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On Monday,the US Stock markets should open about 12% lower to get in line with Europeanmarkets. Our gut feeling is that, then, there will be some stabilization andpossibly an attempted rally that will ultimately fail.
Regulatorsare trying to manipulate the market and that will only trigger highervolatility. The SEC late Friday waived certain corporate stockbuyback restrictions. Companies would be able to buyback their stockwithout meeting ordinary volume and timing restrictions and without incurringadverse accounting consequences. The loosened rules take effect Monday and willlast throughout the week. Under normal circumstances, a company is barred frompurchasing its stock in the opening transaction or in the last 30 minutes oftrading. And single-day purchases cannot constitute more than 25 percent of thetrading volume. The SEC chief hinted that short-selling would be restricted.This is manipulation and usually it does not work for long.
Longerterm, the bear market will continue. The difference is that we will enter afull-fledged recession and hopes of a possible recovery have been postponed tothe second half of 2002. That leaves the Stock Markets plenty of time to loseabout 25%. Of course, we had no idea that such shocking events were in thecards, but it has always been our scenario that we have repeated over andover: the market should selloff until it reaches a level where future returns could be back in double digits (seenewsletter dated 08-24-01 in our Web site archives).
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