Yes, amazing. I'm sitting here looking at charts, with CNBC and CNN in the background:
The news is endless examples of disasters from overleverage and Creative Accounting:
Japan: debt rating reduced, after a decade of fiscal stimulus, which has piled up massive debts and failed to revive the economy. With interest rates at zero, they are out of stop-gap games to play, and are still (still!) unwilling to do systemic reform. Their entire banking system is insolvent.
Russia: has initiated a price war in oil, in an attempt to wrest control of the market from Saudi Arabia, and now is looking at devaluing its currency, social unrest, and pissing off the Moslem world on their war-torn Southern frontier.
Argentina: near the endgame here, the government doing desperation gimmicks that destroy what little faith remains in their currency and banking system.
Companies: too many to count. We're seeing a wave of credit downgrades, as cash flows fall, assets get impaired (and how!), and credit standards tighten. Enron just the most spectacular recent example. This company was followed by a herd of analysts, their debt and equity held by large pension funds, banks, and mutual funds all over the world, and now we find out that all their audited published results were random numbers. If Enron could get away with that, for years, then anyone can.
consumers: mortgage delinquencies are rising, equity in homes is low and falling, consumer debt is high and rising, unemployment will rise for at least the next 3 quarters. Consumer spending is being propped up entirely from soaring debt.
Meanwhile, those charts:
stockcharts.com[h,a]dahlnymy[de][pb50!b200!f][vc60]
Nasdaq now almost 50% off the recent lows, spiking above the 200DSMA for the first time since 9/00, reaching the prediction I made on 10/2/01: Message 16444377
stockcharts.com[h,a]dahlnymy[de][pb50!b200!f][vc60]
SOX doing exactly the same thing as the Nas.
stockcharts.com[h,a]dahlnymy[de][pb50!b200!f][vc60]
AMAT too. All the charts look the same. The tech bellwethers like INTC and CSCO broke above their 200DSMA last month, retested that line several times over several weeks, and are now spiking up.
So......there is a disconnect, between the charts and the news. I'm riding this wave, I'm about 80% long the market, my only short position is the JNPR put LEAPs I nibbled on yesterday. But I recognize this move as a re-inflation of the Bubble. I'm hearing a lot of people say, "The bottom is in, the Bull Is Back, I need to be holding those techs that are running, I missed the bottom but it's not too late, gotta jump in." This is a very, very, very dangerous attitude to have now. Many of them are the same people who were frozen in fear 2 months ago, when we saw massive net redemptions from stock mutual funds. The time to be jumping in, using margin, buying out-of-the-money LEAPs in techs, that time is past. If anyone missed it, don't chase these stocks, that are 50-100% off their recent lows. I'm not saying stocks won't go higher. Stocks are now, as in 1999, disconnected from fundamentals, and the charts are all very bullish. Impossible to say how high momentum and hope and liquidity takes us. What I'm saying is that the risk/reward is much worse now than in early October, and there is a large possibility that we give all of this back, sooner or later. Maybe tomorrow, if we get another "exogenous shock". Maybe in 2003, as the Fed raises by 1/2% over and over to snuff out inflation. I don't know when, or how. But valuations are like gravity, they always wins in the end.
I am now:
23% cash, 1% short, 76% long
14% below my April 2000 high.
I will add long positions, at AMAT 35, TXN 30 or 31, CSCO 16.
I will nibble on short positions, small purchases in widely spaced increments, no big purchases until this upmove looks like it's stalling. |
