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To: bambs who wrote (45814)	1/3/2001 9:56:40 AM
From: michael97123	Read Replies (1) \| Respond to of 77400

the problem is that stocks are priced for a recession Yes, and if the fed acts stongly the market should begin to price in recovery. If you get a chance you should read Paul Krugmans column in the NY Times op ed today. He has been talking about the bubble for a year and now he says what he call panic is as dangerous as the bubble and as false. To paraphrase--Growth stocks should be the leaders in a recession as the market is forward looking. At some point money should switch from old economy to the new in antication of the next tech buildout. I am waiting for you to shift gears Bams. Boy do I wish i had gone with my gut when nasdq passed thru 4k on the way up. I allowed greed to get in the way. If you fight for these last 500 nasdaq points you may get hurt.

To: bambs who wrote (45814)	1/3/2001 10:11:17 AM
From: chic_hearne	Read Replies (1) \| Respond to of 77400

the problem is that stocks are priced for a recession You're entirely wrong IMHO. I tend to agree with this analysis more: You know the drill. Big, fat, "double-issues" that purport to tell you exactly where to invest your money in the coming year. My guess is that these are the biggest selling issues of the year. My problem with them is twofold. First, they're written so smugly and in such a "we've just come down from the mountain" style. Second (and not unrelated to the first) is the fact that many of the recommendations and observations underlying these magazine forecasts have been wrong, indeed 180 degrees wrong, at major turning points in the market. And major turning points often occur as we enter a new year. For purposes of this analysis, I examined several of these "forecast for 2001" issues, paying particular attention to strong consensus opinions. Whenever a consensus on Wall Street is widespread and deep, it should cause your investment alarm bells to go off, and it is these "wide and deep" consensus opinions that I'm highlighting below Consensus #1 – "There will be an economic slowdown in 2001 but no recession"– One publication assures us that "Alan Greenspan is standing guard against a downturn" and that "no one (Schaeffer note – and they literally mean ‘no one') is forecasting an outright recession" for 2001. Another has an entire article entitled "Yes, Virginia, There is a Soft Landing," in which they assure us that "the expansion is in no (Schaeffer note – and they literally mean ‘no') danger of ending anytime soon." Consensus #2 – "The stock market will do fine in 2001 because regardless of how weak the economy might become, the Fed will lower interest rates and that's good"– "Well, take heart", says one bizmag, "markets will be looking up in 2001 … there's good news on the horizon: an easing interest rate environment". And they go on to tell us that "the market has been focused on economic deceleration, overlooking the bright side of a slowing economy – lower interest rates." And another chimes in that "the U.S. will still be the place to invest on the global scene, and most important, interest rates will fall. And that adds up to good news for stocks". Consensus #3 – "The tech sector will still be ‘where the growth is' and though this growth will slow, there are still many good buying opportunities in tech" – According to one mag's forecast, "Despite the 40% drop from Nasdaq's March peak (Schaeffer note – looks like the deadline hit before the additional 15-percent Nasdaq plunge) you can't write off the tech sector". A fund manager then nyah-nyahs, "technology still has the fastest-growing companies anywhere" in a piece on tech aptly titled "Still Looking for the Bottom." And the piece concludes by acknowledging that there will be more shakeouts in tech but "a lot of the bad news has already come out and been digested by the market. Sooner or later, of course, tech will find a bottom and trek north again. And if the Fed cooperates, that could come more quickly than many expect." Not to be outdone on tech, another mag opines, "The good news is that economists are in overwhelming agreement (my italics – sorry, couldn't help myself) that technology will remain the fastest growing sector in the economy. It's still the place to be in the market." OK, so what are the contrarian conclusions that may be drawn from these three consensus opinions? Consensus #1 is based upon a number of tenuous assumptions, perhaps the weakest of which is that a recession is not already "baked in the cake" as a result of the lagged effect of the rate hikes already implemented by the Fed and the sharp contraction in consumer and investment optimism. And there is also a godlike assumption with regard to Greenspan and his ability to avert economic trouble. In my opinion, Greenspan has been extremely fortunate that his various forays with raising rates in September 1987 and in the early and mid-1990s did not topple the economy. (Yes, he raised rates in September 1987 and made noises about doing so in early October. So the man who "saved" the economy by pumping liquidity after the October 1987 crash was not unlike the "heroic" pyromaniac who helps put out the very fire he sets.) Greenspan might not be so lucky this time around. In any event, I always get concerned when economists say things like "no danger of a recession." This does not mean there will be a recession simply because they see no such danger, but it does mean that the market is not currently pricing in a recession. And that means downside risk in the market is significant should the economy surprise the economists and go in the tank. If you're a bull, you want negatives (actual and anticipated) to be as fully reflected as possible in current prices. If you're a bear, you love to read things like "no one is forecasting an outright recession" at a time when the economy is clearly heading south. Consensus #2 is based on additional tenuous assumptions, namely that the Fed will aggressively lower interest rates and that this interest rate reduction will have a material effect on bolstering the economy. I personally doubt that the Fed will be cutting rates as aggressively and as early as the market currently anticipates. And history is replete with examples of economies that got so far under water that interest rate cuts did nothing to stimulate consumer or investment demand – "pushing on a string" is the term for this. I must again emphasize that the rosy consensus opinion may in fact prove to be right. But the important point to remember is that the market is currently pricing in some very optimistic assumptions about the economy and the Fed and is thus likely to react very negatively to any sort of reality that falls short of these assumptions. One can sum up Consensus #3 very briefly in the phrase "technology is still the place to be in this market". And maybe it is. But I don't personally recall bottoms occurring in sectors on which there was this degree of optimism for a "comeback." Sectors most often bottom when the stocks are feared and loathed and ignored and when mutual funds are severely underweighted in the component stocks. Or as Joe Granville likes to say: "They love them at the top and they hate them at the bottom." And my feeling is that they still love the techs. - Bernie Schaeffer schaeffersresearch.com