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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Axel Gunderson who wrote (715)	9/1/1998 7:28:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

Interesting Fleckenstein: Back to the futures... Japan was down 3 percent last night and shortly thereafter the S&P futures on Globex exploded to the upside. I happened to be in the office late last night and I pulled this quote off the Bloomberg: "Japanese stocks pare losses as S&P futures suggest U.S. bounce." The article went on to say that the Japanese stock market erased an early decline of more than 400 points following gains on the S&P 500 futures, suggesting U.S. stocks may rebound. We know that the Hong Kong monetary authority is willing to rig its market and we know that the Japanese are certainly willing to rig their markets, so what the heck - why not buy a few spoos and diddle our market to help their markets? I don't know if that occurred, but I wouldn't be the least bit surprised. Europe rallies... Predictably, Europe was weaker but then rallied on the anticipation of a better opening in NYC. We certainly got the bounce we wanted on the back of Abby Cohen of Goldman Sachs, increasing her exposure to stocks. After all, they do have to get the deal done, don't they? Market seesaws, recovers... Last night they had the S&P futures up 3 percent, and they opened them a couple of percent higher. We had a violent rally to start, followed by a big wave of selling, which took the futures down about 1 1/2 percent. Then we had a rally that lasted all day and was pretty much across the board. Tech names were the strongest as measured by the Morgan Stanley High Tech, followed by the Nasdaq 100, the Nasdaq itself and the Sox. The bank stocks were kind of the laggards, up less than 4 percent. The S&P futures closed at 1000. It will be interesting to see if 1000 becomes a psychological barrier for the S&P futures. Will they go back and forth over the 1000 mark, or will some other barrier become the psychological barrier? Volume today was enormous, and we have seen more and more volume lately. Today was the biggest day ever with more than 1.4 billion shares trading on the Nasdaq and 1.2 billion in NYSE. All the people who want to talk about the high-volume reversals will point to this. This type of a rally was somewhat predictable, as we have pointed out recently, although in these highly fluid situations you never know. I would continue to advise what I have been saying: Sell into the rallies, don't buy the dips. Regarding some of these tech stocks that have bounced really hard, recovering nearly all of their losses from yesterday, I would guess that their rallies wouldn't last much past tomorrow morning or midday at the latest. After all, we are about to head into the bad-news earnings season. Before the latest meltdown, which was induced by a global destruction of capital, we had been looking for pronounced earnings weakness out of our favorite stocks - the PCs, the equipment stocks and the semiconductor manufacturers. I think there is a lot of bad news coming, which will set off another wave of selling along the way. My guess is, when we take out the lows that were achieved this morning, there will be another waterfall decline like the one that took out the somewhat significant level of 1055 in the S&P (the bottom of the previous decline). What happens in bear markets is whenever a "line of support" is broken, you have a waterfall decline and everyone tries to find a new line of support. Support never holds, and what used to be support becomes resistance. As I see it In other action, the dollar took a big hit today. The spanking started yesterday, and I can identify two reasons. First, all of these hedge funds that are busy blowing up around the globe have been funding themselves in Japanese yen. When you fund yourself in Japanese yen you have to short the yen, then go buy the currency you ultimately want to speculate in. Now they are being forced to cover yen shorts. (I think they also might be short JGBs, which now are yielding .995 percent. How about that yield for a 10-year bond?) Second, anticipation that the Fed will lower interest rates is weighing on the dollar. By the way, don't try to trade the Chinese yuan on the black market there: China announced the death penalty for those caught profiting from that. In addition, Malaysia announced the end of convertibility last night. Can't trade the ruble, yuan or ringitt. What's next?

To: Axel Gunderson who wrote (715)	9/1/1998 8:17:00 PM
From: Freedom Fighter	Respond to of 1722

Axel, (When to Buy) >>So the question I pose to you is this: even given the rosiest of expectations, at what level of valuation would you advise against investing a lump sum in the market?<< Here are my thoughts on this. I assume that the investor is employed and generating savings or is accumulating dividends and interest on the existing portfolio. I am also only talking about investable money here, not emergency cash or money earmarked for specific near term purposes. I think an investor should purchase stocks whenever the real after tax rate of return he expects from the purchase is greater than the business risks that investment entails vs alternative investments. (ex. tech, financial and retail are riskier than average. Beverage and food is less risky than average) Compare this to cash, bonds, notes, etc.. This calculated return should come from a long term perspective (5-10 years). It is also helpful to use several models and ranges of possibilities to do the calculations. For me, this means, if things work out worse than I thought on an earnings or macro fundamental basis, I want to get a rate of return that is acceptable. If I am right, I want a higher than average long term return, not on a relative basis, but on an absolute basis. When no such investments are available in the industries I am comfortable with, I accumulate cash. Even if it takes a few years to find an entry point. My experience is that opportunities present themselves frequently enough. I also think you should always have a sort of Stock/Cash ratio that varies with the general deal and rate of return level for stocks. At present, I could easily use all my cash to enter this market. I have enough ideas due to the mini-bear. I believe that easing your way in leaves you the flexibility of buying the truly sensational bargains that occasionally pop up. I reduced cash very modestly this morning. On the sell side, I think you should sell whenever the after tax procedes can be used to generate higher future real after tax rates of return somewhere other than in the stock they are invested. (risk adjusted) This procedure tends to get you out if the excesses get truly extraordinary in one of your holdings. It also keeps you on the sidelines and armed during other very high periods. You can be on the sidelines for quite a long time, even in a rising market, if the difference between the discounted return on stocks and the alternatives is minor. You will still wind up much better off. This appears to be the procedure that Buffett uses. This is the quote I like best on the issue. "In order to shoot fast moving elephants, you must have a loaded gun". His current portfolio, including the General Re purchase, is his second most conservative stance ever. Wayne Crimi Value Investor Workshop members.aol.com