SB-
In answer to your post:
Last October was scarier, more risky than now, IMO...
Last October, we have a severe liquidity crunch going on (world-wide) , corporate bond yields...spreads between gvt./corporate bonds were at (practically) unheard of divergences....if you recall, the Fed (and Rubin) had used up all of their hyperbole in trying to calm the markets...and it appeared that there was no bottom to the Asia (and becoming Latin) America economic crises....It was not a given that the Fed was going to intercede, given the rapid stock gains of recent years, and the recent bias toward tightening only days earlier, and the famous (irrational exhuberence) line...
The market seemed to have no legs whatsoever...and several prominent houses were predicting Dow 6500 (or worse), and tech/internet bubble burst...
If there are two things that I truly fear...it is a lack of liquidity, and rapid increase in inflation/possible (multiple) Fed rate hikes....as of last August/September...one could not rule either out (although by October, it looked like the Fed finally got the message)...that was my hunch, bet...that the Fed would "come to the rescue"...and they did...but at the time, there was definently no assurance they were going to react (at least on a timely basis) at all
Additionally, at that time, it was not clear at all that Alan Greenspan was rid of the Phillips Curve, and/or understood the incredible impact technology was having in generating rapid productivity gains in recent years (allowing for lower Fed rates, lower unemployment, and higher growth..than previous models would allow)
Nor, was it clear that world crisis/Y2K would NOT be having a devastating effect on the U.S. economy. Many economists were predicting a recession for 1999 (in the U.S.)...Japan/Brazil were simply not responding to programs/stimulus....There was pretty significant fear that Y2K could actually greatly hurt hardware spending in 1999....
It was also greatly feared, that due to the stock market's horrible late July-early October, consumer Christmas spending would be atrocious, given the evaporating stock gains....
Few, if any, stock groups were going up...horrible technicals...
It took a little faith and vision to buy at those times...
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In comparison, today, I find some real positives in all this mayhem...
One, the Fed has been most accomodating...Despite the recent declines, there is still plenty of liquidity around...in fact, all around the world, central banks have lowered rates (even the stodgy Eurobank)..while it has had a muted effect on pushing world economies forward, it has cushioned the blow (of recession) in many places, but, as importantly, had the unintended (?) consequence of putting somewhat of a floor on stock prices...
Now, this would be counterproductive if it would lead to inflation (and subsequent higher interest rates, rate hikes)...but, IMO, we will not see this.....it has actually balanced some very powerful deflationary trends (in commodities, the internet, other areas) in the world...
Sorry, no time to go into my worldview on inflation here...let's just say that I believe that deflation is still a greater threat than inflation here (although the risk for inflation/Fed rate hike have increased...we are still far off...)...and that the Fed well understands these risks, and has well-balanced them..
It is clear from Greenspan's statements that he is a kind of "new era" guy...not that he has forgotten the lessons of history...but that we ARE seeing extroadinary gains in productivity (and, by extention, wealth) due to the rapid implementation of technology (including the internet) and other reasons, and that this is having a profound effect on our economy, and that, as a result, the Fed will need to react differently (if at all) than in the past.....or better said, react at different strike points...
In my mind, this is significant...it means that we will not see a "pre-emptive" Fed rate hike....but only one where Greenspan sees "the whites of inflation's eyes".....we are nowhere near a "whites of the eyes" situation....were we, I would have concern...
Right now, IMO, the inflation/deflationary forces are balancing each other nicely...not too hot/not too cold economy....despite, some uptick in demand in Asia...a great environment for stocks..
Don't forget, Europe is going the other way, its growth is slowing (another balancing factor)...although hardware sales have hardly been affected there..........and the U.S. does much more trade with Europe than Asia...
Sector rotation does not scare me..because look at the sector they are rotating in: cyclicals.....If we were expecting much higher inflation, it may have legs and this phenomena (rotation) last longer........but I believe that we will see slower/flat growth (not faster) going forward....Ironically, this dip in the stock market will probably (already has?)lowered consumer confidence, which will probably slow the economy (consumer spending)....which the bond market will probably love....which means it will go higher, and stocks will then too.....(virtuous cycle, doncha think??)
In a slower/flat growth environment, no fund manager is going to keep pumping money into companies with PEG's of 20/25, and earnings growth of 7-8% (unless its Coke or Gilette <g>)...but not Halliburton, Raychem, etc...Look at the parabolic spikes on some of the cyclicals charts.....we all know what happens to parabolic spikes, dont we?
Mutual funds managers turn rather quickly....I used to stand in awe of the hundreds of percent turnover my mutual funds used to have (when I held mutual funds!)....<G>...and curse all the end-of-year taxes I had to pay on it...............Magellan was selling all during
January-March...so, for all we know, they are ADDING to (tech) positions now...such reports are always lagging, you know...
Y2K has pretty much been a non-event for now....there is evidence on either side that says it could help or hurt sales in Q2/Q3.....Q4 may indeed take a little hit...but there is also the possibility that consumer/small business will be buying like crazy in this traditionally strong time...additionally, you've got Windows Office and 2000 coming out this year....and more "upgrades" from Intel.
Even Kumar is on the record as saying that he thinks there will be great pent-up demand for systems in the year 2000, and that hardware stocks should start benefitting as early as this fall from that....
So, I'm not concerned about the muni funds....I am concerned about overall demand in the industry...and so far, it looks healthy enough (sure it could be better, but we are still in a historically weak period here)...the muni funds will come, and go, and come, and go...
I think, it is true, that many are waiting for Dell to deliver this quarter before they buy back in.....Dell should have 40's (growth....revs, EPS, earnings) across the board, and that should be enough to get some big buying back in
As I stated earlier, the MM's will come soon enough....they have to come back to tech soon, that is where the real growth is....
Finally, we have seen big improvement in the advance/decline line lately, transports are not far from a new high....breath better, no doubt...several industry groups have advanced higher (before the last couple hours today)....Many, many technicians were saying that that is what was needed to "broaden and sustain" this bull market.....Well, we got it....so for those who believe in it, I believe they will feel more comfortable once tech stocks start heading up again (because of these better indicators)....the next rally up may not just be nifty 20....but even if it is, at least some of the other groups have (finally) moved up....we could not say this last August/September...
Sorry for the rambling...it is late....oh, BGR, makes a great point....a "flashpoint"...a stimulus will be needed to launch another tech rally...I don't know what it will be.......could start as early as tomorrow/Wednesday...(EMC/Microsoft).....Someone big will have to jump back in.........and the lemmings will follow...........but I think we are now building a base of good tech corporate earnings (in addition to putting the "sky is falling down" first quarter behind us)...IMO, we are already building a base for a turn in psychology....
It could get a little worse, before it gets better...but I can't see nearly the scenario you laid out.......Under your scenario, the sky really would be falling down.....
Good luck as always.... |
