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

To: Marconi who wrote (14511)	10/8/1998 4:04:00 PM
From: Franco Battista	Read Replies (2) \| Respond to of 18691

I spoke to my broker this morning and he told me that his clients are getting very nervous. I use a full service broker, this is one of the large brokerage houses in Canada. My broker also told me that this week for the first time some clients were being called on margin. 75 were called on Monday, 80 on Tuesday and over 100 yesterday. He expects more for tomorrow. He also said that the top strategist feels that there is a 50% chance of enetering a world recession or worse. This is a very conservative brokerage house. The other interesting thing he told me was that most of his clients were not selling but were enduring the pain for now. I don't know what will trigger the panic selling. My feeling is that we completed the first leg of the bear market on August 31st. We are presently in the second leg and I don't expect this leg to end with panic selling. The selloff will continue to be orderly with a big down day (400 to 500 points) marking the end of the second leg. It is now quite clear that this second leg is mostly destroying the tech stocks, including the big names. It is also clear that most of the Dow stocks will continue to trade at high PE ratios during this second leg, and that the drug stocks will come out relatively unscathed. Most people will remain in denial through this phase and will continue to view this only as a correction and not a continuing bear market. The panic selling may not come for many months, and it is anyone's guess on what event will trigger it. I strongly suspect that currency devaluations by Latin America, especially Brazil could be that catalyst. In the meantime, I am mostly shorting by buying puts on overvalued stocks and by shorting the SPX. I've shorted the SPX several times in the past few months and they all turned out to be great trades. I just shorted some a few minutes ago on the Dow spike-up. It never ceases to amaze me how many chances the market will give us to reshort at higher levels.