Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: tradermike_1999 who wrote (31)	10/23/2000 3:52:59 PM
From: quasar_1	Read Replies (8) of 74559

Goldilocks Economy... Earnings - doesn't matter if earnings are good this quarter - and they haven't been for the most part. This is media spin. I believe earnings on the S&P companies are up about 15% this quarter. Over 90% of all companies reporting have met or exceeded estimates. The bulk of these exceeded estimates. What matter is what future earnings are going to be. That hardly matters at all. What matters is the psychological state of the next marginal buyer/seller. Contrary to popular belief there is almost no correlation between perfect earnings forecasting ability and stock picking performance. This was detailed in a study by Robert Colby and Thomas Myers in The Encyclopedia of Technical Market Indicators. The economic slowdown has only begun. That is pure speculation. So far we only have a slowing in growth. Growth rates are still at the high end of Fed targets. The high world oil prices are a sign of strong world economies not weak ones. No reason to expect earnings won't follow. This is a supposition based on a prediction which still has a tenuous relationship to current facts. This is not to say a slowdown can't happen. In fact the Presidential cycle indicates one is more likely than not. But at this point it is too early to call. 7. Leadership in healthcare and utilities is not necessarily a positive sign for the broad market. Normally leadership in healthcare is defensive so I agree. Leadership in Utilities is also defensive. Here the picture is muddled because of the tremendous effect of deregulation in this sector. The normal Utility stock relationship is horribly deceptive right now. These aren't you Grandpa's utility stocks. Banking sector looks a little ambigious at this point... I agree. It is telling us almost nothing. The T-bond and note markets however are pointing to falling rates. The Fed can not disregard this forever. In the end they must follow the lead here. Sectors such as retail, construction which lead the broad market - dependent upon consumer spending - are dropping which isn't a good sign. Actually home-building stocks have done quite well through this downturn. Retail has been weak. The whole retail concept of brick and mortar distribution is in the preliminary stages of chaos. There will be some clear winners here (WalMart) but also some clear losers. Biotech strength is interesting and does seem to indicate that there is a lot of speculative money in the market and adds to the bull case. I believe it takes away from the bull case. While biotechs do represent a VERY long term bullish case, these stocks seemed overvalued on balance. I don't think many investors realize the very long lead times for biotech drugs. A lot of this is pie in the sky (genomics). I agree that biotechs in some cases have assumed the hot money characteristics of the Internet stocks. At least there is more meat on the bones here. The fundamental underpinnings of the bull case come from the torrent of money constantly pouring into the market . This is primarily due to the baby boomers dumping money into their IRA’s and 401K’s. The boomers are also the recipients of the greatest wealth transfer in US history. As their parents pass on they leave vast sums of real estate, cash and stock to their heirs. This generation, who have primarily grown up in a positive investment environment have no qualms about equity participation, unlike their parents who were reeling form stories of the last Great Depression and two world wars. The other torrent comes from strong dollar inspired buying from foreign investors. While many decry the balance of payment problem I see it as a non issue. The excess money sent abroad comes right back into the US as investment. As long as the dollar remains relatively strong this will continue. It is dollar weakness which should be feared. A strong dollar is a sign of US economic strength not weakness. Goods and services are presently deflating. This is due to falling global business costs through information technology and rising global competition. The only fly in the ointment has been rising oil prices. But this is a temporary phenomenon, the last gasp of the industrial age. Oil prices are not as intrinsically tied to corporate costs as they were during the shocks of the 70’s so this becomes much less of a sticking point. The commodity based inflation/deflation cycles described by the Kondratieff Agrarian/Industrial cycle are no longer relevant. This is an information age. The fear will become global deflation, not inflation. This is what the Fed fears most! This is where corporate margin pressure can come from. This is where the bear case resides. Margins will be simultaneously squeezed by greater competition and bolstered by rising efficiencies. Unit shipments will rise. Demand growth will continue. Competition will increase. Trade barriers will become ineffective. This is why other currencies are falling. They are clinging to industrial age economic principals while the world has dramatically shifted in front of their eyes. What will happen is that many companies will fail not because of global recessions, but because they fail to grasp the competitive truth. This is the main reason Europe (Euro) is failing. The smaller amount of companies that remain will be incredibly prosperous. They will in essence become world corporate states. They will rely on the small entrepreneurial firms to take the risk, while they aggregate the winners into their massive global enterprises. The small companies that succeed will be moon shots. The rest will be buried or absorbed into the matmos. The real long term question is will the US be able to compete if/when the second and third world get their act together. This will only be answered in the fullness of time. Quasar

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