Steve, some of my thoughts have been expressed here (especially about the "commercials" and the Commitment of Traders) ... however I am enclosing the text from two e-mails that I shared with personal friends who also happen to be private investors ... first though, please understand that my guess that we would have a 20% correction by the time the markets close on Monday is not based on a specific timing belief ... however, a 20-30% plus correction by the end of October is a very high probability, at least in my mind ...
Ken Wilson
my e-mail to friends on September 1: responding to a question about "my strong conviction that the market will fall this 4th quarter"
I don't have a short answer to your question. In general, I would say, that more and more, I am relying on my own personal interpretation and analysis than anything else. That does not mean these thoughts just appear in my head, but rather, are my own assimilation of what I read and what I hear (mostly, what I read).
You asked me what I do with my time the other day - the answer is that I read and study. My most important sources are my subscriptions to "Business Week" and "The Economist." I also read the Wall Street Journal every day and Barron's on weekends (although I am not sure how useful they are). "Silicon Investor" provides links to all kinds of things in the news, including two 'technical' threads that are of some use. I read Jim Cramer every day (although that is only recently). I also read Bill Fleckenstein's column every day for the purely bearish view. I subscribe to John Murphy's technical thread, which has some value.
I guess what I am saying is that I read as much as I can, but try not to be heavily influenced by any one source. I end up with a point of view that may be right or wrong or somewhere in between. I have always wanted to make my mind up for myself and make my own decisions ... I am doing that, and have been since you nudged me into the market in May, 1997 (for which I continue to thank you).
Basically, I am not very trusting with any one source of information. I listen to CNBC only a little these days - they hype the market when it is going up, and continually look for a quick-fix bottom when it is going down. You and I both like Joe Battapaglia and Larry Kudlow, but you know what - if they thought the market was going to correct 20% starting tomorrow, you wouldn't hear anything from them until it was already down a bunch - the same for Abbey Joseph Cohen. I do like to hear what they are saying sometimes, but mainly CNBC just drones in the background and dulls my senses.
As far as sell-side brokerage houses and analysts are concerned, I like to listen sparingly. I have little confidence in any of them. If I can't make it doing this with my own readings and research and some ideas and guidance from friends like you, I will never be successful.
As far as why I think we're headed significantly lower (and I mean before the election) ... (1). Now that the Fed appears to have completed the tightening cycle, the mood on Wall Street is one of complacency, over confidence and even euphoria. I agree that the Fed's next move could be to start loosening rates. However, I don't believe that the last two increases (totaling .75) have begun to be felt in the economy. The danger, I think, is that the economy will slow (hard to believe, I know), and it will be enough to impact profits between now and early November - if not by early January.
(2). Energy costs are an issue. I know they are not as big a factor as in the 70s or 80s, but I don't think it will take $40 per barrel to cause problems - especially an economy that may be slowing as we hit the dead of winter. High heating oil prices, natural gas prices and gasoline prices could impact consumer confidence, especially from Memphis to Minneapolis and Boston to Richmond.
(3). Other issues of concern - consumer debt, corporate debt, the balance of payments and the value of the dollar and the euro.
(4). Mostly though, it is two things.
One: the US economy is very complex, and we have been very fortunate to keep things in balance. I just can't believe (on the basis of probability) that a white-hot economy, with almost no unemployment, with the mother of all stock markets, and many Fed increases, can coast to a soft landing with little impact on anyone, and take off again without anyone noticing. It could happen, but I will be surprised. If you listen, almost everyone has declared a successful soft landing already.
Two: The "commercials" continue to be short the S&P futures by a gigantic amount. I can't find one instance in the past when they have been wrong (when they are so extremely short) in any vehicle, whether it is financial instruments or commodities. I can't believe they will be wrong this time either. If they are wrong, my put is worthless, and I will have learned something.
Abiomed. I know you think it is a risky investment, but I do not see it that way. I know the company, the people, the products, 2 involved friends who are stock brokers (from AG Edwards and Paine Webber). It's not that I think it will be easy for me with Abiomed, but I firmly believe that little is likely to go wrong until after they get clinical trials approved by the FDA. When that happens I will sell some or buy options to protect myself.
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my e-mail to friends on September 8: my personal analysis of the macroeconomic situation has made me more "bearish" than previously ... you know that this is all just my personal opinion ... I am not trying to sell you anything ... only people who I consider personal friends receive this and I always act on only my own analysis ... I do not have a broker that provides advice ...
To date, Jan (my wife) & I still have a very large position in Abiomed (ABMD), we own a December 'put' on the S&P 500 and have a bunch of cash and 3 month CDs ...
The newest problem is really an old one that is progressively getting worse and very much complicating all things economic ..... it's the world and U.S. energy situation ... I don't think it is going away ... in fact, I think it could put the U.S. economy in recession by next April to June (maybe earlier) ... if that happens, equities will have already tanked big-time in advance ... and maybe even during this month of September ...
Attached is an article about the energy situation from "The Economist" (published last night) ... in my opinion, "The Economist" is the single best business publication in the English speaking world. I know, it comes from London and not the U.S., but I still think it is the best. The economic and stock market analysis in the Wall Street Journal and Barron's (which I also read religiously) is not even close to being as good. I think "Business Week" is a very decent second choice, and of course I read that regularly.
economist.com
My next move, very probably, will be to buy a second "put" on the S&P 500 with a March, 2001 expiration. I will make up my mind after the Commitment of Traders Report comes out in a couple of hours, and after I have done some more reading and thinking over the weekend. If I buy it, it will be on Monday the 11th I will let you know. (I bought the second "put" on September 11).
As always, your decisions are your responsibility and mine are mine. Good luck. |
