Zeev, Haim and all,
good discussion indeed and I am compelled to throw in my 2 cents.
Sorry - very long and rambling post.
Domestic Economy. It is quite certain that US economy is peaking. If not, Greenspan will see to it that it will peak in the immediate future. Whether a soft landing can be orchestrated remains to be seen but I personally doubted.
Of particular concern is this labor cost, which I think had been erroneously reported for at least a few years. The use of stock options, 401Ks and other non-cash compensation reflects a different labor cost from, say, ten years ago. Take MSFT as an example, they voluntarily repriced the stock option price for newer employees after taking the recent hits. Why? They know they cannot retain them otherwise. If the stock market takes a hit and stock options are worthless as compensation, I wonder what would be the real labor cost?
Global Economy. This is very worrisome. The US has been supporting the globe for some time now. Japan is no better today than when the Asian contagion started almost 3 years ago. US$ is already too strong and will be stronger as our interest rate increase. The current account issues are sure going to haunt us in the immediate future, as trade deficit figures continue to skyrocket.
If the US economy slows and we are no longer the mass consumption machine, I wonder how many border line economies will fail?
Inflation. There is no inflation. Inflation requires an imbalance of the two basic economic elements, supply and demand. There is excess global capacity in every conceivable commodity to satisfy the increase in demand. Yes, may be enery prices are increasing but oil is a controlled commodity. OPEC will drop oil prices faster than we can blink if they see our demand dropping.
Liquidity. This is the upcoming killer. Liquidity Trim Tabs opined that there is NO big pool of money sitting on the sidelines, as claimed by Maria B and other talking heads on TV. It is difficult for me to fathom the net effect, when fund flow direction reverses from previous years, or simply decelerates.
Stock Valuation. I mainly follow tech stocks and have to say that valuation is still sky high. CSCO, at 30ish times sales, has the smartest management. Since the market gave them this ridiculous valuation, they are converting this fake CSCO$ into real assets as soon as possible by paying seemingly ridiculous prices for these companies. At least they have more assets to show for when the house of cards comes tumbling down.
The willingness of big companies like T to play the type of manipulative game as they did with AWE is a clear sign of desperation. T employees got suckered into pumping $1B back to the company while seeing their T shares in their 401K tumble. I wonder what morale will be like in a few months, when AWE trades in the teens.
My concern is good companies like csco and bad companies like T are equally over valued. If they start trading in a more reasonable level, are we going to suffer the consequences of a "poor effect"?
Strategy? The most common theme these days is old economy vs new economy. I am not sure what the hell that means. Are they saying that companies like Ford, BAC, Sears are going to be better than SUNW, ORCL and QCOM? My guess is not.
So the best strategy may be:
1. find the best sector to short.
2. find the best instrument, such as shorts, puts, index, whatever.
Suggestions?
Ramsey |
