Your point is valid. It is what I've argued all the way up. I only have stated that in a bear market, that which was ignored, is embraced and lack of clarity in evaluation is clarified. It is my assertion that we are in a bear market which means that a period of re-assessment of valuation is upon us. That doesn't mean a straight down move a la last summer is upon us. If that was going to occur, it would have happened in February. The selling dried up or never took hold. I know why, but it isn't necessary to go into that.
What will confirm the bear market is that these several days rallies will fail and the averages will move sideways. We could get a 1000 point down move in the DOW very soon, but it would likely run into FED pumping, so the the downside moves are limited. The pumping gets the economy going and the economy gets demand for money up. That causes interest rates to rise, so you can't expect that the averages will go substantially higher. This bear is going to be frustrating.
Institutional portfolios have been slightly negative since 4/98 which I give as the internal top. There is much other evidence that the jig is up, such as popular measure called the advance-decline line. All of these measures are anecdotal. If the majority of stocks are headed down that doesn't mean you can't do well if you can identify those in the minority. There's always something good to buy.
It is my guess that the market will gravitate away from "great expectations" stocks. No matter how good AOL looks in theory, if you have been around this business longer than since 8/82, you can't rationally justify buying that stock. There is an actuarial reality that will have to be acknowledged even if there is no exogenous shocks coming in the future. If there is a shock, the stock market is in the most tenuous position in history to cope with it. I don't like to bet against the odds and I don't like to bet on high risk when the odds are against. |
