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Message 17510348
Why this Market will NOT fail now.........
One set of investors, Short Sellers, will be the first buyers. (the latter half of this article)
After the terrible tragedy for America and the World, many are wondering and speculating to what will impact financial markets will feel. What will be ironic in his act of terrorism against the people and economies of the United States is at the end result will be a positive catalyst for the financial markets in the aggregate. This catalyst is bolstered by the point of where the markets are currently sitting, how we got to this point, and the dynamics of the investors which are currently invested within this market. The Markets are now poised to return to 7-12% annualized growth, and continuing onward with reasonable and expectable positive movements. The Timing of attack itself has come at one the most unique segments of Market history, the completion an incredible Bull Market Bubble and Bear Market Burst.
How the Market got here.
The main catalyst which caused the bull market Bubble, was the Internet. The fascination of people as they adopted the Internet as a new popularized media form caused incredible growth. Many technologists and will tell you the Internet is no new invention, however with the advance of Mosaic, a graphical user interface on top of the Internet, the Internet was destined to become a mainstream application. Being able to navigate the internet so easily with point-and-click system was the key enabling technology. People with little or no technical knowledge could used the new media. Surfing the Internet was just hunting and pecking around find interesting new sites.
The Internet created one of the greatest anomalies of all time in which, in which Geeks became Chic. For really the first time in the computer technologies evolution, the majority of women interested in computers. This change from men tinkering with electronic toys, to individual media resources, or all demographics was the catalyst both of the growth of the Internet and the Bubble of the Stock Market.
The Industries Switch gears to met the new Consumers.
Intel branded itself with the “Intel Inside” campaign, Compaq, Dell, and Gateway created more aesthetically pleasing computer boxes creating as market differentiation for the new Internet Crowd. The stocks followed according. The Internet is all about a connected computer, so ISPs such as @home and AOL build out and expanded, and their stock followed accordingly. The information highway need lane switchers (routers) and storage space for information, and Cisco and EMC grew and their stocks followed accordingly.
But Mosaic was a free program. Enter in Business developer who found Andreeson, created a company called Netscape and took it IPO. The first Netscape browser was nothing more than a slightly jazzed up version of Addreeson’s first Internet browser Mosaic. The difference was it was a for profit business now. When the stock hit the market in mid 1955 it was a phenomena. Everyone it seems except Bill Gates understood the importance of the Internet, and the Netscape stock flew upwards. After Netscape came the Yahoo IPO, and so on and so on.
These IPOs were met with buying and buying, to the utter dismay and confusion of the traditional conservative brokers and Analysts. The IPOs would double or triple the very first day of trading. Soon anything even remotely associated with Internet was gold. Venture Capital Money rushed in to support these gold miners, and launch hundreds and hundreds of internet focused companies. The goal of the companies was the IPO not the ongoing business for both the insiders and the Venture capitalists who funded them.
In what is probably when the more phenomenal things that happens full-time segment is that simple websites with users were considered a technology stock simply because users to technology. A company was valued with tremendous dollars simply because it had users, there was not evaluation based upon profitability. This would cause overvaluations that were destined to fall. The only question was time.
It was the Internet.
Beside becoming a new information media, the internet gave access to individual investors. For the first time individual investors could trade in and out of stocks with ease, and without the higher costs of full service brokers. A set of early adopters became active traders buying and supporting stocks. You have the entire set of early users adopting the Internet using functionalities created by the Internet, to buy stocks. Those early adopters of technology bought and supported what they knew best, the technology stocks. They were using a Dell computer within Intel processor and in a Nvidia Video card attached to through a 3Com modem into their AOL access, to view their favorite portal Yahoo to download the latest news to their connected Palm PDA enabled by internet backbone provide by Cisco routers to the resources stored within EMC devices and protected by a VeriSign security all on their Microsoft platforms.
Valuations became enormous and traditional methods valuation had no reasonable explanations of why the stocks it got up so much. Old-timer professionals were devastated when their returns of yearly 30 percent gains were called failures. The old guard of conservative valuations was put on the back shelf, and a new class of hyping Analyst stormed the CNBC airwaves. Expectations were for stocks to double and then double again. Most serious professionals understood that these growth rates and evaluations would never be sustained overall long-term stocks continue to rise. But the public did not hear from them, it was now the NEW economy. After some time went by, the one conservative protectors of investors gave up. The analysts decided 50 times next years earnings was a reasonable valuation. The control rods were remove, the reactor was let go, and the build up, and ultimately the melt down was locked in. Nothing would or could have stopped this, not even Greenspan.
Nolo, Joseph Cohen, and Meeker became the “gurus of greed”. They used the vehicles of the financial Television networks to hype the investment that they themselves knew were only flashes in the pan. After the interviews ended the Analysts could barely hold their faces straight, it was a joke, but the result would not be funny.
Alan Greenspan chose to increase the Fed funds rate. Many seem to want to believe that this change in the Fed funds rate caused the downturn. In actuality it has little to do with the Bubble bursting, its just and excuse. The bubble was going to burst, it simply had to.
The real shame was that on the way up, those who tried to warn were ridiculed. While it is hard to argue for profit motives of financial firms under our capitalists and society, and while it may be even acceptable shear sheep, the consequences of the these gurus of greed was the destruction of sheep and the consumption of lamb. The valuations of these companies where never sustainable, ever. But as the Nasdaq emperor walked down the isle, the Wall street firms maintained the Emperor was clothed, and those that saw the naked Nasdaq did mostly did not talk.
Actions of the market of 2001 or easily understandable. The reduction in the number of day traders who were actively buying stocks of the Internet, enabled by the Internet, became fewer and fewer and fewer. As stock prices started to drop in January, it took the unprecedented emergency rate cut to reactive a bounce and some buying mania. What is regarded as a remarkable slowdown is not slowdown in all. The companies that have failed were never profitable and never had a business model that were is going to the profitable. The slowdown was simply the IPO money running out. Predictably this January bounce was unsustainable and valuations went down again. Again another rate cuts in April helped put stop the side down. Again as of Monday that entire bounce was retested.
Which brought us to Sept 10th.
Many of the technical indicators pointed to a market bottom occurring on Monday. The Volitity Index (VIX) opened 37+ and ended the day it was a penny under 34. We retested the April lows and hovered there at roughly 1670ish. The (Nadaq:QQQ) index shares bounced off and fought against the all time low of 33.6. It seemed all the signs were indicative that the bubble had grown, the bubble had burst, the bubble had bounced, and bounce sold, and the low was then retested. They cycle completed and in essence Tuesday would have been the start of a new market segment.
The World Trade Center events changed all that. But wait! Has it?
As what is promoted over and over again, to make a real market bottom, you need to see “capitulation”. Capitulation is defined as when everyone thinks it won’t get any better, and you get frustrated selling of stocks. I think you can see where this will be going. Now after the bombings everyone believes that the market can only go down, and they cannot go up. Sounds like capitulation doesn’t it. Ironically through a slow and deliberate process the market we likely capitulated before the bombings. There is no one can denying the capitulation is happening now. The market will have a quick selloff when it opens again, but I contend that will not be the trend. The bubble cycle is over, and you should not expect a new bubble to begin, but I believe we are about to enter a normal healthy robust stock market with predictable and prudent gains.
Why the Shorters will support this Market better than any other investors
For this analysis its most simple to understand and consider shorts has guaranteed potential buyers of securities. A shorter simply does the same transactions as normal investor, but the Shorter does them in reverse order. The Short sells the stock first and then buys a later. Though the order is reversed the goals are still the same. Both longs and shorts attempt to buy low and sell high. The average consumer or the average investor may not have the courage to invest with all of this uncertainty, however the Shorters will.
The first buyers and the continued buyers will be the shorts covering their long-term shorts from the now concluded bubble cycle. Alan Greenspan knows this which makes it all the more unlikely for an emergency rate cut in, he will wait to toss that in October. Beginning right after the first selling pressure, and then continuing through the next Fed meeting the market will gain strength. And this strength will be on the backs of the shorts. As these hedge funds and individuals complete the cycle of their profitable trades. Many Shorters could even feel patriotic about this action. But if you look at where the market was on Monday, the actions of covering and shorts buying their stocks back what if begun regardless.
I believe the bombings are without a doubt a defining market bottom and a defining capitulation. Though our collective anger may remove urges to panic, our anger won’t make investors purchase into uncertainty. But that bottom after the open will inspire Shorters to begin to buy back their stocks. The shorter much like a wolf, is a much misunderstood animal. The wolf does not create the environment, the wolf reacts to the environment. Though some of speculated that bubble might be wise to attempt to restrict short sales this would be foolhardy and stupid. You can not take a balanced system and remove parts of it, and have the same check and balances needed. The market is designed to be rapidly self correcting.
It is beyond question that Wall street and the United States economy will survive and flourish. The bubble has come, the bubble has burst. In these Post Bubble (and post-burst) days and with all this uncertainty, it will be a nervous time for all investors. But one set of investors will be there, one set of investors will step forward, these investors will buy stocks, and the will provide a foundation for the recovery of ours and the Worlds economy. These investors are the Shorters. Yes, indeed the Calvary of American Shorters are coming, and they are buying. The attempts and moves to restricting these actions, will make no sense, and changing the nature of the market, as a real-time experiment is ill advised. Artificial supports are unnecessary, and a fake market is not a free market.
To those that think that consumer spending will fail, I have it on good authority, that there is a somewhat significant portion of the female population, that in times of stress, will indeed go to the shopping malls and shop. There is no reason, in my mind, to believe that retail spending will be affected negatively at all.
The bottom is in, and the rarely understood Shorters and Hedge Funds will be the bravest and most determined buyers these first days. Yes, indeed the Calvary of American Shorters are coming, and they are buying.
--- Copyrighted 2001- Wolff- All rights reserved. -- Submitted for publication---
Apologies in advance, I have no editor. |
