this is scary.. somebody that agrees w/ me on 4500 to 5000 being the downside of this POS:
"Market Monitor"-Charles Minter, CEO, Comstock Partners
PAUL KANGAS: My guest market monitor this week is Charles Minter, the chief executive officer of Comstock Partners, a money management firm whose outstanding results in the 1980s and early 90s were rewarded with a lot of favorable publicity, including a cover story in "Barrons" financial magazine, as well as front-page articles in "The Wall Street Journal" and other publications. In 1994, however, Comstock Partners turned prematurely bearish on the stock market and remain so. Charles in our tradition of always
wanting our viewers to hear both bullish and bearish opinions on the market, we welcome you to NIGHTLY BUSINESS REPORT.
CHARLES MINTER, CEO, COMSTOCK PARTNERS: Thank you, Paul.
KANGAS: First, what led you to turn so negative on stocks six years ago and in light of the massive rally since, why haven't you capitulated from that bearish stance and gotten out of the way of this charging bull?
MINTER: Well, Paul, we really concentrate a little too much on valuation. We got to valuation extremes in around 1993, and in 1994, they got excessive. We've actually now reached levels of valuation that are
unprecedented. As a matter of fact, the reason we haven't turned, capitulated is the fact that we've gotten so high as far as the valuation relative to past history goes, that the stock market would have to drop by
50 percent, by 50 percent just to reach the market peaks of valuation that existed in 1929 and 1966 and 1972 and 1987.
KANGAS: But this is the new era, as they say. 401(NYSE:K) funds are likely to provide lasting buying support for stocks, not true?
MINTER: Well, some people would call this a new era, new paradigm. I would call this a recipe for a disastrous bear market.
KANGAS: But we have low inflation, low interest rates, and continuing growth in the economy, a friendly Fed, all the fundamentals, so-called, are in there.
MINTER: Well, when you talk about that, we don't consider that fundamentals. We don't consider that-we consider fundamentals valuation. When you get to those things, they're more environmental
factors, and those are the factors that existed in 1966, in 1968, in 1972. So those fundamental factors as you call them, were related more to market tops than market bottoms.
KANGAS: That's interesting. All right, now how about talking about the weak technical-we hear a lot of this, a lot more stocks making new lows and new highs, so forth. Is this a warning?
MINTER: Right. A lot of people have been talking about this breadth being so bad. The fact of the matter is it's worse than people are saying. If you go back in history and look at the technicals, the breadth
especially, the only times that compare to today's breadth are 1929 and 1972. Obviously both of those periods of time were followed by disastrous bear markets. The fact is that we're making new lows. We're having more new lows each day than new highs as the markets making new highs.
KANGAS: We are having a stealth bear market for a lot of issues, the majority, actually. Can it reverse where the index stocks that are providing us with the new highs, they the ones that head down and the
other stocks come back?
MINTER: Well, the fact of the matter is, that doesn't happen. A lot of people-there are some values in the low cap to mid cap area, but it turns out that when you have breadth like this, where the advance decline
just made a new low as we're making a new high in the S&P and the Dow Jones Average, when that happens, the market goes down. The indices go down and follow the broad market down and everything goes down.
KANGAS: We have less than a minute left, Charles. How are you presently positioned?
MINTER: The Comstock Capital Value Fund has got a 60 percent net short position and a small position in U.S. Treasury bonds. It's positioned to benefit from a deflationary bear market, which we expect to take place. The Comstock Strategy Fund, on the other hand, the Comstock Strategy Fund, has got a significant position in U.S. long-term Treasury bonds, about 70 percent, and a small position in puts that will benefit from a stock market decline.
KANGAS: How low do you think the Dow can go briefly?
MINTER: I think the Dow can get down to 5000 or possibly even 4500.
KANGAS: You are a continuing bearish fellow, and some sobering thoughts. But thanks very much for being with us.
MINTER: Thank you Paul.
KANGAS: My guest, Charles Minter, CEO of the Comstock Partners.
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