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To: Dale Baker who wrote (30587)	7/21/2002 5:42:19 AM
From: Dale Baker	Read Replies (2) \| Respond to of 118717

Looking through SI and the financial press, we have two basic scenarios for the markets: 1. Capitulation is finally here; retail investors are cashing out their mutual funds and the Dow broke the September 2001 low. The newsletter survey shows more bears than bulls and the put-call ratio is up. Maybe another dip or two but value hunters and short covering should spark a relief rally. 2. The markets are breaking down in a fundamental way. The disgust with portfolio losses will drive an entire generation out of the markets for years. TA suggests the Dow could head much lower. No recovery in sight. I expect to see elements of both scenarios in the markets the next few months. Most important, the panic selling should ease as the retail crowd sells at the bottom (as usual) and small cap/mid-cap stocks stabilize from the recent 20-40% plunges. On the institutional side, mutual funds faced enough redemptions to spark large cap selloffs, but a huge chunk of "institutional" money comes from the pension funds, insurance companies, etc. This group may reduce their exposure to stocks (or some may increase exposure in a contrarian play) but they will stay in the markets because they have a mandate to be in the markets. A fund manager who is down less than 26% YTD is beating the SP500 this year. So a reduction in selling plus the inevitable waves of hedge fund short covering should start to build a base. I don't expect a sharp V-shaped rebound in the very short-term - too much confidence has been shattered. But if you didn't sell out your longs three weeks ago, now is a lousy time to start if your time horizon in the market goes anywhere beyond a month or two.