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Strategies & Market Trends : The Art of Investing

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Nov 21 4:00 PM EST

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To: Michael Sphar who wrote (540)	3/9/1999 4:37:00 PM
From: Sun Tzu	Read Replies (1) of 10635

Right now I am predicting a bear correction. But a bear correction will not give life to the Russell 2000 stocks (which by the way are not so small anymore). A bear correction will be essentially a repeat of what we've been seeing in the up and downs of past 2 years. The hallmark of this Bull Market (it deserves capital letters <G>) has been sector rotation. We may be running out of sectors to rotate into. Eventually we will meet the Mr. Bear that you are talking about, if the current froth in the market continues and the breadth continues to deteriorate. At the moment I don't know when we'll meet Him. The similarities between now and 1968 or 1929 (or at least 1987) are striking, but the catalyst is missing. Without the catalyst the baby boomers will continue to pour money into the stock market in the belief that it is the best investment vehicle (I can explain why it may not be so if you wish). The usual suspects will not burst the bubble. The Fed and the government officials on both sides of the Atlantic have learned the lessons of the past and will not make the same mistakes (such as waging a trade war). The catalyst will be, IMO, an utter destruction of wealth that will cause a liquidity crunch beyond the system's capacity. This will be a consequence of (a) excessive speculation (in either the equities or derivatives) (b) an economic crisis in Euroland (c) a US recession due to excess capacity and pricing pressures. (notice that I don't consider a currency crisis in China, Japan, or LatAm a big possibility). The extent of the long term fall out will be a factor of the magnitude of the financial bubble and the magnitude of the shock. There is also a "Nirvana" solution to the world problems. But at the moment it seems like critical balancing act where if any of the forces in action are not just perfect, the system will collapse. BTW if you really want to read a scary book, read Soros' latest book. But be warned, it may keep up at nights <g>. Sun Tzu

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