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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: tekgk who wrote (14814)	3/8/1998 10:17:00 PM
From: Bilow	Read Replies (4) \| Respond to of 94695

Hi tekgk; About that Fed injection of liquidity in '93. It looks to me like they are injecting it about as fast as they can right now. But who knows. Maybe the Fed has advanced to the point where they can walk the dangerous balance between monetary induced inflation and monetary induced deflation. Of course, that is just what people were saying they could do just before the '29 fiasco. It is nice to know that in these times, (where we have seen american prestige in fields too numerous to mention embarassed by foreign competition,) we have something the other guys just can't seem to get right: A perfect monetary system. Who'd of thunk it. When I was in high school, home builders were mailing 2x4s to the federal reserve and Jimmy Carter as a protest of the high interest rates. Back then it was obvious that the government/fed had made some big mistakes. But now, with the party going loud and strong, everybody thinks Greenspan is a hero. Smells like the late 60s to me. On the other hand, I'm betting that the herd continues to buy the dips until they basically run out of money. And with unemployment essentially zero, wages rising, and interest rates relatively low, earnings really don't matter. Beanie babies don't have earnings, but people buy them anyway. People won't sell stocks until they lose their jobs. People who buy on margin are referred to as "weak hands," by the Carret book as opposed to those who buy with cash. The vast majority of the speculation being done today is with cash, not margin, so they really don't have to sell the dips. Right now, the public is greedy and fearless. Under normal conditions the market predicts the future of business. So when it became clear that the south east asian contagion was going to eventually get here, the smart money (i.e. institutions) dumped their stocks. But the market is in a bubble similar to the '29 bubble. Every high-grade moron in the country has a job, and is putting excess cash into the market. They don't have any idea why they are buying, they just know it felt good when they bought stocks recently, and they think it will feel good the next time. So I agree with that guy who said that earnings won't kill this bull market. The market will decline only when the high-grade morons lose their jobs, and have to cash out. I think this could happen by late '98, but as long as the Fed avoids raising the unemployment rate the mania will go on. In other words, I predict that even if inflation returns and the Fed raises interest rates, the bubble will not burst directly, but will burst only when something (high interest rates, or competitive foreign currency devaluations) kicks the unemployment rate up. Thus the latest unemployment figures showing a multi- decade low in unemployment is actually very good news for the stock market, even though it was very bad news for the bond market. The diversion between bonds and stocks is the essence of the mania. The herd is not out there buying bonds. They are out there buying stocks. I'm trying to avoid thinking of the stock prices as discounted future dividends and earnings. Instead, I'm looking at it as if it were a collection of diverse varieties of beanie babies. My plan is to root around on the floor for the discarded babies that the herd drops while grasping at a newer, prettier, baby, then holding it for the value investors, to buy back. So far it has been working pretty good. -- Carl