Chris:
Extremely well put and very accurate. In fact, your comments are very similar to what I hear from FMs almost on a weekly basis.
The bears do indeed have a basic problem. Until say three years ago, one could pinpoint a company moving towards future reduced earnings (or worse) through solid fundamental homework, lay on an appropriate short position and then wait patiently for the garroting of the share price that inevitably followed the negative revelations. Not so now. We are well ensconced in a full blown mania in which few care about earnings and everybody is a chartist or momentum player. Making things worse, the SEC ignores the worst accounting legerdemain seen in this century while the analytical crowd successfully deploy their "next year, all will be well" nonsense. No wonder the sheep dutifully scramble up the abattoir entry ramp.
Still, the market is throwing off a veritable shower of worrisome signals. It has "narrowed" to a small coterie of big cap stocks which maintain the indexes (most junior and intermediate stocks have been "cratered"), the advance-decline has been in linear descent for well over a year, the long bond yields have been in ascent, the American dollar has finally begun to feel the effects of an insane trade/current account deficit, gold is irresolutely ascending, and treasury selling around the world is accelerating. This last point effectively prevents Greenspan from mounting a rescue attempt such as he pulled off last year (I look for rates to continue to push upward, in the process continuing to siphon money from the markets as well as throttling what little ability good corporations still possess to make a profit).
What will act as the trigger? I don't know. I do know the the poop is truly going to smear the prop blades after Christmas in the tech sector. Since this is where much of the mad money is dug in, the damage that will be felt once the exodus commences, will be consequential.
There are obviously several ways to interact with this mania, including joining the party with a view to somehow exiting at the appropriate time. The vast majority historically can't manage that, hence they get drowned when the lights are turned out. From my perspective, the market today is a much safer place for the shorts today than it was a year ago, because finally, the markets are starting to really punish most stocks that disappoint.
Hunting down the wounded is much more profitable than shooting at those that are still strong and the selection of targets is growing. (g)
Best, Earlie |
