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It is interesting that we all have very differing opinions about that state
of the market. I often think about Edgar Peters statement in one of his
Chaos books. He states that markets tend to be well behaved when the short
term speculators sell to the intermediate traders who then sell to the long
term investors. Chaos in the markets occur when long term investors fail to
not buy on dips due to their belief that the market (or security) is no
longer a bargain. A major gripe of the Bears has been the rush by others to
buy on dips. This long term investor (me) is no longer buying dips.
Probably if I were in my 30s or 40s I probably would be more aggressive in
my investment outlook. But this month the government put me under Medicare
and that was like a splash of ice water. Makes one ponder the future a bit
differently. Oh well, I'm off on my daily three mile run.
Marlowe
----- Original Message -----
From: <Jpilleafe@xxxxxxx>
To: <marlowec@xxxxxxx>; <realtraders@xxxxxxxxxxxxxxx>
Sent: Saturday, February 26, 2000 11:34 AM
Subject: Re: [RT] Re: Market Direction-Dow/S&P
>
> In a message dated 2/26/00 10:05:52 AM Pacific Standard Time,
> marlowec@xxxxxxx writes: << Some added comments:
>
> MC: 1)- Another aspect that needs to be mention is the twenty some odd
> year low
> level of cash reserves in mutual funds. If we have mass exodus from
mutual
> funds the mutual funds will have to sell stocks to cover redemptions.
This
> can only make a bad situation worse.
>
> JP: Interesting post,...I'd like to reply. Decling cash reserves in
mutual
> funds is a trend in force for years and is the result of factors
> including...a.) Funds having style specific mandated charters and less
> flexibility to asset allocate,...so an equity fund is invested in synch
with
> it's bogey,..etc. b.) Mutual funds having external lines of credit
> established to handle periods of heavy redemptions,..etc. c.) More
stable
> and predictable inflows from 401-k, Pension Plan contributions,..etc.
> Basically this has been a useless indicator for years. Of more importance
is
> money flow into equity funds. Currently there is a ton of cash on the
> sidelines from people like yourself that think they are going to step in
at
> some substantially lower level. (Witness Consensus Weekly Survey 27%
Bulls
> this week...the lowest level since late October 1999,....a great time to
be
> buying). Look back over the past seven years and find a time when the
market
> accomodated such a perspective.
>
> MC: 2)- Margin debt is out of sight. Since most of this margin is long,
> margin
> calls will cause forced sales like 1 above.
>
> JP: Most margin today is used for individual equity purchases,..including
> day traders and brokerage accounts. Margin for mutual fund investments
has
> actually declined (per Phil Roth of Dean Witter) as money has left mutual
> funds in favor of
> individual equity and day trading accounts. Again,..a trend in force for
> many months,..to date has not been effective in predicting anything.
>
> MC: 3)- The very high valuations cannot be rationally justified.
>
> JP: What very high valuations,..the handful of high fliers or the bulk of
> the NYSE issues which are likely seriously undervalued? This notion that
> prices are too high,..or cannot go higher has burned the bears for years.
> The market is a discounting mechanism,...the collective wisdom of all the
> players. By what standards or measures can you say that these valuations
> cannot be justified?
>
> MC: 3)- continued.....About eight years ago when the Japan market was so
> high, I believe 45,000, I recall all the experts justified high
valuations
> due to high growth and because Japanese companies were big holders of
their
> competitors stocks. Thus there was a big cushion supporting the market's
PE
> of 70. A year or two later
> their market fell to 15,000! Today the justifications for the US high
> valuations is that we have entered a "New Era" and a "New Paradigm
Internet
> Economy." That kind of talk is scary to me.
>
> JP: Conditions here in the U.S. in no way resemble what happened
> in Japan in 1989. Comparisons are simply not appropriate. Ask yourself
if
> major corporations in the US (GE, Walmart, Pfizer, etc) would sit by while
> their
> stocks declined by 66% from here,...not likely....they would step right in
> with cash and buy back shares in the open market. We are in an globally
> expanding economy,..it's very hard to be bearish from currently depressed
> levels. Scary talk (new pradigm, new era) may be a positive. As long
as
> disbelief in the global technology revolution exists,...the markets will
> likely work higher.
>
> MC: With all this said, my own investment policy is capital preservation.
I
> stepped aside in early January and greatly reduced my US equity market
> exposure. Later this year when the time is right, I can pick up the
> bargains with my money market reserves.
>
> JP: Good luck...not a bet I would be willing to take,...not from 1333.33
> S&P500 cash level (key fibo retracement level of the Oct 1999 to Jan 2000
leg
> up).
>
> Regards, JIM Pilliod
>
>
>
> PS: I got my first share of stock in 1943.
> >>
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