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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (5496)	2/5/2002 8:02:17 PM
From: macavity	Read Replies (1) \| Respond to of 33421

When virtuous circles turn vicious. All these effects were things that caused the 90's bull market to be exceptional. When things were rallying it was all hunky-dory. Those who pointed these things out were mocked publicly. I am a firm believer that a (reasonable ?) target for this bear is the 1996/5 levels. We may not get there for 10 years, but like the Nikkei shows, you do get there finally. Dollar Strength. 1)Explains why the equity bubble was so much bigger in US than Europe. Earnings manipulation. 1)Pro-forma reporting. -Enuff said! 2)Off balance sheet products/vehicles. -Enuff said! 3)Corporate Share options. -Try telling any option trader that these are not a cost to a company. Companies sell calls to their employees that never appeared on the cashflow statement or balance sheet, but wrote puts on their stock to the market (during the rally) which appeared as positive cash earnings. 4)Pension reserves. -Companies (GE especially) are now assuming that they can produce 9.5% p.a. returns rather than 7.5% returns, releasing 21% of the value of the pension fund into their balance sheets. For any fortune 500 company older than 5 years old this is massive. 5)Goodwill/Depreciation. -Enuff said. Limited floats/ Index tracking. 1) Companies with limited (less than 15% of) shares available where put into indices at full weighting forcing trackers to buy the stuff inflating prices. STOXX and FTSE have now changed most of their indices to reflect this. The trackers are now forced sellers. (This is occuring over a lot of global equity indices) We may be re-approaching the 1982 support trendline, which we bounced off/tested in Sep2001 at the $SPX=950 level. It is now at about $SPX=1020/00. We may close below it (in monthly) we may not. But if we go below the 98LTCM lows there is not a lot of support in monthly charts. $XTC is effectively testing these levels now. We have a market on historically the highest PE's with the most manipulated earnings. We have high corporate and consumer debt to equity ratios. (Remember corporates issuing debt to buy their shares to inflate EPS - not so many buybacks now). The entire US seems to be short debt long equity (in the form of housing or shares), and credit spreads are widening. And Mr G may have just run out of magic bullets. - macavity p.s. Yes, I am short