To Earlie from Earlie:
With mere days remaining until not just the new year, but the new century arrives, it's time for a bit of crystal ball gazing. In the interest of having others do likewise, herewith my views on the coming year.
At this end, the list of possible "triggers" for the coming melt is on the rise, hence I expect the market to finally succumb, not just to a correction, but to a full blown cratering. I expect this to occur without much warning probably in the January to March period. Why?
Here are a few triggers, some of which have been posted earlier, but which are worth repeating nevertheless.
- Y2K is going to have a very dire effect on the N.American economy, but not in the way that has been postulated by most experts. Drinking water will still be had at the tap, electricity will still pulse into one's home or office. The big problem is inventories, which are even bigger than what I had earlier surmised. These inventories (components, sub-assemblies, commodities, even finished goods) MUST be brought back down to earth and this is going to hurt the U.S. economy a bunch. Lay-offs, which have already become a reality within the tech sector as well as manufacturing, (high pay jobs disappear to be replaced by hamburger flipping) are going to increase in the new year. How quickly? Hard to say, but it is definitely going to accelerate in this coming six months.
- Related to the above, it is probably best to view 1999 as a year in which plenty of year 2000 sales took place. Not that 1999 has been a good year for profits, but 2000 is going to suffer not only in comparison, but in real GDP (and by that, I mean the real stuff, not the fluff portrayed by the "chained dollar" idiots).
- Greenspan has successfully held off on further interest rate increases, as he floats us through the year end in an ocean of liquidity. Fair enough, but the world-wide selling of U.S. treasuries (the small "t" is on purpose), is accelerating. Japan is dumping, China is nervously feeding it out, Britain has not been supportive, and the other players are not blind. No wonder the long bond is taking a pounding, and there is plenty more to come if this selling really gets into gear. Big Al will throw interest rate increases at us, not because he wants to, but because he must keep the ocean of IOUs offshore. Only increased interest rates can do this. I suspect Greenspan is just trying to coast through until his term expires this Spring anyway,....let the next watch deal with the problems. Not many of today's "investors" seem to understand that increased interest rates not only syphon dough out of stocks, but also crimp profitability. In this next year, increased interest rates will hurt companies much more than might have been the case due to staggering increases in corporate debt loads assumed during this past two years (to buy back stocks,... brilliant!).
- Far too many speculators are exposed to the internet stocks, and at far too high a range of pricing. They will be cremated this Spring as Wall Street deserts most of the Dot.coms, when they come calling for more free cash (they have spent it all on Christmas ad campaigns). Nothing a short likes more than companies that have spent their respective wads and have no ability to raise more. I see this event as being particularly ugly because the belief in the net as a "second coming" is widespread. When this silly idea gets cut back down to size, and as folks come to realize that it is just one more in a series of communication modes, (and one in which it is close to impossible to make any profits,... see my earlier analysis of several months ago), the damage to "the new paradigm" thinking is going to be significant. Given the broad involvement of the general public in this refuse pile, the losses will have more than passing impact on "the wealth effect".
- For any who now doubt Hickey's "nuclear winter" scenario, I invite them to go talk to ANY reseller or visit ANY retail store. The activity in corporate selling is negligible, and at retail, only pricing matters. The early stages of an inventory panic are already in evidence, and the post Christmas period promises to be downright brutal.
Japan's government deficit spending FOR THE YEAR will represent 42% of total GDP. Let that figure sink in for a moment. That's annual deficit, not cumulative. Two questions. What does Japan's GDP look like when this massive government spending must be curtailed? What happens to the supposed Asian recovery (which is not evidenced in the figures) if Japan falls down again? Japan's Finance Minister has stated that the country simply cannot continue this activity NEXT YEAR. (The bond boys have simply stated that they can't and won't buy the offered paper.)
- This market has no cushion beneath it. Most of the shorts have been traumatized if not executed.
- I do not assign much value to technical indicators, but even so, this market is a technical basket case. The divergences are just too many and too potent to be ignored.
- The key to survival for fund managers today is to focus on momentum, hence we have the vast majority of them all dancing on the same tiny pinhead of darling stocks. This isn't just unhealthy, it is asking for a collapse. When a few of them try to sneak out the back door early (as ALWAYS happens), it could become a very crowded exit in a hurry. I see plenty of evidence of "early exits" underway already.
- Most "investors" are more than "highly levered" to this market. Current margin debt in particular is simply frightening. The slide will be greased with mandatory margin calls and associated "at market" sell orders placed by glum brokerage house credit managers, once the cards begin to fall.
Summing up, I expect the January through March period to be a particularly onerous period for the current mania and one during which the crunch is likely to occur.
Best, Earlie |
