
companies that have languished this year. This is difficult
to do when interest rates and prices are going up.
The Fed is playing a "Shell game" with the markets until
next year (after Y2K) since it is an election year. I
suspect that they will lower rates again starting in
late Spring to "stimulate" the economy going into Summer
and Fall, expect a market upsurge then. For now maybe
it is better to be a bit cautious and conserve capital
until better values abound.
Just my opinion,
BB
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