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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: CountofMoneyCristo who wrote (589)	11/12/2000 1:53:02 PM
From: Brandon	Read Replies (1) \| Respond to of 74559

Over the last 6 months we have seen all the signs in the stock market we need to see of an economic slowdown. The smart money has clearly been betting that way. When you look at the strongest sectors this year it is defensive stuff, aerospace, drugs, beer, reits. Look at the weak sectors and its the speculative techs as well as cyclicals. Other things we have seen is oil above $40, this has always occured before the R word, and an inverted yeild curve. The main problem we have seen this week is that the bull market of the 90's was a bull market built on liquidity. There was none this week because of the election garbage. The market likes to turn around at the darkest point though, so this could be our point of light. However, if the Nasdaq can not hold here, or at the very least bounce off the 2800 level, then I think 1700 is a very real target. But, I would not give that good odds. -B

To: CountofMoneyCristo who wrote (589)	11/12/2000 3:21:08 PM
From: tradermike_1999	Read Replies (1) \| Respond to of 74559

I have read your articles with interest. I would hope you welcome some views in dissent of your main premise, which is widespread financial crisis at some time in the next year. I completely disagree. I would like to add that in my position as lead stock market analyst and owner of a trading and investing site with a proven track record pointing out stock market gyrations - notably the Bio crash in late March, the crash 4200-3050 in April-May, and the recent crashes 3800-3050 and 3500-? (I believe 22-2500) - I am unafraid of warning of impending stock market declines. However, I think it is a great leap to extrapolate from perfectly normal market retracements a vast and general financial catastrophe. My reply - I'm not saying the world is going to end or anything like that - but when the stock markets drop 50% - 5,000 to your 2,500 target that is something of a catastrophe. I do think there is a serious risk of a recession next year and that is part of the reason for the weakeness in the stock market. There are many wild imbalances in the economy that have built this bubble - debt ratios, the current account deficit etc. - and if these get unwound then things could get ugly. These imbalances are undeniable - its just a matter of what this slowdown will mean. How will monetary policy change etc. You said: First of all, even here, many leading stocks are way up over the past 12 months. This particular retracement can be seen as a direct result of a precipitous rally that simply took the indices too far, far too fast, and Federal Reserve action, raising interest rates precipitously and late. The crashing Euro affecting U.S. exports, Middle East turmoil and skyrocketing oil prices have also been major contributions. The recent electoral uncertainty has fanned the flames, hence the break to a new low this year on Friday. However, there is no reason to assume the economy has been sustained any structural damage. In fact, the amazing PPI numbers this past week, and economic indicators of the past several months, undercut any arguments of a massive slowdown in our economy. My reply: Which leading stocks are up? The top groups are health care, utilities, drugs, and food - these are defensive issues which are usually do well in bear markets. If we break 3,000 then I think you are getting to the point where you are more than just retracing gains. But I think you are on to an important dimension of things - its just as important to ask why did the stock market run up like it did as it is to wonder why it is fallng. Those answers hold clues to the imbalances that exist. I think the economic numbers are already pointing to a slowdown - GDP shows that private investment plummetted to nubmers not seen since October of 1998 in the 3rd quarter of 2000. NAPM numbers have come in below 50 the past three months, showing contracting industrial production. And now we have evidence of a slowdown in the retail sector from last week. You said: Junk Bonds are aptly named, and the drying up of capital in these markets is a standard occurrence during market conundra. If you will view volume figures in the Treasury markets, they are as high as ever, and stock market liquidity is at record levels. American investor participation in the markets is also at record levels. More liquidity and volume isn't necessarily a good thing. Volatility isn't a sign of healthy markets. You said: Concerning the IMF white paper you name, I would state that the Georgetown University Law Professor who plans to teach the trading of futures and options at the site I lead, Dr. T.M.C. Asser, after a career as Assistant General Counsel of the World Bank from 1979-87, was Assistant General Counsel of the IMF for 12 years from 1987-99. [I have seen the trading room there and if ever any of you wish to witness the excitement of billions being trading every few minutes, I urge you to seek to arrange a visit.] I have spoken with him on many occasions and I can tell you that IMF under no circumstances is forecasting any world financial meltdowns. However, IMF have recently stated that to restore health to the balance of transatlantic trade, a 20-30% rally in the Euro is in order. My reply: You are right. The IMF isn't forecasting a collapse. The paper I refer to has their forecasts in it and they postulated several scenarios. One of which would be a stock market crash if inflation continued in the 4th quarter and the Fed raised interest rates. Their other scenario was the sfot landing and about 2.% GDP growth next year if I remember correctly. Either way, I wouldn't trust IMF forecasts they are usually wrong. You said: I appreciate your views on these issues, but I would consider dispensing with some of the catastrophe rhetoric. There is no reasonable basis for that projection. It merely serves to panic investors out of their positions, while Wall Street stands at the ready to swallow them all up. It is typical of the kind of disaster talk I have seen for many years at each market bottom. I expect the major news services in this country to bring this propaganda to a fever pitch as we slide through various important support levels in the coming weeks. It promises to be one of the greatest opportunities to purchase stocks long-term we have seen in quite a long time. MY reply: In your own message you said you think the Nasdaq will go to at least 2,500. If thats the case then I would rather see people panic and sell now rather than panic at the 2,500 bottom. However - I don't think people should sell all of their stocks and mutual funds. I advise everyone I know though to get out of tech stocks. So many of these are absolute garbage and will never come back to their highs. Even the ones with earnings are overbloated. I think the average person should put money into mutual funds that aren't overweighted in tech overy month and not worry about the market. Even if it collapses it will be back to the highs within 10 years. If you are a long term investor then just use dollar cost averaging as long as you aren't invested in the tech bubble. Why do you think this next downswing will be the ultimate bottom? Why can't it fall again next year? Historically the markets don't bottom out until the middle of an economic slowdown, not just when it is beginning. So in my view I think that will come after the 2nd quarter of next year. I'll be watching consumer and retail sectors for signs of bottoming out before becoming an investor again in this market. Until then will just do short term trades. But I think we could see another big dump next year too. A lot of people thought the bottom was in April and others the other week. It's hard to pick the ultimate bottom. You said: The economy has not been in better shape in the history of this nation. When the recently flagging economies of Europe and Asia begin to recover, we may expect added growth to come far into the future. My answer: When do you expect this to happen? There seems to be no signs of the problems in Asia.