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Technology Stocks : JDS Uniphase (JDSU) -- Ignore unavailable to you. Want to Upgrade?

To: Nichols who wrote (8945)	4/15/2000 11:11:00 PM
From: Hank Stamper	Read Replies (1) \| Respond to of 24042

Nichols, Only my 2c. Warning: it is long and my spelling is crummy. Sorry. "Historically, wasn't a bear market triggered by by some event- oil/recession/inflation/interest rates?" We must keep in mind that the stock market is a leading indicator of the economy. The market usually tops about 6 months prior to the economic cycle turning sour. Market bottoms usually preceede a turnaround in a recessionary business climate. The market 'anticipates' the future. In all the accounts I've read of market tops, no one event can be pointed as the event. As in most complex ecosystemic domaines, multiple factors organise the directions. "Our economy is humming along! Interest rates still quite low, inflation still quite low, Oil prices stabalizing and moving to a ralative low price, growth is at a nice slow rate. Perfect conditions. " This is just it!!!! Market tops are often--usually!--accompanied by great-appearing economic conditions. And, it is these very conditions that constitute the poison. Trouble is that when someone says a bear market is likely when the economy is humming along like it has been, people think you have gone mad, stark kind. They think you must be sniffing some sort of pulp mill fumes. 'Whadayoumean the market is in trouble? Havent prices been going up and up and we've got full employment and corporate profits are at record levels? Go away, you don't make sense!' These 'great' conditions trap people into holding on to market gains too long, I think. 1. The economy is humming along. Yep. Everyone in the States is working. Problem for the economy? It didn't used to be but it is now because there is a growing wage and benefits inflationary pressure. Bad for today? No. But, bad for 6 months from now because as corporations pay higher and higher wage/benefit costs they will lose some corporte profits. 2. Interest rates still quite low. Yes, but short term rates have been rising and will keep rising until it is clear the economy has slowed (i.e, corportate profits are squeezed, lay-offs occur etc.). When the Fed raises short term rates it take between 12 and 14 months on average to cause a visible slow down. But, long term rates have been dropping. Yep, the US Treasury (that's a cabinate post, eh?) is monitizing debt by buying longer term issues. Now, that should be a good deal--you'd think business could buy capital equipment cheaper. Nope, cuz you can't get the long term loans so easy any more--all the folks who put capital out to loan want it short term because the return rate is higher. We now have true inversion: short term rates are higher than long term; this happened two weeks ago, I think. This is predictive, if it continues, of future recession. 3. Oil prices stablising. That's good. However, they were half what they are today and Fed-Ex, Sears, etc.--co.s that use trucks and trains to transport goods will have to pay more. That cuts into profits. 4. Growth rate is NOT nice and slow. Greenspan has said many times that we are in a period of unprecidented productivity growth. Now that is very good for the market because it helps to offset some of the wage-cost pressure. However, the latest growth figures are staggering--7% plus annualised growth in the economy. This is well beyond the 3.5% or so (can't recall the exact target he has set but this or a little above is close)! The growth rate cannot sustain a no-inflation economy. Couple this with the fact that FIBER (remember that? When I brought that up last fall, some made fun and scoffed!) has been saying since the mid-fall that inflation is on the way and since the new year we have seen increasing signs that inflation is actually beginning. "What will keep us in a bear market?" If you have read any of my posts, you can probably anticipate what I'm about to write: valuations. Over-valuations will keep the bear going. As long as short term rates give investors the present and higher rates of risk free returns, investors will want to stay away from equities. I am a perfect example--I've been making returns in money markets since I sold off. I won't buy JDSU again until the p/e gets smallered a lot and the overall P/E on the S&P is very, very attractive. Then, I'll think I'll have the opposite of what it was during the market top. Then, the downside risk will be real small and the upside potential real big. Another factor that will keep the bear going is: if we don't get a soft landing and the Fed actually causes a recession from its attempts at slowing, the Fed-caused recession will keep it going. Ciao, David Todtman