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Bruce,
> Gerrit, your bearishness has proven valid so far, and I previously
> gave you credit for that. A vacation and a major computer crash has
> given me two weeks away from the markets and the financial news.
I am glad that you are back - I had already feared that you had
changed your opinion :-)
> I'm even more long term
> bullish on the US stock market than I've ever been.
You must be - the market is even cheaper than before.
> About a month ago in my Asian Crisis message I said the chaos
> overseas would actually benefit the US in the long run because the
> gains realized by the housing and auto sectors would more than
> offset the losses to the hi tech sector,................Since posting that message, both Chrysler and Ford have reported
> record sales and profits, and they see no downturn in site (GM's
> numbers were down, but that was because of the strike).........
What is the point if the stocks are coming down ?
> One thing Michael and I definitely do agree on is that the whole
> "global economy" mantra is extremely exaggerated, especially as it
> pertains to the US. There are some countries that are very
> dependent on foreign trade (Japan), but the US isn't one of them.
Of course the market lives from exaggerations and from future
expectations.
> The world's
> investment capital can flow from one market to the other almost
> instantaneously, which has caused havoc in the third world, but has
> been a boon to us.
Actually the money is currently going back to Asia and Europe. A look
at the USD/YEN/DEM should reveal this.
> The US is a high wage / high value added economy. Anything that
> lowers commodity prices (but keeps them higher for other countries)
> and lowers interest rates is of enormous benefit to us. This
> "subsidy" from global capital flows goes well beyond just
> commodities and interest rates, however.
Yes you are right. Lower commodity prices benefit producing
countries. The might even get lower if the US doesn't need so many of
them anymore because the economy is slowing down.
> Because of the easier access to information technology, US companies
> and individuals will be better prepared in the hi tech world of the
> future.
You might be surprised how many computers there are in other
countries. Because computers are so cheap even poor countries can
afford them. Which is why countries like India are suddenly producing
computer programs and their programers do not get 100000$/year .....
> The problems overseas are therefore essentially ensuring
> that the US will remain the pre-eminent economic power well into the
> 21st century.
The United States will not disappear I agree with you on that one.
> Just a few years ago we were all worried about how we
> would ever compete with Japan and Asia. The lead we are currently
> accumulating from cheap information technology makes me wonder if
> Asia will EVER catch up to us...
Again, cheap information technology gives even third world countries
the chance to sell services over the internet. You will be surprised
how quickly the Asians will be back. Korea (South), Thailand etc. are
all running trade surplusses. Once they have got their
corperate restructurings through they will be stronger than ever. Why
do you think there are so many Asians on American universities ? They
work harder, learn harder and make more children. The Asian market
has been crippled by overspeculation and overinvestment. The market
there had run ahead of itself - does this sound familiar ?
> As TJ, Tony Haas, and I have already said, people are still getting
> up in the morning, going to work, and pouring money into their 401ks
> and IRAs. This money is temporarily being parked by fund managers
> (who think they can time the market, even though their track record
> is terrible) in bond and money market funds. This money is
> accumulating like a time bomb, getting bigger and bigger by the day.
> Once the political situation is resolved, that money is going to
> flow back into equities, and the "upside panic" will begin.
A panic upside has never happend and will never happen because it
takes more money to get the market up than down. To get the market
down you don't even need buyers.
> You may still feel that the US market is overvalued, Gerrit, but
> this has nothing to do with valuations, its simple supply and
> demand.
I agree completely that the market will go up. The question is only
when and from which level.
> A few weeks ago you felt Russian stocks were undervalued
> because their market cap combined was less than that of Yahoo's
> alone. Since then, Russain stocks have fallen another 70% (when
> Ruble devaluations are taken into account). Supply and demand will
> always win over anyone's definition of valuation.
I did not say that Russia is undervalued per se - I said that Yahoo
is overvalued in relation to Russia - which it still is. In any case
I would still swap the whole Russian market for Yahoo. If I got my
calculations right then Yahoo has lost more market cap than the
whole of Russia since my last posting.
Yes you are right supply and demand will always win. Currently it
looks as if it is NOT moving in your favour. My original target for
this downturn was the lower 7000s. We are nearly there. This should
be a buying level according to my previous theory.
However my thinking has been shifting recently because we did not
have a full blown negative sentiment yet. I would have thought that
investors like you would have some doubts about the market after
having lost 25% on the Nasdaq and 15% on the Dow. However this does
not seem to be the case as your example shows. This leads me to
believe that we need a further shake-out before we can go up again.
> If you're expecting a protracted bear market in US stocks, be
> afraid, be very afraid.
No I do not believe that. It is possible that we could have the
shortest bear market that ever existed. Fast sell-off and then a slow
recovery - similar to 1987. I do not believe in doomsday scenarios
like 1929.
The last time when you asked me what my strategy was (market being
at 9000 I think). I told you to go 80 % bonds 20% stocks. This
strategy I would hold until end of next week. There is a distinct
possibility that we could see the market going down to under 6000. At
least I think that we will test the old lows which we made. If these
lows hold buy there if not buy much lower - go into 40% blue
chips. Reduce bonds to 40 %. The rest into t-bills. The above
strategy only applies if you are only investing in US assets - which
you propably do.
Perhaps you want to tell me your asset allocation at current levels ?
100% stocks ?
Gerrit
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