Please read again my post of April 17th 2000 (#reply-13483082), that may refresh your memory on my position. To summarize it, I have been suggesting for a number of years now that we will have a market bound between 6000 and 12,500 on the Dow and between 1900 and 5300 on the Naz, That was my earlier "forecast" from 1999 on, since then I pushed to top limit of the Dow to a possible spike of 13,500 and changed the bottom on the Naz last February to 1400. But here is where the commonality of your litany of "problems" and my long range forecast end.
Even the depression of the 1930 saw major uplegs in the market. So far most of the calls from that April post have come through. I erred in feeling that the rally from a late May 2000 bottom would get us close to the March highs (but at 4300, I recognized that the technical picture was such that another bear leg was coming, the signal was the break of 75 of AMAT late in July last year, I posted quite a lot about that "signal" last year and there was ample time till September getting out "whole"). I also erred about the size of the decline in February 2001 (In January I had the bottom at 1900, but on the breach of 1870, this was lowered to 1600 plus minus 30, we hit that one on the nose in early April). I missed again with my forecast of a double bottom in late August and in October this year, but being flexible, long before August was out, had my "August/October coalescence" model in place, with a date range 14th or 17th of September as the "coalesced bottom". Sure I did not expect 9/11 to happen and the market to be close for 4 days, add those four days to my original count and you get Sep 21, on the nose. During the first week of reopened trading, I kept suggesting not to fear that debacle and that the bottom will be "in" before the end of that first week of trading, so far it was.
What am I saying now? I am saying watch for a relapse, right now my model shows no reasons for the September lows to be taken out, but if they are, stop losses and new technical signals will be flashed, this should minimize any losses that a missed call could cause. What you are suggesting is simply abandon equities, and people would have not participated in this year's three major advances, 28% from my call "fully loaded" on Jan 3 to the Jan high (where I warned of the February massacre), 44% in the 4/3 to 5/22 advance and about 30% advance to last Friday high. If one's goal is to make the "normal 10%" per year, just take the profits now and go to sleep.
All the problems you are pointing to here, were there (and worse) at the top in March of 2000, and only the combination of those problems with excessive valuations then, and rising interest rates had the force to cause the decline we had, but even then, we had some very powerful rallies (like th 40% rally from late May 2000 to the double top in July /September). The difference is that now there is a lot of fear in the market, the valuations have been decimated in many cases, and short term interest rates are going to about a third of what they were in March of last year.
Do you think that a company like MRK selling at a PE of 20 when the alternative is 2% to 2.5% in short term deposits, is expensive? A PE of 20 would be "justified" without MRK's growth if competing interest rates were 5%, at 2.5%, you can make a very strong case for twice the current price on MRK.
Sure there can be another terrorist attack, there can be an earthquake of magnitude 8.5 hitting the west coast, there could be a hurricane decimating the east coast, and the natural disasters would probably have a greater economic impact than terror induced problems, but when investing you are not going to take such disasters in account (except for hedging if you so desire), or you'll never invest in equities.
As for the still excessive valuations, the "long term turnips forecast" assumes that valuation metrics change gradually, and that a series of bull/bear cycles, very similar to the 1966/82 period, but shorter in duration, will bring earnings up while valuations come back to the "mean". Right now, I have no reason to assume that will change (if it ain't broke, don't fix it), and I see no major bear (except the immediate next six weeks or so) until few things come together, like a new round of tightening, a mistaken tax policy, resurgence of major deficits, and very important as a "trigger", our balance of payments going consistently above $40 B/month.
Zeev |
