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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: j g cordes who wrote (72826)	3/20/2001 10:53:34 AM
From: TRINDY	Read Replies (1) \| Respond to of 99985

jgc, I agree with you. The game continues. Here are some thoughts I wrote a friend yesterday. Well, the market made a liar out of me. Again. We certainly didn't get any bounce and I am out again. After a 22% decline in February in the Naz (29% from the January top), you would think that we would have had a bounce. My indicator was so low for the Naz that I fully expected some bounce. Have played such situations in the past successfully. The lack of any bounce is evidence in its own right of the extent of our predicament. Anyway, I was wrong, and it is time to move on. Here we are this morning, one day from a Fed rate cut, and INTC is hitting new lows and Ciena is down four bucks. I am losing all sense of optimism. Usually a time to buy, but I'm not sure this time. The semi equipment stocks remain a bastion of high P/S ratios. (At previous bottoms, didn't AMAT sell at a 1.0 ratio?) There is, still, some degree of speculative froth left in this market. If the semi's fall into line with historical P/S and P/Es, maybe that will be the time to get back in. It has been a long time since we have had to play value games. My friend in KCMO who has an investment business used to be only value oriented. The bubble even convinced him that he should change his orientation. He hired a go-go type analyst. Hope things are going well for him lately, but I doubt it. Have been afraid to give him a call. So, as I said, here we are only one day from an easing that we all know is coming and the market is threading water. Greenspan has done the right thing in saying to the market that "You are not the economy. I'm watching and will act according to the needs of the real economy. The real economy is not that bad. No interim rate reduction." Problem is, the market knows that it has become the economy and that Greenspan knows this too! Problem is, the real economy is sinking. My iIndicators, a series of leading indicators for the national economy and inflation, say that the national economy is sinking fast. While the readings are not at recession lows, they appear to be heading there. I think we will avoid a recession, but there is certainly a recession in manufacturing. There is a six week lag in the data, so we could now be at recession lows. My most recent data only goes through January. Back to your question. It is not, in my opinion, a time for Greenspan to be playing "coy" with the market. He has to show that he is knowledgeable that the downturn is both real and financial. If he behaves as I want him to, he will give the market what it wants, a 75 basis point reduction. That is the way he has been behaving with liquidity injections, anyway. The Fed has been, once again, flooding the system with liquidity. This is what is important. (The discount rate is only a signal of intentions.) Open market operations purchases are why rates on the short end have fallen to the extent that they have. That is what is so funny about TV analysts who say that Greenspan is behind the curve. Folks, on the supply-side at a minimum, Greenspan is the curve. So, I expect a continuation of this Nicholson/Dunaway Chinatown "slap! My sister...slap! My daughter...slap! My sister...slap! My daughter." routine. It is time for Greenspan to play once again his incestuous card. It is too ugly out there; there is too much derivative paper in circulation; Japan's problems are too real; there is too much fear that the consumer will go home and actually pay up on their average of $5K in credit card debt; and inflation remains on the retreat, even by my indicators. God save us if he doesn't play. Bottom line: He plays, but by playing he risks "running out of bullets." We may pay more dearly, in consequence, later. Cheers!