Arik,
Are you looking for an impending death of this bull? WSJ and Barrons drew some pretty disturbing analogies between the current market and 1929/1987 markets. What do you think of the following commentary which counters the doomsayers????
exchange2000.com
To: +J R KARY (3293 )
From: +IQBAL LATIF
Jul 21 1997 1:16PM EST
Reply #3295 of 3324
Ike throws an open challenge to BARRON'S AND WSJ-1929-Your comparison is
crap!
Why 'Barrons' and 'WSJ'are sponsoring crap? 1997 is not 1929 or 1987:
Allow me to claim not very humbly that comparisons and similarities of 1929, 87
technicals with 97 in this weeks Barrons,alongwith today's front page article in WSJ
claiming that whenever DOW has doubled in the last few decades 4 out of 5 times
following year is followed by a steep correction of 20%.
"The charts bear shocking similarities, ``not just in the major moves but in the minor
blips,'' Arms told us last week from his perch in New Mexico. At the least, they
suggest, he says, that Mark Twain was onto something when he observed that while
history may not repeat itself, it does rhyme.
``Essentially the market doubled in each time period, going from about 150 to 350 in
the 1920s, 1200 to 2800 in the 1980s, and 4000 to 8000 in the past two years,''
Arms points out.
Besides tracing the Dow's movements, Arms charted weekly volume for each of the
three bull markets, observing in all cases that light volume in the early stages grew
progressively heavier as the market climbed. ``If history repeats, we are within weeks
of a major market top,'' he concludes. ``The charts are implying that the party is very
nearly over.''
Arms is quick to point out that the aging beast himself will offer numerous clues that the
end is nigh. First and foremost, look for day upon day of ``extremely heavy'' volume,
accompanied by ``lack of progress'' to the upside. ``The market just runs into a wall,''
he says.
Volume on the New York Stock Exchange indeed has been rising in the past few
years, as it did in the 1920s and in the years preceding the '87 top. ``A few years ago
we were trading 300 million shares a day,'' Arms observes. ``In June, average daily
volume was 520 million shares, compared with 482 million shares in May, and 476
million shares in April. Before it's over, I would expect to see unprecedented volume,
with perhaps 700 million-800 million share days.'' Last week, Big Board volume
exceeded 600 million shares in several sessions.
Another telltale sign of a market top is a series of ``preliminary'' sharp drops and
rebounds, Arms says. Wrenching moves haven't become commonplace - at least, not
yet - although the Dow's near 200-point decline June 23, and its 120-point drop in
July's first full week, conceivably could be early warnings."
I have following short arguments based on which I don't think that despite of similarity
in charts a comparison can be drawn:
1. We live in an all together different era from 1929,it use to take 10-15 days to cross
Atlantic. US industry was unable to adjust to huge slow down as a result of end of
World War 1. World -monetarily was not as interlinked as it is today. Inter-twinned
world market forces are absolutely a new phenomenon so for me comparing 1929
markets with today's market comparing apples with oranges. World wide wealth by
rough estimates (BW-June1996) have grown to 16 trillion $'s these are citicorp
estimates which measures wealth by individuals with more than 1million $ in investable
assets.
These are 1996 estimates and the figures are far higher now. Only 50% of this wealth
is owned by US of it is outside US looking for investment in some decent assets.
Finding safe home 'san US markets' for this newly acquired wealth is not an easy task.
2.A case of comparison be made between 1987 & 1997. I will take you thru the
following history of Dow to rebute claims made in Barron's and WSJ as lacking
foresight:
Dow- Nov. 14. 1972--Reaches 1000
Dow- Jan. 8. 1987-- Reaches 2000
Dow- April17. 1991--Reaches 3000
Dow- Feb 23. 1995-- Reaches 4000
Dow- July 16. 1997-- Surged 8000
Now if one makes wrong comparisons one can also happily deduct skewed results
what on surface look to be credible claims are being promoted on total rejection of
exponential development in technology & trade which world has wittnessed since last
10 years. It is true that whenever Dow has doubled previously 4 out of 5 ocassions
were followed by a huge decline, but one cannot ignore the fact that although Dow has
doubled in 2years and 5 months but it has only quadrupled in 10 years and this
quadrupling and doubling on average has not increased earnings multiple to levels
unprecedented or uncommon with Dow's post 1929 history that I am concerned with.
If any, these multiples are not quite toppish- if you take into account going forward
earning momentum they are quite reasonable. Don't forget after this earning seasons we
need to look at next year projections and stock multiples will correspondingly relate
more closely to 98 earnings, this factor alone will help neutralise a lot of excess.
My analysis as an acute observer of DOW and US markets is that DOW has been
kept artificially under wraps for far too long, US deficit and free spending was
promoted a scourage and US depicted as a economy on verge of colapse by
overspending for obvious reasons by Global Fund Managers (they had missed this
whole move up since 1995 and only way to justify there complete lack of
understanding was to promote idea of - 'irrational hype' even Uncle Greenspan could
not avoid contracting this 'malaise' bug. As a student of Prof Krugman I will not
hesitate to challenge the flimsiness and lack of depth of two articles of Barron's and
WSJ. I think they are scandalous and belittle DOW genuine advance.If one loses touch
with fundamental reasons why US markets are trading here at the first place and
project new models on previous assumptions which anyway are outdated, the
conclusions drawn are flawed as input is incorrect..
Earning ratios of S&P 500 are in respectable range of 20-24, on going forward
earnings projections for 1998 I would consider these ratios too be slightly 'voluptious'
but too much out of line, yes- some additional fat but not to the extent that we need to
slaughter the hog.
From 1987 in ten years global wealth has increased by 6.1 fold, global economy is
now around 38-40 trillion $'s which was only a quarter or even less in 1987. Dow and
US markets have performed well because of positive long term impact of good
economic governance, there seems to me no place of projecting a '1929' or '1987'
type scenerio.
I was just looking at a possiblity of Dow decline of 25%- such a period of decline will
be neccesarily followed by inflationary threats, rising interest rates, rising
unemployment, and sharp drop in corporate profits! What we have seen so far is
complete opposite to this, if any unemployment is dropping inflation is non-existant and
corporate profits are being hidden like MSFT to avoid 'irrational exuberance'.
In 1987 if you take the entire market cap it was devoid of a great MSFT or INTC or
no one had slightest of imagination that IT will take the whole world enormously in a
short delay of a decade.How many people could project 35 million users of internet in
lee than a decade? The present 10 trillion cap includes 'holy cow' cap of nearly 2.5
trillion which is cumulative total of INTC MSFT CSCO. These companies never
existed in the form or manner in 1987 what we see them now in 1997. Reasons as to
why Barrons and WSJ are overlooking the 'IT & Global economy openess' premiums
(absolutely new elements since 1987) attributable to US markets are still an enigma? Is
it short-sightedness or oversight on their part,I am not sure!
I throw an open challenge that the basis of two articles are frivolous and scandalous, if
studied in context of 'market development' DOW needs a breather but nothing of the
sort which was seen in 1987 or 1929. It is simply not possible- Components of Dow
after a 25% decline will sound like this- MSFT 90-100 earnings97 4$. 1998-5-6$ -
IBM 60-70 earnings97- 6$,98 earnings 9-10$, who will not like to own IBM at a
mutiple of 5 and INTC at a multiple of 6, by dreaming of mice, Cats do not catch one.
These are ridiculously cheap levels to own cutting edge of technology, cats like Barton
Biggs and Byron Wein are dreaming since long to catch easy prey but there are no free
lunches in the global markets. The market is going higher after a short correction of
4-5% max, this we need tehnically!
I
|
