tito: thanks
Whether I agree with you or not, I appreciate your thoughtful and polite response.
re: me being "Bearish and Bullish at the same time." Yes, as I often am, I'm worried and confused, not being confident enough to think I know what the market will do. When my portfolio was smaller than my yearly income, I concentrated almost exclusively on growing my money. Now that my portfolio is many times my yearly income, I find myself, more and more, worrying about how to preserve it. This means, of course, that I'll probably do a worse job at growing it.
re: inflation: You're probably right about what the Fed should do. Inflation is currently 1.5%. If it doubled, to 3%, over the next year or so, that would not be a disaster. The Fed could wait till they see inflation (as opposed to just the warning signs of inflation), and then act.
But I don't think it is interesting or useful to spend time wondering what people should do. The interesting, and lucrative, question is: what are they likely to do? Those are very different questions. You are right, about election years. When the economy is good, voters stay the course. When it's bad, we throw the bums out. The Fed, in spite of its mandate, cannot entirely ignore politics. So, there is a pattern of Fed "easiness" in election years. And, in addition, Greenspan is up for re-appointment. And there is Y2K. The above is evidence against tightening between now and October 2000. On the other hand, Greenspan has been very consistent in saying what he will do if he sees clear warning signs of inflation. He's said he'll raise rates, to whatever extent necessary to stop inflation. He's said this so many times, for so long, that his reputation depends on it. And, after all, that's his job, to take away the punch bowl when the party gets too rowdy.
When I list those warning signs of inflation, including the ones that Greenspan has said he pays attention to the most (producer prices, wage pressure), they all say the same thing: inflation is on its way. I think that, by the end of 2000, the consensus will be, "Why were they arguing about this a year ago? The warning signs were so clear, everything was pointing to inflation, why didn't everyone see it coming?"
The answer is, of course, that investors use wishful thinking more than logic when trying to predict the future. It took reading a couple hundred of XXXXX's posts (name deleted to protect the guilty) to understand just how irrational many investors are. Most of us (myself included) use facts, chosen very selectively, as a means to back up our fixed Beliefs. Notice the capital B. What we should be doing, of course, is using all the available facts to create (and be willing to change) our opinions. Beliefs (still with a capital B, as in things we know, and won't change our mind on, no matter what the facts) will lose you money, every time. For instance, if you hold a volatile cyclical stock, and it's at an all-time historical high valuation (what stock could I be talking about?), you might want to consider the possibility of a decline in the stock price. If you Believe in the stock, however, you Know that Great Stocks in Great industries in Great bull markets only go up in value. And Beliefs make decision-making so much easier. I think the human brain is hard-wired to make this mistake. We keep on doing it, no matter how many times we get punished for it.
Anyway, I'm:
9% Nasdaq 100 puts
14% cash
20% foreign stock
the rest US growth stocks
I'll hold this hand till I see what cards the dealer has.
|
