In response to an inquiry about what I thought the market would do, I sent this:
It's precarious at best and looking for a reason to collapse. The DOW is the more vulnerable, and the past inverse relation between it and the NAZ won't hold. Maybe there will be a weak Bush rally. Not very likely. Bush will be a great president, but Wall Street doesn't think so, because Wall Street can't ever do anything in its own interest.
The only way to drive the market higher is for the FED to pump, to buy securities outright, but they can't do that now because the economy is not that weak. This is true because the FED has brought us out of secular uptrend into a '70s like flat cycle with a rising base in interest rates. They brought about this through their fixing of price in the market for money. If the FED did pump outright, they would pump up prices more than they would pump up output. Since they already blew their wad over the last few years propping up an economy begging to slow, they have to stay on the side of restraint whatever rate they fix. By restraint I mean no coupon passes, outright injections.
In this kind of environment stocks will melt right back down. The Dow has traced out a major distributional top over the last 1 1/2 years and has nowhere to go but down due to the inability for money to make the economy go. This is due to the fact that the Clinton Administration pursued the old populist war on wealth by raising tax rates. Tax rate increases preclude the possibility that more fiat money will enable economy to grow at persistent trend.
The only way to render the DOW into a high base would be for the FED to pump outright and they don't have that option. Restraint will cause the DOW and other major averages to move downward until traditional multiples are reached. That could be a matter of time or price, but whichever it is, it is sure to come. |
