For those who don't bookmark BEARX, Tice speaking:
MARKET COMMENTARY
Posted by David Tice on Friday, 28 August 1998, at 6:10 p.m.
NAV - FRIDAY +.29 $7.05
PORTFOLIO MANAGER MARKET COMMENTARY
-----------------------------------------------------------
We are now in the midst of a global financial crisis that seems to gain
momentum almost by the day. In Russia, an absolute financial collapse has
ensued as the rouble loses most of its value, the banking system implodes
and the government defaults on its debt. Russia must now deal with bank
runs and inevitable social unrest. For foreign investors, estimates are now
that up to $200 billion of losses have been suffered by international banks,
hedge funds, and securities firms. Only time will tell who will be left with
losses on margin loans, derivatives and other exposure. Shocked leveraged
speculators and investors have been forced to dump securities globally.
Fearing profound ramifications from Russia, for the week stocks in Poland
dropped 18%, Hungary 28%, Czech Republic 13% and Austria 7%. Big
declines were seen throughout Europe with losses of 4% in London, 6% in
France, 5% in Germany, 11% in Spain, 7% in Italy, and 8% in Switzerland.
Throughout the world,stocks sank with the Japanese Nikkei 225 down 9%
to a 12-year low. Investors who believe stocks always "outperform" and are
thinking of "buying the dip" here in the US should remember that the Nikkei
traded to almost 39,000 in 1989 and closed today below 14,000. Throughout
Asia stocks plummeted with New Zealand down 8%, Malaysia 7%,
Thailand 9% and Philippines 13%. And as Latin American currencies sink,
stocks are also in trouble with declines of 8% suffered in Mexico, 10% in
Argentina, 13% in Brazil, and 9% in Venezuela. Up north in Canada, stocks
were hit for 8% as the Canadian dollar continues to fall.
One of the most interesting, and potentially ominous, developments this
week was the weakness in the dollar. Despite the Russian collapse, the
dollar was hammered against the European currencies. Today's decline
against the German mark was the biggest loss in almost three years. And
even as the Japanese stock market and banking system come under intense
stress, the yen now shows strength against the dollar. It looks like we are
now seeing signs of a unwind of what could be huge speculative bets on the
dollar and we believe that a surprisingly weak dollar could be problematic
for US markets and, importantly, could influence the Fed to not lower rates
as quickly as the bulls assume. Basically, global currency markets are near
chaos and we expect this to continue to unsettle investors.
Investors in the US were certainly unsettled this week as the Dow and
S&P 500 declined more than 5%. Fearing an inevitable deep US recession,
cyclical stocks were again hammered, losing 7% for the week. Technology
stocks also came under heavy pressure, especially towards the end of the
week with the NASDAQ 100 down 8%, the Morgan Stanley High Tech
index 10% and the semiconductor stocks were crushed for 12%. Even the
favored internet stocks were dumped as huge losses in Amazon.com,
Yahoo, and America Online led the internet index to a loss of 11%. It really
looks like this most amazing internet speculative bubble has been pierced.
It also looks like the entire US bubble is now quickly losing air as the
financial stocks, truly the engine for what has been unprecedented credit
excesses, are in a near freefall. With leader Merrill Lynch dropping 10
points for the week, the AMEX Securities Broker index was hammered for
16%. And with major losses for the international money center banks
Citicorp, JP Morgan, BankersTrust, Chase Manhattan, and Bank America,
the S&P Bank index lost 9%. All indications point toward much more
selling as investors are now forced to recognize that years of credit and
speculative excess are now over and a terrible hangover is beginning to set
in. A true panic and crash are now a distinct possibility.
The Prudent Bear Fund gained 13% for the week, vs. a 8.8% decline in the
NASDAQ and a 5% loss in the S&P 500. Shareholders can congratulate
themselves for being on the right side of the market for a change, being
rational and prudent, and finally being rewarded with profits. There will be a
lot more of this before we're done. This bear market is only beginning. I am
not looking forward to the pain and suffering that will be experienced by
millions of families as this historic mania reaches its logical conclusion. It's
too bad that our policy-makers let this "bubble" get so far out of control. Tell
those you care about that it's not too late to exit this pyramid scheme before
they are too badly hurt.
|
