Trey: While I did not state that I expect the market to tank (I think I suggested that it won't get thumped until the dip-buyers get a "new-era" lesson), it's hard for me to believe that it won't, although I would not recommend playing it based on that expectation. It makes most sense to me to bias one's investments based on one's big picture perspective. I see the big picture as too much foolish money having driven most stocks into over-valued territory, and far too much money having driven tech stocks into insane territory. The risk-reward ratio in the tech sector very much favours shorting, especially given the basic equation....supply overwhelming demand. Inventories have risen on all fronts throughout the year, and still the supply side rises. This makes the decision as to which way I would prefer to play the market an easy decision, although I've counselled staying mostly on the side lines since the Spring.
I also think that when you get this much public involvement in the market, coupled with massive consumer debt, massive offshore holdings in US treasuries, massive over-investment in Asia, unusual employment of questionable accounting, major over-statement of bottom lines (through put option sales, option tax credits,etc), historic bankruptcies (in good times!), credit card defaults doubled in 5 years, a rise in productivity that the brokerage community attributes to computers, but which, on analysis, appears to be more properly attributable to a one-time-only major decline in interest rates, and an absence of normal "corrections",..... that when a 15-20% correction does come along, historically high margins will likely trigger serious selling which could in turn trigger a real "tanking" I also strongly believe that the public will do what it always does, and that is sell at the bottom, ("I'll never sell" comments to the contrary)
A market this much over-extended does not require much prodding to really get into a slide. I personally think that it will be touched off by disappointing results from within the tech sector, or when companies simply run out of borrowing power with which to buy back their stock, (without this, the market would have run out of steam a long time ago, and it is not a sustainable activity).
With all the above in mind, it makes sense to go prowling through the garbage can, looking for the rankest stinkers. Even when these are located, one can get bashed when things really turn manic (as of late), so puts make sense. With every granny and her cat and gerbil using T.A., it makes no sense to me to rely on it to provide major guidance...when everybody is doing the same thing, it's always the wrong thing to be doing. I've also found that most T.A. explains what happened, while I'm more interested in what will likely occur. Hard to duck a hail of bullets for lengthy periods of time, and that is what many stocks are doing currently. I'll take my lumps while the market catches up with the reality I see in the field.
Boy, did I get going on this one Trey.
Always enjoy your well-thought-out comments, and look forward to your continuing dialogue. I'm probably as good a contrarian indicator as anyone. (g).
Best regards, Earlie |
