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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Wildstar who wrote (54248)	10/18/2001 1:03:53 PM
From: Jacob Snyder	Read Replies (1) \| Respond to of 70976

re: Speculative bull markets have NEVER (keyword there) NEVER bottomed at levels above the historic trailing mean valuation multiples...quite the opposite in fact. At the moment, my thinking is that we will see a huge bear rally, which began in September 2001, and which will last to mid/end-2002. A 50-100% increase in the Nas. By the time it's gone on for a few months, the consensus will be that the Bull Market has resumed. This rally will be so huge, that momentum "investing" will, once again, be the dominant method. But, at some point, the things that caused the rally (massive liquidity injections, deficit spending, debt increases by consumers/governments/businesses, Fed Funds below the inflation rate) will re-ignite inflation. Inflation is not a problem today, and won't be for a while. But, at some point (late 2002??), the Fed will have to start tightening. Like they did in mid-1999 thru mid-2000, taking back (and then some) what they'd given in late 1998. When you have a feedback loop like this, with a 18-month delay, and the Fed is alternately stomping on the brake and the accelerator, then the expected result is a large increase in the amplitude of the oscillation in the economy. That is, what the Fed is now doing is likely going to result in over-stimulation of the economy 18 months out. So, IMO, there is a big risk of a resumption of the Bear Market, in late 2002 or 2003. And stocks going on to take out the 9/01 lows, and perhaps reaching those "historic valuation multiples". The Bear Market will look like a huge sawtooth pattern, with an overall decline masked by rallies that can last as long as a year. This is all just vague speculation. But it's a scenario I'm going to keep in mind. If we get a huge rally, and valuations get stretched (stocks going up by far more than earnings have, lots of SI threads again ridiculing anyone who brings up the subject of valuation), and the Fed starts tightening, then I will go back to 70-90% cash. And wait till the next day that feels like 9/21/01 did.