Dohmen's Wellington Letter
By Bert Dohmen, Editor..excerpts...
Posted Monday, March 20, 2000 at 09:05 AM EST
This was probably the most exciting week since the first week of this year. Last Friday the NASDAQ closed at a record high above 5,000. I said it might be a trap. The plunge started Monday. In three days the NASDAQ had lost 10% of its value.
Just when investors started to panic, the NASDAQ hit a bottom, and the Dow had one of the biggest gains in history, closing up 499 points in a day. It was also the week that the Dow soared and the NASDAQ plunged. In fact, for the week the DJI tacked on 666 points, while the NASDAQ Composite plunged 250 points.
It was justice. The DJI had been in a downtrend since the middle of January, losing a fat 17% of its value. During that time, the NASDAQ Composite made one new record high after another. Well, you can only stretch a rubber band so far, and then things snap back together. I think this was a very healthy week, as it cooled off some of the excessive enthusiasm. More enthusiasm will be squelched on Monday as a response to a Barron's article discussing a number of internet companies that are running out of cash. I've been warning about this for several months.
Late in the week utility stocks soared, the bond market soared, and all the old economy type stocks did well. Put it all together and the market is telling us that interest rates will decline.
How is this possible if the Fed continues to warn of higher interest rates? Apparently, the market may know better what the Fed will do in the next six months. It wouldn't be the first time. I predict a sharp slow down in the growth rate of our economy, starting with April statistics. That will make next week's interest rate hike the last one for some time to come. This benefits the slower growing old economy type stocks.
The inflation statistics this week were as generally expected. The producer price index showed a core rate increase of 0.3%, and the consumer price index a gain of 0.2% last month. The big energy price increases did not impact other sectors of the economy. You see, the definition of inflation is not a price shock in certain sectors of the economy. Inflation is caused by excessive money printed by the Federal Reserve. It is a charade for the Fed to pretend that they are fighting something that only they can create. Are they trying to justify their jobs?
This week one super intelligent Wall Street analyst called the Fed Chairman's latest statements "irrational". An economist on CNBC, who always speaks well of the Fed, today said that Mr. Greenspan has lost "credibility." These are strong statements to make on national television. After the Fed hikes interest rates next week, the market should rally again.
In conclusion, I recommend staying with your positions. |
