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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Oeconomicus who wrote (8436)	5/6/1998 12:24:00 AM
From: Mike M	Respond to of 18691

<<A relative few shares change hands at lower prices and suddenly everyone is poorer.>> Except the shorts.... :o) Mike

To: Oeconomicus who wrote (8436)	5/6/1998 2:15:00 AM
From: Alias Shrugged	Read Replies (1) \| Respond to of 18691

Bob I believe your points regarding 401(k) dollars and investors are quite valid. But, I do not view the 401(k)/pension dollars and investors as being proactive; they are reactive or passive. The current situation will need to change appreciably before these folks and their money alter their investment decisions (staying long and buying dips has been richly rewarded). The proactive or marginal money will move first. Maybe foreign investors take their money home or to another market. Maybe domestic marginal investors view the gap between valuations and fundamentals as unsupportable and leave, either because interest rates and inflation kick up, earnings not growing fast enough, or the valuations are simply too high and things cannot get any better (I believe asian meltdown and debt implosion would not be viewed as "things getting better"). One of the advantages marginal money has is that they can leave game at any time - most mutual fund managers cannot, they must stay fully invested (Vinik thought otherwise at magellan and we know what happeneed there). The inflation battle is quite murky - cheap oil and cheap imports versus rising wages (in part held down by the stock option game). Cheap oil and imports are temporary - wage increases usually are not. Company earnings seem to be flattening, and some will worsen due to imports. Seems that the current gap between market valuations and market fundamentals can only be maintained if the marginal players perceive that they will have most if not all of the following: Continued foreign investment Current (or hopefully lower) interest rates Current inflation rates (in part meaning continued cheap imports) Continued improvement in earnings Current or lower oil prices (Continued 401(K) inflows are a given, until things worsen appreciably). The current gap between market valuations and market fundamentals could even widen - if imploding asia sends more investment dollars and cheaper imports, and the marginal money doesn't panic at the sight of chaos. Otherwise, this situation seems unsustainable. I expect continued aggressive sector rotation whether we move up, down or sideways. Once we begin to yo-yo downwards with lots of volatility, then everything hinges on the passive investment dollars (401(k), company pension plans, large trust funds, etc.) and the people who ultimately control them. If they start to panic, a bad situation will be made much worse. Anyone who buys into the "the boomers are in a retirement savings panic, will sock away dough for 20 more years, the 401(k) money will keep this market afloat, yada yada yada," is making, in my VHO, a very dangerous assumption. Sorry to have rambled on for so long. I think in hindsight, this post was primarily for my benefit (gg) as I try to clarify my own thinking. Mike