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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: valueminded who wrote (25349)	1/10/1998 10:36:00 PM
From: Earlie	Read Replies (6) \| Respond to of 132070

Chris: Everything I see suggests that FINALLY, we are into a full-fledged bear market, especially for the tech stocks. The techs led this market up, and they will lead it down. It is now a virtual certainty that Q4 numbers will, on the whole, be nasty, and that Q1 results will be much worse. While some of the tech stocks have already suffered pull-backs from their highs, this air pocket is just the beginning, as the vast majority are still valued in the stratosphere. Once this bear gets going, the downside is going to be very spectacular, as a result of the insane levels of margin utilized by far too many players. My own estimate, is that once we pass through 15% to 20% on the downside, that the margin calls will really apply grease to the skids. Accounting legerdemain may get a real workout this quarter as everybody has problems and the more obtuse will attempt to put the best possible light on their results. This time, it won't matter, as the damage is already well and truly done. Funds are carrying record low cash, believing that the public will once again bury them with new cash. Probably not quite working out as expected, as bonds are for sure pulling some of it away from the market and many "investors" are essentially tapped out.....one can only borrow from one's credit card so many times to expedite fund feeding. Wall Street appears to be underestimating the intelligence of the average investor. Suggesting that the Asian meltdown will not have much impact over here might have held a bit of water in the first few weeks, but as this disaster has unfolded, it has become brutally clear, that this series of events is indeed a catastrophy, and the man on the street is finally beginning to worry. Is he pulling out of the market? Time will tell, but anecdotal observations suggest that he is starting to head that way. I worry about the use of options, so I don't use them much now. If the market completely capitulates, the brokerage firms and banks will be under stress due to option exposure. It doesn't take much imagination to conjure up a variety of ways in which options defaults could take place. I'll just stay with some well-chosen shorts, (and drain my account on frequent occasions if a bit of profit accrues). I prefer not to provide specific targets, but in general, the weaker PC and semi producers appear ripe for both earnings disappointments, and multiple reductions. I also think any of the networking stocks that haven't already been thumped are perfect, as most have significant Asian exposure and all were counting on Asian growth in 1998 to counter falling demand on this side. Semi equipment manufacturers are particularly susceptible to Asian problems (our research into AMAT's backlog is truly frightening in this regard), and I see all of them in big trouble this year. The telecommunications companies are also in for some rude shocks this year. Those that manufacture infrastructure equipment will experience both cancellations and cutbacks as the main action has been in Asia, and that game is becoming a desert. Digital telephone services provide a perfect example of the causes of deflation......too many players layered on top of each other, (with many having spent insane sums just to acquire spectrum). Few have a hope of making money in the near (or any other) term. In a bear market, actual as opposed to forecast earnings become the be-all and end-all.....many of these stocks will languish. The one thing that seems clear to me is that there is now very little time left before the balloon is burst. Events are now developing an impetus of their own. Liquidity is the real problem in Asia, and liquidity will be the problem here shortly. Markets take in money effortlessly but allow very little of it to depart. That lesson is about to be learned by a very large number of market participants. Best, Earlie