Michael, while I find your analysis of the market generally and the Net sector in particular quite cogent and your tone refreshing and welcome, let me make a counterpoint or two. On the so-called New Paradigm: the wittiest, pithiest words on the subject come from--Benjamin Graham. If only I could remember them! To paraphrase, nothing is older in the market than talk of a New Paradigm. But as long as I'm fondly recalling cliches, here's another: the market goes up over a wall of worry--or lots of walls. This is another. Believe me, I'm a worrier too. My eye especially notes the historically high market P/E and strong bullish sentiment, though I suspect today's is weaker than last week's. Worry is a reality check, after all. Your strategy of buying puts is valid, to my thinking, as both a method and a conclusion. In my case, since I'm essentially long the Net, I buy big baskets in small quantities. It keeps my pulse regular.
As for the fabulous, and traditional, late run of the third-tier pennies, I am in agreement with you--in part. Yes, I'd say it is a sign of a blow-off top, which I think I wrote in an earlier post. It is a great game for speculators is you're able to buy quickly when it's uncomfortable and sell when you begin to wonder what the precise color of the sky will be over your new house in Malibu. But even as the pennies grew into dollars, the mainstay Net stocks were tumbling following upon Excite's earnings, for whatever reason or no special reason at all. What's important is that bearish sentiment, like bullish sentiment, feeds on itself and gains momentum. I believe that is what we've seen over the past week. Additionally, and pardon me if I'm repeating myself, the big caps, those old spouses, started looking good again, drawing money to themselves, and the second half for the non-Net tech sector isn't looking half so black. Thus the overheated Net sector and the underheated tech sector are finding a new equilibrium. In the interim, if my physics is right, or even if it isn't, we may expect turbulence. Heck, expect nothing--we've seen it.
Further, as the powers that is downwardly revise their estimations of Asia's impact, especially on that which affects currencies, the Fed may well grow antsy about chilling down the economy by lifting interest rates or reserve requirements, as it, in its alchemical wisdom, sees fit. Now that really would be a wet blanket. Yet from what I read, opinion is split over whether the business cycle, though clearly abnormally extended in this round, is topping. All we can do is watch and think about, in whatever limited ways we can, such imponderables as CPI, PPI, wages, net employment, and the like. Still, I'm not convinced we'll see a tightening before late summer at the earliest. With interest rates the fundamental influence on the market, and those low, a crash of 4000 points like the one you fear seems rather remote.
Again, thanks for your words. They've helped me clarify my thinking, such as it is. Best of luck.
J |
