J.T. ... It is harder for me to respond clearly as to what I am thinking about the economic and investing atmosphere when we do not communicate regularly. Most of my thoughts, both the brilliant and the dumb, end up on "All About SUNW." More than that, I e-mail my thoughts to about 30 friends with appropriate URLs a couple of times a week. I would be glad to add you to the list if you would send me your e-mail address by PM.
To start, I would point to a couple of recent articles that I think are very much on target. Steven Roach of Morgan Stanley has been calling this mess very accurately since early in the year 2000. There is no guarantee that he will continue to be correct, but he has saved me a lot of money and made me a lot of money ... and MS's Global Economic Forum is free to all comers. I never miss what they have to say.
__________________________________
... from Global Economic Forum: The latest views of Morgan Stanley Economists - especially Stephen Roach
Global: Global Recession -- Longer and Deeper by Stephen Roach, September 25, 2001
morganstanley.com
__________________________________
From "The New York Times" OP-ED pages on September 9, 2001, an article by Jim Grant. I am considering subscribing to Jim's newsletter ... but it is about $700 per year for 24 issues - very expensive.
nytimes.com
__________________________________
Lastly, contraryinvestor.com is terrific. It is by subscription only, but very inexpensive.
__________________________________
Those are only some of my sources, as I read at least 40 hours per week. "The Economist" is excellent and "Business Week" is solid. "The Wall Street Journal" and "Barron's" provide the sell side of things ... and CNBC is fine when its muted. I also read "The New York Times" every day.
Now that I have evaded answering your question, J.T., let me give it a shot.
(1). The world economy was in trouble before September 11. Now, the whole concept of continued growth in international trade is at risk - especially for the next few years. That is a huge problem for large U.S. companies who have been getting much more than 50% of their total net income from such efforts. For that reason alone, I expect our government's rhetoric about what will be done about terrorism will not nearly match the words that are being said.
(2). In the U.S., I expect a prolonged recession which will be longer and deeper than anything since the 1930s. I do not expect 25% unemployment, for sure, but 7-8% would not surprise me (do you think that might cause some protectionism and a reduction in immigration). We are in a situation that we have not experienced in 70 years with a recession caused by a hugely overvalued equity bubble and excess technology capacity. Recessions since 1945 were caused by too much money chasing too few goods, so the Fed was able to make adjustments in monetary policy that worked. I am not sure that what the Fed has done (and will continue to do) this year will work except in the very long run ... and then (I mean 18 months), they are going to have to raise rates quickly, and we could easily get into a cycle of boom and bust.
(3). It looks to me like deflation is going to become a real danger in the next year or so - especially in all types of commodities.
(4). God forbid that we should have any additional serious terrorist activity in the U.S., especially in the short run. The risk of more problems is pretty high though, don't you think? I do not really want to think about the human and economic consequences of more activity, but I have noticed a lot of fear and concern in the people I visit with every day.
(5). Specifically on equities, I am still looking for a probable additional plunge in prices before the end of October. My guess is we will probably bottom then. The problem is that, after the bottom, there might not be any real upswing for another 6 to 18 months. Short term trading should work well, and good 'stock pickers' should have a great opportunity. Buy-and-hold was a bad idea foisted on us by Wall Street. Timing the market is not easy, but it is the only way for me.
(6). I think the negative fall-out on Wall Street will be large - and rightly so. Between CNBC and sell side analysts and brokers, I have never observed a more intellectually dishonest group of people. I think the small investor and the general public will be very careful about buying stocks for a long time to come. This is how bear markets usually end, is it not?
For me, I have a lot of cash (over 50%), 2 S&P 500 March puts, 4 December silver contracts and a gigantic position in Abiomed ... plus small positions in two 'story' stocks that I bought Friday (INVN and ATSI). I am telling my friends to be very careful and cautious. My view was not changed so much by September 11th as it has intensified.
Maybe I will be wrong about this, but the value of my investments is up tremendously since December 31, 1999. I do not know too many people who can honestly say that.
I will add a disclaimer here. I have said a lot and I am an unlicensed amateur.
Disclaimer: The above is my personal opinion. I recommend that you do not base your investment decisions solely on any one person's views or analysis (including mine). Do your own research and take personal responsibility for your investment decisions.
Ken Wilson |
