This Commentary from the Bull Market Report: Is actually quite encouraging:
COMMENTARY
The market got hit, and got hit hard Friday. This was a very democratic
sell-off: none were discriminated against. If you were in the market
Friday, you got hurt, no two ways about it. .
There were no shelters in the equities market. Even the bond market was
fairly weak. People were moving to one thing, and one thing only: cash.
This makes for a very interesting development. Investors are scared to be
in equities. However, they aren't much interested in being in bonds
either. For the new generation of investors, 6% a year is insignificant.
After all, they have grown accustomed to making 6% in a week, or a month.
Investors' demand for opportunity has not declined, and investors have
effectively pushed their investments to cash. This means that there is an
ever increasing pile of cash on the sidelines, waiting to for something,
anything, to come along and give them the opportunity for high investment
yields.
This is creating a potentially explosive situation. Much like the
Internet was referred to as a bubble that could pop, this cash on the
sidelines is like a powder keg. And the longer the market declines, the
more powder is added to the keg. All it will take is a single spark, and
blammo, the market will explode upwards. That spark could be a Greenspan
pronouncement about not raising interest rates, or IBM buying even more of
their stock back, or any number of other catalysts.
We are not predicting when this will happen. There is still a lot more
pain to be potentially had by all. This does not have the markings of
something that will be over any time soon. But, this is exactly why we
are advocating cutting the fat from your portfolio first. There is no
room for fanciful speculation in a market like this. The waters are just
too rough. The only things that investors should be clinging to are the
absolute rocks, those two or three core holdings that you will hold for
the next 5 to 10 years.
We have seen these markets before. They come up unexpectedly - that's why
we didn't predict this one, nor did you. They usually are caused by a
"series" of events and this one did likewise -- we should have known.
First, the Microsoft deal with the government collapsed; Second, Abby
Joseph Cohen said prices were too high; Third, the CPI number came out
much higher than anticipated. Add to that the high volatility, the
increased greed factor, the new Internet empowered day traders; the
over-valuation of some Internet stocks and you have a powderkeg to deal
with.
WHAT WE MUST LEARN FROM THESE EVENTS is how to handle the next one. We
have seen that the quality stocks have held up quite well. For example,
Cisco (CSCO, $57, down 4) is down from its high of $82 on March 27-8, but
is priced now at about where it was a month ago. Now, if you want to be a
trader or a market-timer, you should have sold at $80. However, you might
have said that a year ago when the stock went from $50 to $80 from April
to November, but then you would have missed the move from $80 to $114,
where it is today. (There was a stock split in March, 2000.) Most market
timers are out of the market when stocks go up and are in the market when
stocks go down, and most turn into long term investors after they lose
money consistently. Long term investors handle the volatility by thinking
long term and not worrying about the short term swings. The only thing
that matters is that the growth of the business continues.
Case in point. Microsoft (MSFT, down 5) is at $74 a share, down 38% from
its high of $120. We issued a News Flash on Wednesday that it is now time
to buy more Microsoft. Here is the last sentence of that News Flash:
"Listen, hi tech is not dead. It will be back with a vengeance - it's
only a matter of time. Microsoft may go lower before it goes higher, so
please be careful with your buying, but five years from now, you'll be
very glad you did." At the time of the Flash we didn't know that the
market was going to drop 12% in two days. It could have risen 12% in two
days. Hindsight gets us nowhere. The point remains that Microsoft is
trading at a PE of 50 and is at the same price that it was 15 months ago,
in January, 1999. Do you know how many chances you have to get Microsoft
at almost 40% off its high? Not many. Many of you have enough Microsoft,
but for those of you who don't, now is the time to upgrade your portfolio
by adding more quality.
This goes true for the stocks in our Long Term Core Holdings Portfolio,
many of the Dow stocks, and stocks in the financial services sector like
Merrill Lynch (MER, $90, down 9) and Morgan Stanley Dean Witter (MWD, $67,
down 9). American Express (AXP) was hammered yesterday, losing 12 points
to $134, 36 points below its high. The PE is a reasonable 27. This stock
will be one of the first to come back when the market turns higher.
Gillette (G) closed at $38 yesterday, still up 19% from the $32 price we
added it last month. How can you go wrong with Gillette? Have you tried
their razor? Ask ANYONE that uses it what they think of it. It is
incredible. Here's a non hi-tech superstar trading at 39% below its
all-time high of $62, set TWO YEARS AGO!! Have you seen their 18 year
chart on Yahoo?
(http://finance.yahoo.com/q?s=G&d=mys)
How about IBM at $105 with at PE of 27, a company that graced the cover of
Business Week recently as THE e-Commerce company, and a company that buys
its own stock back like it is going out of style? Some folks might call
this one a no-brainer. Here is the chart for the last five years.
finance.yahoo.com What do you think the next five
years will bring?
We must mention The Nasdaq 100 Trust (QQQ) as a way to grab a basket of
stocks (100 of them) that by definition are the fastest growing hi-tech
firms on Nasdaq. By definition? Sure -- laggards are replaced by the
faster growing stocks in the index, leaving you with the aggressive. The
QQQ's are at $80 a share now, down from $120. We predict you will see new
highs sometime this year or early next. Not satisfied with 15% returns?
Looking for 50% in a year? This could be it.
There are many other powerful stocks that are going to get snatched up
when the market turns. And turn it will. Now is the perfect time to
re-evaluate your own portfolio. Upgrade to quality. The lesser stocks
will languish, while the quality issues will be the first to revive.
WE DON'T WISH TO SOUND LIKE NOTHING HAPPENED LAST WEEK. We are quite
aware of what happened and are still shell-shocked like many of you. But,
200,000 folks logged on to the Internet yesterday for the first time in
their lives and another 200,000 will log on today. The growth of the
Internet will continue unabated and opportunities will resurface soon
enough. The sun came up this morning, even though many lives were changed
by the events of Friday. The economy is very strong, interest rates are
not too high, B2B is just getting started, B2C is thriving and there will
be new investments that will yield triple digit returns in the future. We
will do our best to help you find them.
Stay strong and invest in wisely. Quality will win out in the end.
Todd Shaver
Editor in Chief
The Bull Market Report
Washington, DC USA
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The U.S. Labor Department reported on Friday that U.S. consumer prices
increased significantly in March on the heels of higher transportation and
energy costs. The Consumer Price Index (CPI), the broadest gauge of U.S.
inflation, came in 0.7% higher in March, which followed the 0.5% increase
in February and which marked the steepest increase since April 1999.
Moreover, the core rate, which excludes volatile food and energy
components, rose 0.4% in March, which was twice as fast as the average
economist forecast of a 0.2% increase and which increase had not been seen
since January 1995.
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