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Strategies & Market Trends : The Stock Market Bubble -- Ignore unavailable to you. Want to Upgrade?

To: bobby beara who wrote (2163)	10/15/1998 9:07:00 PM
From: Gwolf	Read Replies (4) \| Respond to of 3339

The Fed 'very rarely' adjust rates between FOMC meetings, it hasn't happened since '94. The Fed has suddenly seen something that caused them to respond. The lowering of rates at this time suggest worry about liquidity. There is concern about foreign money being repatriated at this time. Corporate earnings may meet analyst expectations but year over year numbers are not good. If you step back and take a look at all of this the message is that the goldilocks economy is showing serious signs of potential slowing. Some people may say that the market has already adjusted stock prices from July to October to account for this. If you look at many of the OTC stocks that has certainly happened, but if you look at the multiples on the big cap stocks you will see that they have not adjust to the slow down. The flight to quality has protected these stocks for the most part. A substantial market bottom can not be established with these stocks at the lofty levels they still command. Anyone that understands Buffett's principles of buying value will tell you that buying the 'Nifty Fifty' or the 'Big Caps at these levels is a speculative trade, not a value investment. We never did see the type of capitulation that would signal a significant market bottom. You may in fact be in for a rally here, but this rally may have only been traders unwinding options positions in fear of expiration tomorrow and short covering because of this Fed news. When the weekend comes there may be a great number of people that look at this Fed move and realize that there is a longer term gloomy message behind the short term positive news. Many people have been waiting for a rally to sell into. As people think about the Fed cut they will realize the Fed move was to try to forestall a recession in the U.S., knowing that rate cuts take 6 months to show up in the economy, they may feel the Fed is late in their actions. The bond market has been predicting this slow down for some time. The Fed has been focusing on inflation and may be well behind the curve on deflation. If people realize that the Fed is slow in reacting and that their sudden move shows they're late in seeing the problem, you will probably have a resurgence of selling come monday morning when people realize there is still a very big potential for a recession, that may or may not be built into stock prices. This whole situation is still fragile and valuations for many stocks are still at bull market peaks. Just remember one thing, there was a lot of money that came into the market after the '29 crash, in late '29 and early '30, thinking that was the extent of the decline, only to watch even greater damage done after a rally. Bear market rallies are notorious for sucking in even the intelligent people that knew the market had hit a peak. The problem is determining a true bottom from a sucker bear market rally. If valuations had really improved on the S&P and you had seen blood in the streets then you could feel that this was a substantial bottom. At true market bottoms "Nobody but Nobody wants to buy, they have lost all confidence in the market", that is the true sign of a bear market bottom. Recent action is not the sign of a public that has lost confidence at all, it was the sign of the bullish speculative crowd that has just been waiting for the fun and games to get going again. This is exactly the way bear market rallies work. Until you see true loathing by the public for stocks this is not a bear market bottom. Beware of Bear market rallies and good luck to all. Gwolf