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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: pogbull who wrote (7568)	9/28/2002 1:19:41 PM
From: Jim Willie CB	Respond to of 89467

Bubble Troubles Part 3 (next Puplava installment) It Ain't Over Yet for the Stock Market by Jim Puplava [another comprehensive high-level gem] financialsense.com an excerpt in preface, then conclusion: Today's Battle Cry, "Buy Now! Stocks Are Cheap!" Stocks are cheap and it's time to buy! On Wall Street, the mantra has always been, "It is a good time to be buying." Everything from the standard cliché of “Own stocks for the long-run.” and “Rate cuts will bring a second-half recovery.” to “Stocks are a bargain.” are touted to the investment masses to keep them fully invested. Since the beginning of the year (and the standard argument for the last three years running) we've heard that there will be a second-half recovery. Now that this scenario has been dismissed, the new mantra is “Stocks are cheap.” The summer rally was predicated on the premise of the Fed lowering interest rates. They didn't. The Fed will lower rates during the next financial crisis. And believe me, there are many potential crises in the wings. Today the Fed confronts many challenges: falling stock prices, a slumping US economy, financial derivatives, Latin American debt defaults, an upcoming war, and trouble brewing in the banking and lending sector. Government regulators are now monitoring Fannie Mae’s portfolio daily rather than monthly. So, the Fed will keep its last remaining bullets for the next crisis when it emerges. After they fire off the next round of interest rate cuts, the next step could well be one of desperation. If rate cuts don’t do the trick, the FOMC would be forced to take drastic measures which might include lowering bank reserves or monetizing debt and other financial assets such as is being done in Japan. ------------------------ When Do We Bottom Out? When your investment club requires fellow members to bring a brown bag to meetings when you discuss the portfolio, you will know we’re close. When your neighbor tells you he or she bailed out of their mutual funds, and when mutual fund liquidations start making front page news, we will be getting closer. That will mean the second phase of this bear market will be close to over. Then we will get a recovery. Stock prices will rally, as they did during 1933-34, when the government and the Fed pulled out all stops to rescue the markets and the economy. Deflation in asset values scare governments. It means unhappy voters and less tax revenues as declining asset values follow a declining economy. Their efforts will give us a temporary reprieve, but in the end the market will have its way. It has always been so. In the end, the markets always win despite the best efforts of government to thwart it. Investors should stay out of stocks other than necessities and issues that provide value. That value should be based on the measures discussed above. If you don’t understand fundamental investment value, I would recommend reading Graham’s “The Intelligent Investor.” This book belongs in every investor’s library. I have made it a habit to read it once a year. It reminds me of what is essential and it provides an intellectual framework for investing. It has enabled me to avoid most of the storms over the last decade and especially the last three years. You can be a good chart reader, but if you don’t understand the basic fundamentals of the financial markets, those charts won’t warn you of a sudden tsunami, white squall or a ten-sigma event. If they could, LTCM would still be a large hedge fund. The stock market bubble of the last century is still with us. The trouble is... most investors and professionals just don't see it. ~ JP