Here's my prediction,
The NEXT president of the USA will have no choice but to default on its debt and cancel the currency now in circulation , replacing it with a new re priced currency. within the first or second year after election.
There will be further constitutional crisis which began in 2000 with the election and is now being further tested with new terrorist protection laws that are in direct conflict with the rights of individuals.
As for the disconnect of share price to economic realities; history often repeats itself ,and those who fail to understand its lesson, are doomed for failure.
The US fiat money had been re priced 3 times already in its lifetime , each time in very similar circumstances. The "this time its different" crowd will soon realize that "no" this time IS not different and will more than likely be the same ones who were exclaiming at the peak of 2000 stock mania that " this time is different" when they were explaning high PE valuations, only to fall flat on their face.
There is a serious deflation problem in the system that has yet to turn around. Japan will report its second negative GDP number tomorrow which puts them in the 4th recession in 10 years. They are the number 2 economy and need a lower priced Yen to stay afloat. The US needs a cheaper US dollar to make its companies competitive overseas but that cannot happen until Japan gets back on its feet. Mean while, Japans problems are taking everyone esle down with it and the US is power less in stopping it as witnessed by the 10 cuts in interest rates without a return to growth. The Us is now back to deficit spending and its national debt is growing by the second. Had we not had the Sept 11 attack, we would be in much better shape as we would not of had to spend Billions in weapons, Security, bailouts, etc.
Enron will not go away with the stroke of a pen by Citigroup or JP Morgan. There are massive amounts of derivatives at Enron that need to be unwound. We know that JPM is the king of derivative , so its no wonder they offered debtor in posession financing for Enron, they needed to protect themselves and their positions against prying eyes until they are unwound.
Look at the bond market last few days, all of a sudden the yields started to spike unexpectedly and prices tanked. There were big sellers and the first thing that comes to mind is like LTCM , when you unwind dereivatives, you always do the most liquid one first. If in fact the bond selloff was iniated by an Enron liquidation then I would hate to see the non liquid derivative moves coming up.
One cannot afford to play this stock market rally while ignoring all other factors. Even more important today than it was a few years ago. It used to be that stocks required a premium for risk in order to entice buyers into the stock market. Now buyers line up to pay 50-180 PE on stocks without a blink of an eye, because they think its the only game in town.
The article I posted earlier talked about the impact of bonds and liquidity. Well Argentina is about to swallow large amounts of liquiduty and the IMF is in no hurry to help. They want them bankrupt first. The insurance companies took a big hit after 911, but what many do not realize is that they may be on the hook for Enron's financing with the banks , as well. I believe we see 1 maybe 2 big name insurance companies go belly up by May 2002.
The market is rising on apparent War vistory and recovery in first half 2002. There is no war victory , not before spring of next year at a minimum and more than likely not for another 3-5 years. As for the economy, the Best case scenario is last quarter of 2002 and more than likely first half 2003. It will be a brief recovery just in time for the election and then back down into recession post 2004. By then they will probably begin to label it depression.
And there is nothing wrong with thinking this way. Its much easier to follow a game plan when you know the landscape. If you knwo the terrain ahead of time that needs to be traversed then there are few surprises that can prop up because you have already anticipated the potential outcomes and planned for them.
The price may rise further in the equity markets into the new year but I will say this , Before May 2002 I will have had a chance to repurchase any one of the high flyer stocks at prices lower than today by at least 10%.
I let the daytraders catch the last swing up , I am content in waiting for my next signal . The GLE signal I received yesterday morning was strong enough to take advantage of and so was the one I received in late September but they are far and few in between. There are usually 2 strong ones per year that deliver above average returns and those are the ones I wait for. |
