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Strategies & Market Trends : Russian Crisis - Is it a buying opportunity? -- Ignore unavailable to you. Want to Upgrade?

To: Jeffrey L. Henken who wrote (126)	9/1/1998 10:16:00 PM
From: Gary Walker	Read Replies (2) \| Respond to of 175

Still trouble ahead..... A rebound like we saw today was inevitable after a 12%+ drop in one week. The problem is that the market gave up this much value without a real panic like 1929 or 1987. In 1929 the country was well into a recession. In 1987 there was a recovery going on followed by a recession in 1990. The recent corrections were steep and orderly other than the last hour of trading yesterday. This drop is much more severe than 1997. Today's updraft was fueled by short sellers who exited the market after making a few bucks and momentum funds which started the whole drop in the first place. Our economy is slowing, the rate of increase in corporate profits is slowing. The problem is that the numbers are being masked by the GM strike. That won't be the case over the next few months. What will happen when the economic reports indicate a slowdown? Stocks don't do well at the start of a recession. The problem is that we'll not know we're in one until after the stock fall has all but bottomed out. The culprit is the foreign situation. Foreign goods will be much cheaper in the last half of this year as old contracts wind down. US exports will slow because of the strong dollar and recessions overseas. There's overcapacity everywhere in the world and that will hurt our high cost industry in the US. Yes this is good news on inflation, but deflation is the concern. Workers will have a choice, take a pay cut, or loose your job to a foreign worker. If that wasn't enough, we've got union militancy choking the auto industry and now the airlines. These are two of the larger income generator for working people in the US. Prior to today, the previous 3 sessions saw selling into any sort of rally. Today was the exception to the trend but only after the rapid 150 point early plunge after the early rally. In the final hour the dow fell 75 points or about 1%. At that rate, all of the gain today would have been wiped out in another few hours of trading. Stock markets are driven by earnings expectations, relative interest rates, market opportunities versus alternative investments, and psychology. The global recession will hurt the earnings of all US companies. Deflation will offset the advantage of low interest rates. Cash will look like a good investment in a deflationary environment, and the psychology looks to be fragile at best. How long will it last before our market breaks like Japan? $10,000 invested in the Fidelity Southeast Asia Fund would have been worth about $16000 in 1993 and is worth $6200 today. Is that a picture of our markets in the future? No amount of 401k money in the world will be able to stop a severe fall once these people realize that their saving can take the kind of hit the FSA fund took in the past few years. Regards, gw