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Strategies & Market Trends : Bear! -- Ignore unavailable to you. Want to Upgrade?

To: Terrapin who wrote (9)	4/26/1998 12:22:00 PM
From: Michael Burry	Read Replies (2) \| Respond to of 271

John, What part makes sense? Are you agreeing that stocks are different now because they have to go up because net money flow into stocks is so high? Even if this is true, then what's to stop the trend from reversing? Old people putting their money into stocks? The problem with this logic is that more and more money goes into stocks because now it appears stocks are safe. Everyone is told, if you have 5 years, put it in stocks. MM rates are perceived as low only because of what stocks have done in the past 15 years - I hear people say they cannot afford not to be in stocks - why, when real rates in my bank are about 4%? A safe, gov't insured 4% return over inflation is not bad, but the money flows into stocks because people expect just-as-safe 20 or even 30% returns in stocks. All these know-nothings throwing money into equities think they are comparing apples to apples, and decide they'll just take the juicier apple. Easy. A 1996 survey found that 20% of mutual fund holders felt their mutual funds were insured by the government. I'm sure the percentage is higher today as more and more neophytes pile into the market. The way Wall Street brushed off the Asian Crisis depite its very real impact is a scary sign, not a welcome one. The buy-on-dips mentality rules. My prediction: it has taken all this money pouring in to push stocks up over 50% in the last few years, but it will take just 6 months of net outflows to push stocks down 33% to their starting point, and several years of outflows will see valuation less than half that of today. Then mutual fund managers will be making pre-emptive sales to prepare for withdrawals and will be holding off purchases in order to prepare for the same. What could trigger it all? A second realization that Asia is real. The death of Greenspan. A tight labor market shoving inflation back into the realm of reality (have you seen the recent articles pronouncing inflation dead - even a Fed governor did so this past week). I love how everyone is saying economists are no good because they can't explain why the wage and labor pressures aren't translating into inflation. In this market of instant gratification, maybe they expect instant adjustments in the real world too? I don't know what the trigger will be, but once the trigger happens, I am certain that the magnitude of this mania will be matched in the future by the magnitude of despair. Mike

To: Terrapin who wrote (9)	4/26/1998 11:49:00 PM
From: Steve Joyce	Read Replies (1) \| Respond to of 271

John, I am not really sure whether or not things can ever be explained simply. In theory I completely agree with you. There is a level of demand created by retirement plans that did not exist on this level years ago. If we are talking on a very abstract level this increase in demand can change our views of historical valuations and how we apply them to today's markets. I personally feel that the markets are still open to a violent correction. In theory the demand created by retirement investors being guided by brokers that sell the idea of dollar cost averaging and the long haul makes the idea of a prolonged bear market seem unlikely. SJJ