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Strategies & Market Trends : Zeev's Turnips - No Politics

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To: Steve Lee who started this subject	6/18/2002 9:22:24 AM
From: Crimson Ghost	Read Replies (1) of 99280

What a real bottom looks like From Comstock Printer Friendly Format E-mail this article to a friend A Comparison: 1974 And Now A View Of Extreme Pessimism The pundits have apparently decided that we reached a downside extreme on Friday, and that now is the time to buy stocks. If this is a downside extreme, it is a most peculiar one. The classic downside extreme of the past 30 years was the one that marked the 1974 bottom. Then, as now, there was a lot of bad news around about the economy and the world in general, and the air was full of gloom and doom. Nevertheless the degree of pessimism that existed at the 1974 bottom was far greater than it is today. To see what a real downside extreme looks like, let’s compare. At the 1974 bottom the S&P 500 sold at 7 times earnings; 65% of the advisors in the Investor’s Intelligence Survey were bearish; equity mutual fund cash was 11.7% of assets; and only 4% of stocks were above their 200-day average. Now, that’s what a real downside extreme looks like. By way of contrast the S&P 500 now sells at 43 times earnings; 35% of advisors are bearish; equity mutual fund cash is 5.3% of assets; and 60% of stocks are above their 200-day average. On a more anecdotal level, now most investors have held on to their stocks and want to know when to buy more. The leading financial magazines feature the stocks to buy in the recovery. In 1974 investors fled the market in droves and swore they would never buy stocks again, while the periodicals ran articles saying that the market would not come back for a long time. In our view the market remains highly overvalued, and investor capitulation is still ahead. We regard any rally as yet another opportunity to reduce exposure.

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