da Bears vs. da Bulls
Steven McDermott
depression gurus in 79 and 80. Remember Howard Ruff? How to prosper in the
coming depression or something like that. Who's investment strategy was
gold, and junk silver (so you could use a silver dime to buy food), and at
least a year's supply of food. Well what happened? Deficit spending saved
Teflon Ronnie from a depression.
Now all those who thought we would be fighting in the streets because of
hyperinflation, seem to think that the deficit will put us toe to toe in
the streets. They love to see the LA riots because it smacks of vindication
and they continue to stock their bunkers.
So what will happen?
I think Clinton/Congress have a year to make progress. If they don't, look
out. Most of the bears I've talked to think that there is no hope of
progress. I'm optimistic, but my portfolio is weighted towards funds that
have performed well in previous bear markets.
So netters, Bears vs. Bulls, who you gonna call?
Brent Buckner
>I think Clinton/Congress have a year to make progress. If they don't, look
>out. Most of the bears I've talked to think that there is no hope of
>progress. I'm optimistic, but my portfolio is weighted towards funds that
>have performed well in previous bear markets.
>
>So netters, Bears vs. Bulls, who you gonna call?
By any measure that I apply, the S&P500 is sufficiently overvalued
that the Wiltshire 5000 must also be overvalued.
This doesn't mean that I strongly believe that a bear market
will correct the index levels. There could be an extended
"crab" market: the index stays pretty much flat for long
enough that the fundamentals eventually catch up. It has
happened before.
--
at Bell-Northern Research; e-mail will bounce.
voice: (613) 765-2739
Canada Post: P.O. Box 3511, Station C, Ottawa, Canada, K1Y 4H7
I do not claim that BNR holds these views.
Jason Hsu
mcde...@mdd.comm.mot.com (Steven McDermott) writes:
that as the economy recovers, inflation and interest rates will rise,
decimating stocks and bonds (remember that the market performed poorly
during the economic recovery from 1976 to 1979). I believe that sometime
during this decade, short-term interest rates will rise above long-term
rates (probably topping 8% at some point). But unless there is another
oil crisis, there will not be double-digit inflation (of course, there's
always the possibility OPEC will get back together and throw us into
stagflation). I would recommend a high cash position in spite of today's
pathetic interest rates simply by default (precious metals are too risky).
Greg Marciniak
I know that I got a lot more wealthy in the 70`s as the value of my home
inflated by over 250% in 10 years.
I also know that the bond holders lost their shirts as interest rates skyrocketed
as a result of the inflation of the 70's. That is why long term rates have been so
slow to come down even as inflation is now supposed to be under control.
The bond market is exponentially larger than the stock market and has much more
clout. Especially since we are in debt to such a large degree because if the bond
market stops buying Govt debt, the U.S.Govt stops immediately. Then the Federal
Reserve would have to be the buyer of last resort-something called monetizing the debt
in which liabilities become assets. The dollar would tank and a large part of the 3 trillion dollars of so called "hot money"-money that roams the globe looking for the best
return- would be gone
Listens to whether Clinton makes conciliatory comments to the stock market OR the bond
market.
Steve Simmons
who hold money to people who borrow (at low interest rates).
> I know that I got a lot more wealthy in the 70`s as the value of my home
> inflated by over 250% in 10 years.
The people who did the best in the 70's are the ones who bought houses
with low mortgage rates. The increase in the home value was greater
than the interest paid on your debt every year.
Holding money in the '70's caused you to lose wealth.
In the 80's, interest rates were held artifically high by Paul Volcker
to squeeze inflation. We were in times of deflation and so people who
held money became much more wealthy.
>
> I also know that the bond holders lost their shirts as interest rates skyrocketed
> as a result of the inflation of the 70's. That is why long term rates have been so
> slow to come down even as inflation is now supposed to be under control.
In the short term, the bond market is the best place to be now. The reason
is that long term rates are falling fast and the older bond issues are paying
above market rates. This will not be true in another few weeks as rates
start to stabilize. I would not jump into the bond market unless you have
a quick hand.
With long term rates falling, the housing market should start to recover.
Remember the housing market has been in the dumps since '87. The housing
market tends to be on a 20 year cycle (good 10 years and bad 10 years).
Unfortunately, there is still a downward potential for housing prices
(see next paragraph).
The commodities market did well in the 70's because of high inflation
expectations. Right now, there is excess capacity throughout both the
US and the world. Places like Mexico, Korea, USSR, and Singapore did not have
an industrial base 10 years ago. Now, they are going to compete for jobs.
Therefore, they will be competing for total wealth and the US economy may be
hurt by this.
I don't know where to put money for investment. Maybe an international
real estate fund.
Thank you.
Steve Simmons
harr...@mari.acc-admin.stolaf.edu
In regards to Clinton and his economic plan, what is the general idea on
inflation? Does anyone see a drastic increase any time soon?
Greg Marciniak
only rates which can be controlled by the Fed. LONG TERM rates are market driven.
The reason LONG TERM rates dropped so slowly was fear by bondholders in the 80's.
I agree with the last assessment of long term rate futures. Down and then back up
quickly. The place to be in the 80's was not holding cash however but stocks. The
environment was not truly deflationary but this one is and will be.
The place to be now IS cash. Cash gains in value everyday that prices drop. When
the final liquidations take place of all the overextended borrowers. The people with
the cash wil be in the drivers seat.
I have been in cash in my 401k for almost two years now. Do I wish I had not been?
Of course. I didn't see ALL the cash coming out of CD's into the market like lemmings
to the sea. Some money that I have professionally managed is in selected global
companies and senior gold stocks.
I still don't really regret being early rather than sorry. I remember 1973-74 very
well. Most people today have NEVER seen a Bear Market because we have not had one since then. Jim Stack of INVESTECH says that it would take about 7 years to recover your
principal by riding out a Bear Market. Investing for the long term does NOT mean riding
out Bear Markets.
Jason Hsu
> I still don't really regret being early rather than sorry. I remember
1973-74 very
> well. Most people today have NEVER seen a Bear Market because we have
not had one since then. Jim Stack of INVESTECH says that it would take
about 7 years to recover your
> principal by riding out a Bear Market. Investing for the long term does
NOT mean riding
> out Bear Markets.
Excellent insight! It seems that everyone has forgotten that major bear
markets can happen; while everyone is concerned about the market's
vulnerability, people think that interest rates will stay low forever and
that the downside potential is no more than 10% (you don't read about
people expecting the worst bear market since 1974 in the WSJ or BW). My
regret about 1974 is that I was a baby at the time and knew nothing about
the buying opportunity in stocks.
Mike Quigley
>
>In regards to Clinton and his economic plan, what is the general idea on
>inflation? Does anyone see a drastic increase any time soon?
I'd say starting about 1995 when monitization of the debt begins.
Mike
michael
mi...@freddy.CNA.TEK.COM (Mike Quigley) writes:
That explains why the monetary base has been growing at around
10% for at least a year and recently at 29% (annualized value of
the last few weeks)???
Larry Rogers
This sounds sort of silly. You cannot be bullish on the economy and
not favor stocks over the 2 1/2 percent being delivered by savings
accounts. We are heading towards 6.5 percent 30 year rates. This
will buoy the economy and the value of stocks because the alternative
is extremely low rates.
Short term rates rising above long term rates is impossible. There
has never been such a curve in interest rates, what makes you think
that at this point in history that will change. Some have predicted a
flattening out of the curve, but expected it to come via the rise in
short term rates not the drop in long term rates.
There is worldwide pressure to keep both rates and inflation low.
Stagflation and low inflation could never yield a short term interest
rate of 6%, let alone 8%. The Fed would never raise interest rates
that steeply unless it were trying to head off inflation.
Anway, my $.02.
Larry
--
@@ Larry Rogers *
@@@ Larry_...@dg.com * Big Brother
@@@ &&& la...@boris.webo.dg.com * is Watching
@@ && Data General 508-870-8441 *
The opinions contained herein are my own, and do not reflect the
opinions of Data General or anyone else, but they should.
"Sometimes we are the windshield, sometimes we are the bug"
Dire Straits
Greg Marciniak
The following information come from services I subscribe to and have a good deal of confidence in. One is a private polling service with long experience.
The actual budget deficit last year was $550 Billion dollars from the Fed Flow Of Funds.
Over 1/2 Trillion dollars we didn't have was borrowed from around the world and spent.
And the economy was still in the crapper. Just think how black things would look if we
balanced the budget this year with all those spending cuts.
The actual unemployment rate is around 10%. 1 in 10 would like a job but may have stopped looking. The same percentage that is on food stamps. A new record. 1 in 10 Americans on food stamps.
The number of Stock Owners peaked Dec 5 and declined for 8 straight weeks - the latest figures I have. The last time this happened was Sept 1987 but there were other factors then.
Only six -yes 6- states are NOT in a recession in the U.S. Most are in the mountain states.
The actual inflation rate is 10% when the increase in state/local taxes and insurance
of all types is figured in- down from 14% last year. Feel poor anyone.
Peter Eliades of Stock Market Cycles found something very interesting. It seemed to him that the Market was trading in a very narrow range during November-trusting my memory here-
He ran his 27 year database looking for similar patterns expecting to find many. He was
"stunned" when he found only 3. All were within 5 weeks of MAJOR MARKET TOPS with the last being DEC.1972. "puts" anyone.
More later.
Aron Roberts
>
>Short term rates rising above long term rates is impossible. There
>has never been such a curve in interest rates, what makes you think
>that at this point in history that will change.
This is not impossible. As it happens, it last occurred four years ago.
For a brief time in late 1988 and the first half of 1989, short term
US interest rates (as reflected by 90-day US Treasury Bills) were yielding
rates that were identical to, and for some of the time during this period,
actually slightly higher than long-term US interest rates (as measured by
30-year US Treasury Bonds). Both rates travelled in tandem in roughly
the 8-9% range for about nine months.
As John Bogle, Chairman of The Vanguard Group, pointed out in a recent
newsletter, "In this context [of the current, steep yield curve], it is
difficult even to imagine that long and short rates were at virtually
identical levels during all of 1989." He also noted that the yield curve
as of early December 1992 had "a 'positive slope' that is the steepest
in our nation's history." (Of course, with the recent and rapid fall in
the long bond rate, the yield curve has subsequently flattened somewhat.)
--
Aron Roberts Workstation Software Support Group . 221 Evans Hall
University of California, Berkeley, CA 94720
ar...@garnet.berkeley.edu . ucbvax!garnet!aron
(510) 642-5974 . fax: (510) 643-5385
Maurice E. Suhre
It depends on what you define as "short term". The term "inverted
yield curve" has been in use at some time in the past that I can still
remember :-) Perhaps in the early 80s.
--
Maurice Suhre
su...@trwrb.dsd.trw.com
Greg Marciniak
It is an overlay of the S&P 500 and the Govt's Coincident Indicators.
The Coincident Indicators reflect actual economic activity.
These have tracked very closely for decades until 1985. From 85 to 87 the S&P shot upward
to well above the Coincident Indicator level. The Crash in 87 crashed right down to the level of the Coincident Indicators...
Starting in 1989, the S&P 500 index kept right on going up while the Coincident Indicators
tailed off. The disparity now is about 2 1/2 times greater than it was in 1987. If this
tension were to be resolved. The economy would have to expand DRASTICALLY or the S&P 500
would have to be at about 220 not 450.........
Food for thought.....