|
PureBytes Links
Trading Reference Links
|
The takeaway from the preceding email was that everything written about in
the newspapers and the annual reports of the mutual funds of the time and in
that sector / country made it look very rational - even though they turned
out, in the end, to be counter-productive to the investor.
This email attempts to capture, through a couple of examples, how that
played out within our shores and in our markets.
Money flowed out of Asia into Latin America in 1998.
It is counter-rational to me that a money manager would prefer to invest in
countries with weaker balance sheets, bigger structural problems, higher
degrees of opaqueness in corporate accounting than those countries that were
being vacated.
It is counter-rational to me that the money manager would choose to chase
flashy - and risky - biotechs even as the safe haven of growth investing in
a rising interest rate environment is old line pharmaceutical companies.
It is counter-rational to me that the logic for tech valuations in recent
months has been "in rising rate environments, the only growth we see is in
tech, and within that, in the internet".
Since 1998, money also flowed into "safe haven" USA.
Safe haven first meant buying whatever went up for the sake of being part of
that going up process. Hence tech. Then Value. Then biotechs and tech. Then
old biotechs (or pharma, whatever be the name). The macro funds took
trend-following speculation to a refined degree - once trends were in place,
they remained in place by sheer brute buying of that what went up for the
sake of its going up. COT histories of 1999 are replete with examples of
commercials being caught short at awkward moments and awkward prices, even
as large speculators have been net long all the way once the trend was in
force.
You would recall the stunning analog correlation between the charts of Crude
oil and i2 technologies. Both went up on less than fundamental reasons. Both
came down with less than fundamental causes.
Is it a coincidence that old line medicine companies bottomed the SAME DAY
as new line medicine companies topped this March - after topping in the same
week as the Biotechs broke out of consolidation to ramp up parabolically to
new highs?
I don't think so. I think it is indicative of money flowing rather
desperately - and indiscriminately - into assets where growth of asset value
was quickest, soonest, and easiest to emulate since the whole money manager
world was doing it.
Gitanshu
Attachment Converted: "f:\eudora\attach\drgbtk.gif"
|