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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: MythMan who wrote (44537)	6/2/1999 12:05:00 PM
From: John Pitera	Read Replies (2) \| Respond to of 86076

Don Hays has a great write up this week wheatfirst.com That catastrophe of last year pushed the Federal Reserve into forcing the largest financial institutions to come to the hedge fund's rescue, as junk bonds became shunned, and the spread between their yield and the Treasury bond yield exploded by an additional 200 basis points in the matter of weeks. When those "experts" were playing that spread based upon all historical examples, they held massive leveraged positions of the junk, and shorted huge positions of government bonds. Based upon past examples, that same trap will not be the one that comes around again. We wish we were smart enough to predict what the next one will be. All we know is that with the S&P 500 now trading at a price/earnings ratio above 30, our valuation model that compares those 500 stocks' earnings yield based upon their expected earnings for the next 12 months to that of the 10-year Treasury note, shows the S&P 500 is 33.63 % over-valued. With that level of over-valuation, it doesn't take much of an accident to bring the house of cards down. When I respond to requests of my expectation for the low for the Dow Jones Industrial Average in the next year, my answer of 7400 seems to shock those requests almost to the point of disbelief. But in truth, that would only take the inflation of the last eight-month's gains away. To refresh your memory, if we did erase the gains of the last 8 months, it would take the S&P 500 from its recent high of 1,375 back to the low of 923 that was made on October 8, 1998. That would be a 33% decline. For the more speculative NASDAQ, an erasure of the last 8 months would take that index back to its low of last October 8, 1998 at 1,357. That would be a decline of 49%. UGH!! I know, that seems unreasonable, but if Greenspan decides to take away the gluttonous orgy of excess money supply that he threw at the world last year, it would certainly bruise a lot of the new geniuses that this bull market has produced. But why would he do that, you say? One very obvious reason is the recent strength of the dollar, and the burgeoning trade deficit. Recent comments do indicate that he is growing concerned with the trend. Last week the Fed's dollar index moved right back to those highs of last August, right before the climactic market decline. The higher it goes, the more dollars move away from our shores to potentially unstable sources