Mike, Thanks for the earlier thoughtful reply to my neophyte questions regarding options.
I received in the mail today my first copy of the High-Tech Strategist, the Nov. 1 1999 issue. I read it with great care and think that there is a real opportunity to make some money if the nuclear winter scenario is even one-half of what Hickey says it is. In a very real way this current mania is playing into our hands. And, I hope to take advantage.
My concern relates to the "staying power" of any downturn. Sure, the market will punish the whole tech stock sector and about everything else if hard evidence develops of a dramatic downturn in tech sales. My fear is that it may turn out to be only a slightly longer variation of today's downturn in the DOW. About 15 minutes worth, if even that. This mania has such staying power that I fear that the market may just look past a quarter's worth of poor sales, as it should if it is truly a long-term discounting mechanism.
The corollary in economics is a one-time decline in aggregate spending, say for one quarter, followed by a return to previous levels in subsequent quarters. National income falls, temporarily, and then rises back to previous equilibrium levels.
Hickey makes a great case, but he also points out the remarkable ability of this market to look past evidence starring it in the face and the lies that go with it. He also notes that he is playing this expected downturn with long-term put options and LEAPS. That seems to me to be in error. Wouldn't shorter-term Feb and a few months beyond options be the better play, higher delta and all that? You've got to have the timing right, but if the markets are not hit by February, I wonder if they will be hit at all. LEAPS simply give the lies time to take hold of a gullible public once again, although even LEAPS would be impacted, if temporarily, and with a lower delta than short-term options.
Another thing bothers me about Hickey's letter are his final sentences in this edition: "We're closer to the day when these bloated large-cap tech stocks get crushed. After that occurs, we'll be able to scoop up the bargains in the tech stock world." It is not necessarily contradictory, but it seems misplaced to be thinking about bargains in the tech world given the type of analysis he is putting forward. This has a "buy when the dip occurs" ring to it that I feel uncomfortable with relative to his analysis and pronouncements. If he is talking about recovery in 2002 thereabouts, I guess I don't have a problem with what he is saying.
It all relates back to the staying power (SP) of the downturn, which I think Hickey is a little remiss in his attention. I think that the downturn is coming, but I've got to get a better handle on this SP aspect of the issue in order to feel comfortable with my investment decisions. I must say that I am quite comfortable being out of the market at this time sitting on a pile of cash, awaiting the opportunity to pounce, which I think is at hand. You have to be ahead of the market and Hickey and Fleck have been helpful in that regard. I wouldn't have imagined that I could be this comfortable being out of the market at a time it is hitting new highs.
This market may have the capacity to look past even a nuclear winter. I doubt it, but it is a possibly that definitely limits potentials on the downside. After all, KO has disappointed for five quarters in a row and still has a PE north of 40.
BTW, how well did Hickey play the upside of these tech markets in the last half of this decade, or does he generally lean to the bearish side?
Thanks ever so much for your helpful comments. In Oklahoma we had a weatherman who saved a lot of lives in the May 3rd tornado that swept through the region. I have a feeling that in the final analysis you may save the asset base of a number of SI lurkers and contributors.
Cheers! |
