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Strategies & Market Trends : The Options Box

QQQ 608.86

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Nov 14 4:00 PM EST

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To: hobo who wrote (9845)	3/4/2001 8:58:12 PM
From: Lee Lichterman III	Read Replies (2) of 10876

1. Are the fundamentals of the economy worse than in those two prior times? No they are not but the excess to the upside was much worse than those periods. PE ratios got totally out of hand and companies that should never been allowed to trade off the pink sheets were accepted as cures for all that ailed the world. Therefore, we are dropping farther just to get back to "normal" valuations. 2. Is the market psychology worse than in those two prior crashes ? Again, I would say no. I think just the opposite. The small timers are still very bullish but the pros know we were grossly over valued but weren't dumb enough to step in front of a charging freight train. Now that the Mo Mo has reversed, they are riding it all the way down to fair value. We are still over valued by all historical measures so thus the new record shorts as shown in Friday's COT report of 102,000 SP00 commercial shorts with the small guys on the other side of the trade. The small guy is still too bullish. THAT is why we haven't hit bottom but we are getting close. 3. Does the Federal Reserve have better tools to counter a free fall from these levels? --here I am not expressing an opinion on the wisdom of such move, however, I doubt they would stand aside in case of further lower levels.-- I think they are better equiped but they have a new set of problems as stagflation is a real threat. There are still looming credit problems as every high school kid is being offered pre-approved credit cards along with his dog and cat. Some stocks like JPM have exposure to Calif power problems and how many of these mortgage companies are the ones that were accepting dot com stock options as down payments on houses in silly valley that were priced at 400% market ups that are now worthless? We also have high energy costs, a still tight labor market and a few oither inflationary pressures that limit just how far the FOMC can cut rates without over shooting and reinflating the bubble. Inflation is easy to cure and so is a recession. Stagflation is a real bear though. ( pardon the pun. -g-) 4. How are the fundamentals of the market to perform from this point on ? This from the perspective that it seems the consumer seems to be in an ok shape, (as opposed to the manufacturing sector that seems to be in a recession already. I think the market can't be painted with one broad brush stroke. it is a game of sectors. Telecom has real problems since credit is getting harder to come by for buildouts. Many banks have serious exposure problems but other sectors are just fine. Many of the stocks that were declining in the background from April 98 have based a long time and are ready to move up. Some manufacturing is still showing healthy signs although the stocks themselves are being bid up in a flight to safety that I believe has gone too far. I do think we might get the soft landing but I don't expect a V or U shaped recovery. I think we grind sideways a long time until this all gets sorted out. I also know too many fund holders that all just want to recover some losses then get out. Psychology is changing but not fast enough. A few more months of fund redemptions and we will be there. Of course all this is just my opinion. Good Luck, Lee

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