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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!
LRCX 158.70+1.0%Dec 5 9:30 AM EST
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To: Proud_Infidel who wrote (4129)12/24/1997 10:04:00 AM
From: Defrocked   of 10921
 
Brian, I think we are about half way through the
Far East turmoil which began last summer. The potential
for further deterioration outweighs any perceived opportunity
for additional long positions IMHO. I am willing to forego an
opportunity loss of 10% upside for the safety of
Intermediate Treasuries and resolution of the
remaining uncertainty surrounding additional bankruptcies,
lower Q1/Q2 earnings, slower growth and possible US debt
refunding difficulties at the Feb and May auctions.
The downside prospects of -20% to -30%, especially for DJIA
equities, is quite real.

Even with today's opening relief rally, the yield curve is
flattening and the yen declining to the dollar again. We
are not out of the woods yet. BWDIK. I find the yield curve
particularly troubling since the 10Yr/3Mo. spread
is at its lowest level since August '89 -- which was a
harbinger of the 90/91 recession. This measure, when negative,
has an almost 100% correlation with subsequent recessions for
the last four occurrences. Right now the odds of a recession
in 98/99 is about 25% using this measure. There is too much
undiscounted risk in the system for my comfort.

Some argue that today's yield curve is different since recessions
are usually brought on by Fed tightening, absent now, which resulted
in previous YC manifestations. My reply is that the YC does
reflect an unexpected monetary contraction resulting from the
devastation of money,credit and real assets in the Far East which
is being transmitted to the US markets through the movement of
international capital. Moreover, remember that the Fed would
have increased rates at either the Nov./Dec. FOMC meetings
so they also view the Far East deflation as a form of tightening.

To paraphrase Karl Malden:

"Put options...don't go on Christmas
vacation without them!"

A hedged and patient investor wishing you a prosperous '98.
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