Hi Lee, this briefing missive from today makes some sense to me... stock market to do a bit better for a while??
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Nattering Nabobs of Negativism
26-Mar-01 00:16 ET
[BRIEFING.COM - Robert Walberg] Time, Newsweek, The Economist, US News & World Report, Barron's, Forbes -- all devoted cover stories to the bear market. The Fed, in its most recent statement, noted ominously that "the potential for weakness in global economic conditions suggest substantial risks that demand and production could remain soft. CNBC and CNNfn, notorious market cheerleaders, have been reduced to running specials on surviving the bear market. As for President Bush and his minions. They not only feel your pain, they feel compelled to tell you how bad you hurt in hopes of getting you to buy their miracle cure. And then there's your local newspaper, where the usual stories of political corruption have been moved off the front pages in favor of reports on Mad Cow Disease, Foot & Mouth Disease, massive layoffs from corporate giants GE, Procter & Gamble, Motorola, Cisco, etc., Japanese financial/political woes, the California energy crisis and rising fuel costs due to another round of OPEC production cuts. Aside from famine, pestilence and nuclear war, these "nattering nabobs of negativism" would have you believe that whatever could go wrong is going wrong...
Given all the gloom and doom, is it any wonder that investors are reluctant to buy stocks? Heck, when you have to worry about the simple things like eating a Big Mac, driving your gas guzzling SUV, turning your heat up over 65° and/or opening your mutual fund/brokerage statement, the last thing you want to do is step into the lion's den, or should we say, bear's lair. But as counterintuitive as it may seem, now is exactly the time you should be adding to your stock holdings.
Not all at once, and not all in one stock or sector, but now - when the herd is running as fast as it can away from the market. As Rousseau once said, "follow the course opposite to custom, and you will almost always do well."
By moving into stocks now you might not catch the bottom. In fact, with earnings season staring us in the face, the major indices may well go lower in the days and weeks to come. However, the key to successful investing is to buy when the potential for reward outweighs the risks, and to sell when the risks outweigh the potential rewards. Briefing.com contends that if you take a step back and look at the markets logically, rather than emotionally, you will see that today represents one of the better buying opportunities in the last decade. Listed below are just some of the reasons why now is not the time to be running scared:
The Fed is aggressively cutting rates. Now we've bashed the Fed for being overly restrictive and for being a bit slow to start lowering rates, but there's no denying that by cutting the funds rate by 150 basis points in three months, the Fed is taking the steps necessary to get the economy back on track. And if the Fed cuts rates by another 50 to 100 basis points over the next six weeks, as we and others expect, real rates will finally be at levels that historically stimulate growth. Remember, those that fight the Fed (for any length of time) typically lose. It took several rate hikes over several months before market bulls learned that very painful lesson last year.
For the first time in months, we're receiving signals that the inventory correction in the high-profile technology sector is near complete... First, Micron Technology suggested that the inventory glut in the PC sector had been worked off... Then, Dain Rauscher Wessels stated that channel checks performed by the firm indicated that orders for Nortel's OC-12 and 48 products began picking up a couple of weeks back, with the long-haul products (OC-192) showing improvement in the last week or so... The firm noted that these were the first positive data points it had seen in the last couple of months... Not overwhelming evidence of a turnaround, we admit, but at this (low) point traders are merely looking for signs that conditions have bottomed... A couple more comments/reports like these and money will begin to rotate more aggressively into the bellwether tech sector.
Cash, cash, cash... Investors have been stock piling cash for months... When they get the all's clear signal, they will move money back into equities very quickly... When this begins to happen it will be the fear of missing out, not striking out, that dictates action.
Earnings comparisons will begin to get easier in Q4... A long way off you say... True enough, but the market is forward looking - and Q4 will soon be within sight.
The Administration's miracle cure - tax cuts - are coming... The psychological impact will be greater than the financial impact... Right now, we need good news almost as much as the tax savings.
Oil prices continue to trend lower -- good news for businesses and consumers.
Valuations are better, though as virtually ever financial reporter will tell you, not at the depressed levels which are often associated with bear market bottoms... What they forget to tell you is that demand for stocks is much higher today than it was in the past 50 years (due largely to 401K plans), inflation is a non-issue and interest rates are relatively low... All reasons why if you shouldn't wait for around for the DJIA to trade at 12x trailing earnings... It just isn't going to happen.
Finally, as we noted above, the news cycle is about as bearish as we can remember it being over the past 30 years... As such the shorts are being very bold... Fortunately, the news can only get better, and when it does, the shorts will be forced to cover - adding fuel to the eventual rally. |
