Forum Archive Index - July 2001

["Francis Leung" <francis.leung@paradise.net.nz>]

Hi Geoff,

What is the best practical way to preserve asset in your scenario then?
--
Francis Leung
----- Original Message -----
From: "Geoff Brown" <brownz@xtra.co.nz>
To: <sharechat@sharechat.co.nz>
Sent: Sunday, July 08, 2001 8:53 PM
Subject: Re: [sharechat]US Market


> Hi Mike
> I know that I am a dumb cockie but  you seem to state facts as
truths......
> would you believe me if I suggested that we are in the most inflationary
> times in history and you would be quite happy to say sell goods and
services
> to the US and get paid by money with no backing ..an electronic flash
.Would
> you believe me if I showed you evidence that the gold price has been
> manipulated by groups associated with the US.I feel I am trying to teach
the
> teacher but I will attempt to do that over time because I believe in what
I
> have posted.    Argument for the bear case:
>
> Following the 1982 low the Dow embarked on super-bull cycle, gaining 1400%
> in the eighteen years to early 2000.
> When bubbles break and stocks enter a bear market, it goes through three
> stages. We have gone through the "Denial" stage and have probably just
> finished the "Concern" stage. The market usually takes a breath in between
> stages and we could easily be in that period now. The last phase of the
bear
> market is by far the most painful---it is the "Fear and Capitulation"
stage.
> That is when stocks are sold indiscriminately and panic sets in as stocks
> drop to levels that make them very compelling purchases.
>
> NASDAQ long term trend line stands at around 1750.The Nasdaq PE ratio was
> under 20 at both the 1987 and 1990 market troughs and was at 30 times as
> late as 1995. The index would have to decline by another 50% just to get
> down to a still richly valued 60 times earnings, a level it exceeded for
> only a brief period in the 25 years between 1971 and 1996.
>
> Bear markets are typically punctuated by counter-trend rallies that are
> generally mistaken for major reversals.January was evidence of this.
> Overconfident from years of soaring markets, investors have yet to come to
> grips with the new realities. Investors do not recognize that we are in a
> recession until the unemployment rate rises significantly.
>
> An astounding 61% of investment advisors are now bullish according to the
> Investor's Intelligence Survey. At prior market troughs the percentage of
> bullish advisors was always under 30%, and often under 20%.Another key
> aspect to consider in evaluating the potential depth and duration of this
> bear market is the nature of the massive bubble that preceded it. The two
> major equity market bubbles of the twentieth century were the US super
bull
> market that ended in 1929 and the Japanese super bull that peaked in 1989.
> In both cases an easy monetary policy that saw interest rates fall to near
> zero simply did not work in rescuing either the market or the economy.
When
> financial bubbles burst they are extremely resistant to being repaired by
an
> injection of liquidity.The pace of growth is slowing down rapidly in
Europe
> and Latin America while Japan is heading into yet another recession with
> their short-term interest rates already at one-quarter of one percent and
> their budget already running huge deficits. Not since 1974 has the world
> endured a simultaneous economic slowdown of these proportions.
>
> CEO business confidence is the lowest since 1980.
>
> The Small Business Confidence Index is the lowest since 1993.
>
> The Purchasing Manager's Index (PMI) for manufacturing is the lowest since
> 1991.
>
> The PMI News Orders Index is at its lowest since 1991.
>
> The year-to-year change in the leading indicators is the lowest since
1991.
>
> Operating rates as a percent of capacity is the lowest since 1992.
>
> Medium and heavy truck sales are the lowest in more than 13 years.
>
> The year-to-year change in non-tech industrial production is the lowest
> since 1991.
>
> The year-to-year change in temp employment is the lowest since 1991.
>
> Initial unemployment claims are running at the highest rate since 1991.
>
> Employee layoff announcements are the highest since at least 1992.
>
> The consumer savings rate is negative and at the lowest level ever.
>
> The year-to-year increase in the CPI for energy is higher than at the time
> of the Gulf War, and is the highest since the energy shortages in 1981.
>
> The percentage of banks tightening their standards rose to 59.7%, the
highes
> t since the survey started in the second quarter of 1990, when the economy
> was in recession.
>
> Wall Street assumed in January, for no particular reason that the worst
was
> now over and that business would pick up from this point.There is not a
> shred of evidence to support this view and an awful lot of evidence to
> indicate that both technology and the economy are in a serious downturn
with
> no reversal in sight.
>
> Ciena's report was similar to the proverbial needle in the haystack, and
> will most probably be followed by a continuing barrage of negative reports
> and earnings downgrades. In our view the sudden jump in Nasdaq over the
past
> two days is based on false hope, and will not last.
>
> The current stock market rules are relatively easy to remember. Bad
economic
> news is good market news since that causes rates to go down. But when bad
> economic news reduces the revenues and earnings of individual companies,
> that is bad market news. However, if that is the last of the bad news,
that
> is good market news. If interest rates really go down a lot, that is good
> market news because it leads to a second half recovery, but in order for
> that to happen, the economy has to get even weaker, and that could break
> business and consumer confidence, resulting in a major market downturn. Is
> this clear so far?
> This is the ridiculous but serious situation that Alan Greenspan was
facing
> as he gave his Senate testimony. Instead of being consoled that the
economy
> was not as terrible as some perceived, investors became concerned that
what
> Greenspan was really telling them was that he would not bring interest
rates
> down as fast or as much as they desired.
> According to First Call, since January 1 tech earnings estimates for the
> first quarter have dropped from plus 4% to minus 14%; for the second
quarter
> they declined from plus 2% to minus 13%; and for the third quarter from
plus
> 11% to minus 2%. When the stubborn optimism of investors finally gives
way,
> the markets will likely cave in, and there seems to be little the Fed can
do
> to prevent it.
>
> It is the good news that has been priced into the market in the form of
> continuing Fed ease and a coming income tax cut, while future earnings
> disappointments are being written off as inconsequential. Investor's
> intelligence has reported the highest percentage of bulls among investment
> advisors in 14 years. The ISI Institutional Equity Manager Survey shows
the
> highest position in equities since the survey began over seven years ago.
> Equity mutual fund cash as a percentage of assets is in the low end of a
> 24-year range. The price-to-earnings ratios of the major averages, which
are
> also indicative of investor sentiment, remain at extremely high historical
> levels.
>
>
>
>
> Since 1998, truly unprecedented money and credit expansion have been only
> briefly interrupted by respites of moderation. Yet, for a system
hopelessly
> addicted to extreme monetary excess, moderation simply doesn't work. This
> fact is a best-kept secret and something Wall Street and the Fed would
> prefer not to contemplate. Why do the GSE's and Wall Street create credit
so
> aggressively (the force behind exploding money supply)? Because it is
> precisely the requirement for sustaining the Great Credit Bubble.
>
> The major issue today is not NASDAQ, an inventory overhang, or the
unfolding
> severe capital equipment slowdown.
>
> The fact of the matter is that the technology bubble is but one very
> critical component of the Great U.S. Credit Bubble. The key yet
> unappreciated point to recognize today is that years of reckless credit
> excess have created unprecedented leverage throughout the U.S. credit
system
> and extremely weak debt structures.
>
>
>
>
> "The boom can last only as long as the credit expansion progresses at an
> ever-accelerated pace. The boom comes to an end as soon as additional
> quantities of fiduciary media are no longer thrown upon the loan market.
But
> it could not last forever even if inflation and credit expansion were to
go
> on endlessly. It would then encounter the barriers which prevent the
> boundless expansion of circulation credit. It would lead to the crack-up
> boom and the breakdown of the whole monetary system." Ludwig von Mises,
> Human Action, 1949
>
> This is the most overvalued market in history except for last year's peak.
> Nasdaq still sells for over 100 time earnings and the S&P 500 for 25
times.
> This is not only far above any PE ratios seen at prior bear market
bottoms,
> but is also far higher than at any prior bull market top. Second, we never
> even came close to the degree of pessimism that existed prior to the start
> of past new bull markets, or raised the sideline cash that is a normal
> prerequisite of a new round of stock market expansion.
>
> But hey,keep buying your rubbish stocks......
>
>
>
>
>
>
>
>
>
>
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