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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Proud_Infidel who wrote (4129)	12/24/1997 10:04:00 AM
From: Defrocked	Respond to of 10921

Brian, I think we are about half way through the Far East turmoil which began last summer. The potential for further deterioration outweighs any perceived opportunity for additional long positions IMHO. I am willing to forego an opportunity loss of 10% upside for the safety of Intermediate Treasuries and resolution of the remaining uncertainty surrounding additional bankruptcies, lower Q1/Q2 earnings, slower growth and possible US debt refunding difficulties at the Feb and May auctions. The downside prospects of -20% to -30%, especially for DJIA equities, is quite real. Even with today's opening relief rally, the yield curve is flattening and the yen declining to the dollar again. We are not out of the woods yet. BWDIK. I find the yield curve particularly troubling since the 10Yr/3Mo. spread is at its lowest level since August '89 -- which was a harbinger of the 90/91 recession. This measure, when negative, has an almost 100% correlation with subsequent recessions for the last four occurrences. Right now the odds of a recession in 98/99 is about 25% using this measure. There is too much undiscounted risk in the system for my comfort. Some argue that today's yield curve is different since recessions are usually brought on by Fed tightening, absent now, which resulted in previous YC manifestations. My reply is that the YC does reflect an unexpected monetary contraction resulting from the devastation of money,credit and real assets in the Far East which is being transmitted to the US markets through the movement of international capital. Moreover, remember that the Fed would have increased rates at either the Nov./Dec. FOMC meetings so they also view the Far East deflation as a form of tightening. To paraphrase Karl Malden: "Put options...don't go on Christmas vacation without them!" A hedged and patient investor wishing you a prosperous '98.