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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: Mary Baker who wrote (43299)	6/6/1999 11:33:00 AM
From: kha vu	Respond to of 120523

June 6, 1999 Feeding a Frenzy: Why Internet Investors Are Still Ravenous By LAURA M. HOLSON partners.nytimes.com

To: Mary Baker who wrote (43299)	6/6/1999 2:22:00 PM
From: Lane Hall-Witt	Respond to of 120523

What do you mean by "killing the interest rate environment"? Mary, By "killing the interest-rate environment" I meant: the Fed leaving the market with a lingering fear that there will be a series of rate hikes, as opposed to bumping the rates up once and then essentially assuming a neutral stance. The benign interest-rate environment that the Fed has created has been an important underpinning of the bull market (which is to say, it has fueled the tremendous confidence-->greed that has brought us to this point), and I think the Fed will be cautious about turning sentiment too far in the other direction (that is, it will be concerned about the possibility that it could manufacture distrust-->fear as successfully as it has generated greed). If the market views a rate hike as "taking back" one of the fall cuts, I think that'd leave the market relatively intact, psychologically. It's hard to tell until we get to that point and see what the market makes of it, though. It's definitely one of those things where we'll have to "listen to the market" and see what opportunities it makes available to us down the road. I've got no clear sense of when, or even if, a Y2K scare would begin to affect the markets. It could be a non-event, although I plan to approach the second half of this year with caution and an extremely defensive trading strategy. Right now, I'm trying to figure out what the initial signs of a coming panic would be. As you ask: how might we anticipate a Y2K-driven downturn? One thing I'll be trying to do is follow the asset-allocation models for professional money managers. If I were a money manager and felt Y2K was going to lead my clients to redeem their positions, I would start raising cash early. I've been quite struck by Jim Cramer's discussion of his hedge fund's poor performance last year, especially in the awful third quarter. The market was tanking (August-October), and Cramer said he desperately wanted to add to his positions, but clients were cashing out. This forced Cramer to sell holdings at terrible losses -- at precisely the time when he should have been a buyer, he was forced to sell in order to satisfy redemptions against his fund. He was essentially caught in a margin squeeze as clients called in their cash. I assume fund managers will be smart enough to anticipate this in advance of a wave of redemptions, and so I'm looking for them to enhance their cash positions in order to meet these obligations. (Assuming fund managers are this smart is a tough assumption to stomach, I'll admit.) I'll also be watching the AMG data for cash flows in and out of the mutual-fund industry. Barron's publishes summary data each week that I think is useful as a very broad gauge of investor sentiment. Any sustained outflows in equity holdings would give me pause. I'll be asking my banker and broker friends what they're seeing "on the front lines" -- which I imagine would be as good a source as any for detecting early signs of deterioration. If I had to lay down money on when a Y2K scare might emerge, I would probably say September or October. Historically, this has often been a weak and scary time for the markets, and so there could be enough fear in the market to provide nourishment for a good Y2K panic. Of course, the fact that it's only three months before Y2K hits also figures in my thinking. For what it's worth, I see myself holding onto a lot of cash through the second half of the year -- or at least staying in highly liquid positions -- in hopes that there will be a short but extremely sharp downturn due to rabid Y2K fears. A redemption-squeeze on the mutual funds could drive an astonishing amount of value out of the market very quickly, which might give us a tremendous buying opportunity. Think October 1987! (But pray we don't get October 1929--.)