One of the most informative posts I have read in a long time. PLEASE TAKE THE TIME TO READ IT. YOU WILL FEEL
MUCH BETTER AFTER YOU DO.
FundamentalThinker (ID#: 50330) View of the markets... 12/21/00 13:13 2748269
Here's my opinion fwiw...
The markets are now at a level that has erased the gains earned dating back to March of 1999. The question is, is that
justifiable?
1999 was a banner year on Wall St. Brokers, & the houses they work for had record earnings. To be sure, bonuses paid to
brokers were ALSO at record levels!
Y2K is turning out to be a complete bust!! Why?? The sentiment on the #### tube (ie the media at CNBC), state that this is
likely due to an impending recession.
The DOW Jones industrials reached a high of ~11700 in January/00, and a low of ~9750 in March/00, less than 2 months
later.
Volatile? To be sure, with a drop of ~13% from Y2K highs, to the current low of ~10,350. The question is, is that justified?
Well, the obvious answer is Yes. Why?
Simply because it is so.
It's the WHY, of why this is so, that should concern individual investors. Like never before in history, the financial markets
are liquidity driven. This liquidity, to be sure, has precipitated Greenspan's claims of "irrational exhuberance". Ie: It is
individual investor sentiment & the investment capital they have placed in the markets that has caused record levels of
investment & not so coincidentally also created record highs for a great number of stocks. This is proof positive that the
trading
ranges of many securities are not written in fair market values of any given security, rather, they are written in some
subjectively determined assumption based on sentiment.
Has the individual investor panicked at the sight of this pull back, and pulled his money at a loss? Highly, unlikely, imo.
Why? Because small investors have had the
methodology driven into them that they should adopt a LONG-TERM view. (Which, imo, is the correct perspective to take.)
They are smart enough to realize that
pulling your money out in the middle of a cyclical downturn would only cause their remaining invested capital to risk further
losses & subsequently, if those
investments are sold, to REALIZE their losses. Once LOST, recouperation is, at best, difficult, at worst, impossible.
Coincidentally, talk in the media, has
suggested now, (more than I've ever noticed before), that TAX LOSS SELLING is a "prudent strategy" toward capital
preservation.(lol... IT IS NEVER PRUDENT TO SELL A STOCK FOR LESS THAN FMV, assuming that the stock has a
future! Why? Simply because all stocks go up, & all stocks go down.
The intermediate level, between the highs & the lows is usually very close to FMV. Sooner or later, EVERYTHING returns
to the normal, intermediate level.)
So, if small, retail investors aren't pulling their money out, & the markets are liquidity driven, WHY are the markets
performing so dismally? The answer (imo) is
very easy to perceive. Not all investors have the knowledge, time, energy, or indeed even inclination to police their
investment portfolios. Further, the vast majority don't have enough money to "PLAY" in the markets. The result? A great
many, (I would imagine the majority), invest in mutual funds so that they have the
"perceived" added advantage of having a "professional" money manager conduct trades on their behalf. Fund managers,
who are remunerated based on capital
invested as opposed to actual earnings, control the vast majority of individuals invested capital.
So, if the individual investor hasn't pulled the capital that has led to the down turn in the markets, assuming that the reason
for declining stock prices is simply "more
sellers" than buyers, WHO must be doing the selling??
A quick look at the media gives credibility to the answer. Money managers are sitting on between $15 BILLION - $18
BILLION of YOUR MONEY! Are they justified, in seeking shettler from any cyclical down turn? Well, if they follow the same
creed they drill into retail investors they are
NOT. What will be the result of professional money managers pulling fund money out of the market to "in their theory"
shelter the risk? Well, obviously, we are
witnessing the results now. The results are decreased returns in mutual funds, & concurrently individual stocks. Obviously,
without capital invested in securities,
the only option these managers have is to buy into gold, bonds, or utilities which usually carry a far lesser return. Can they
afford to sit on this money indefinitely? NO! Why?
At some point, individuals notice that fund returns are no better than the risk free rate they can get at the bank. They will pull
their money from funds & re-invest in
the banks. Do fund managers want this? NO!! Why? Because they are remunerated based on the aggregate value of
capital invested in their fund. Imo, fund managers are walking a very fine line right now, in the hopes that INDIVIDUALS will
dump their equity investments, so that they can re-purchase them at far less than investors perceived "sentiment" value.
THAT IS HOW THEY MAKE MONEY! Buy LOW & sell HIGH!
The decreased returns affect who? The money managers are compensated based on capital invested, & under their
control. THEY RISK NOTHING, other than a bonus check for "high returns" performance. So why do they pull their money
now? The answer to this is almost comical, imo.
(Further down... )
Has Greenspan collapsed the "irrational exhuberance in the markets" statements he has made in the past? Doubtlessly,
imo. Has he stepped up to the plate to reduce interest rates, now that a recession threatens? No. How come?? Because
their is no prolonged recession forecasted. Is he
going to risk collapsing the value of the US dollar & spinning the US economy into deep recession? lol ... I hope not
because as the US dollar is now apparently replacing GOLD as THE standard by which to value all other currencies,
WHAT WILL HAPPEN TO THE PRICE OF GOLD?? (Through the ROOF BABY, imo, on ANY threat that is
perceived by Mr Market to mean that the US dollar is not stable, and therefore NOT a good basis to value international
currencies!)
Not a hope in ####, imo, that Greenspan is going to allow the US economy to free fall. NOT A HOPE IN REALITY! Or
GOLD WILL SPIKE!! If GOLD spikes, NOTHING, BUT NOTHING, WILL HELP THE INTERNATIONAL DAMAGE
CREATED IN WORLD WIDE CURRENCY DEVALUATIONS, as world wide, Central Banks have been selling off gold
reserves, in an effort to meet demand, without ANY increase to the price of gold.
When these Central Banks sell off their reserves, what will be left to support the valuation of their currency? It is no wonder
why the US central Bank has avoided
selling off ANY of its gold reserves.
IF!!!! the US economy is actually headed for recession, that literally translates a reduction in US GDP. Is THAT likely to
occur? ####, NO!! Why?
The internet HAS AND WILL CONTINUE to bolster economic performance GLOBALLY. Why? Because PEOPLE
DEMAND that
this growth take place in an effort to accomodate them. For example, the expansion of broadband technology is forcasted
to grow by 3000% of the next 8 - 10 years. 3000% Is that a number that lends itself to a SLOW DOWN? #### NO! The
burgeoning capital budgets of these companies that are facilitating this expansion do NOT imply
any recession, of any longevity, to have any lasting effect on increased efficiency of capital markets in allocating capital
resources to these expanding companies. So, why do fund managers sell off a company such as Nortel? ... Grin ... Buy
LOW!
The internet is STILL fairly new. Generally, people do not yet understand the full effects of what the internet has
accomplished. The internet has fostered
international competition like NEVER BEFORE in HISTORY! Who will be the benefactor? CONSUMERS! Why? Because
simply, the reduction of brick & mortar establishment costs will be passed down to consumers. Is that likely to generate a
recession in the generally falling price
levels? NO. Why? Because the wealth created by the vast dispersion of unconventional online retailers will help to make up
any shortfall in GDP. Some do, however, realize the effects of the internet. Some are beginning to rue the day it was
implemented! (More later...)
Does this mean that inflation looms? Inflation has ALWAYS existed (except during the depression of the 1920's), and it is
a good thing, as long as it is kept in check
& under full control. Why? If inflation didn't exist, (and this assumes that absolute stability in pricing is virtually impossible),
then necessarily, we would have
recession. Recession, is simply defined as a period of generally falling prices, and concurrent reduction in GDP. AND IT
IS BAD. Why? Because of the effect it
has on consumers purchasing habits. When prices are falling, people wait longer & longer to buy the things they WANT,
because, generally, if they wait, the price
for any given "WANT" will decrease. The effect is to compound the effects of any recession yielding a spiralling economic
downturn which in turn creates less
profits & therefore less disposable income, and therefore less purchasing power & therefore decreased consumption ...
etc...
So, Is a recession expected? Is a recession going to cause a collapse of international markets? No, No, NO! Why?
Because people's NEEDS are constant. Poeple will always NEED, food, clothing, shelter, medicine, heat, electricity ...
And now,there is a new NEED. That need
is the internet. While some may now perceive this last one not to be a "need", it indeed, will become a basic need. Why? If
not for the access to information, if not
for the access to easy communications, if not for compartive shopping, if not for managing their finances, if not for games
playing, if not for education, IT WILL BE
NEEDED FOR ALL OF THESE THINGS & MORE ... IT IS THE FUTURE you are looking at here! It will be a NEED! Why
is this
important? Because the internet, as a NEED, has FOREVER CHANGED the CONSUMPTION HABITS of people, much
the same way as the lightbulb created a NEED for electricity.
THIS NEED HAS & WILL CONTINUE TO CREATE INTERNATIONAL GROWTH UNTIL 100% MARKET SATURATION IS
OBTAINED!
So why do the markets appear to be collapsing around us when such astounding growth figures are expected? Why do the
markets appear to be collapsing when
their is more money than ever before in history being thrown at equity investments in an effort to return to individuals an
amount greater than the meager earnings you
can obtain at your local financials institution?? So, why has Greenspan increased interest rates so substantially in
1999/2000? Is it to stave off inflation? Is it to
implement an econcomic retraction?
Inflation is MATERIALLY, NON EXISTENT ... Any recession is likely to be extremely short lived. So why the monkey games
with interest rates?
The answer to that one is simple, imo.
Brokers made a killing last year because of record levels of personal investment in the markets. The same is happening
this year. SO why the down turn??
Information, as facilitated by the internet, is making individual investors SMARTER. THEY ARE PROFITING from online
investing. The results? More millionaires than ever before in history are being CREATED! Brokerage houses are being
pressured to make smarter trades and become even more manipulative! Brokerage houses are faced with increasing
COMPETITION from INDIVIDUALS! These individuals, becoming smarter & smarter
every year to the "games" that are played in financial markets ARE, IN FACT, taking profits from professional mututal fund
managers!! Do they like it??? (Big Grin
... You guess!) Are they getting ticked off that some of these INDIVIDUALS are making them look like schmucks, by
earning returns on their individual portfolios in excess of the BEST fund managers, with results in excess of 50% per
annum?? YOU BET!
You are witnessing the beginning of the END of the convention broker. You are iwtnessing the beginning of the end of the
current need for a brokerage house! Are
the houses worried? YOU BET!! So, what is their remedy?
Pressure the capital markets lower in the face of the reailty that has been the largest & longest expansion in HISTORY!
Why?? To test the resolve of those individuals to "SIT" on losses. Imo, they are betting that indiduals don't have the guts to
hold through any semi-prolonged down turn. They hope you dump so that they can reacquire ... IF YOU DON'T ... The tables
will have been turned. As powerful as these brokerage house are, as
manipulative as they can be, THEY ARE NO MATCH FOR INDIVIDUALS' CONSENSUS of opinion, when that opinion is
adopted en masse!! They cannot complete with the
absolute power of people acting in unison! That! is why these guys are beginning to rue the day the internet was born.
Here's why imo... We have a unique situation in history (a situation that will likely NEVER again be repeated!) whereby the
intenet has empowered PEOPLE to obtain the same information that was previously the exclusive domain of brokerage
houses. The result?? INDIVIDUALS are becoming smarter & more adept at handling THEIR OWN investment portfolios.
The results?? Well, the old adage "you can fool some of the people some of the time" comes into
play. Investors are aware that regulators do not have the power to police brokerage houses with 100% certainty that
"undesirable", and/or "illegal activity" will be
caught & stopped before it becomes a costly affair to the investor. So what happens next?
In the interim, before increased regulation of the industry is proposed & comes into being. (And it is coming imo.) We the
people have an opportunity...
As Investors learn the games of the markets, they begin to trade more wisely. The effect is to reduce the profitablity of the
PTB! What happens when large
brokerages begin to notice a reduction in their bottom line? Well, THEY FIGHT BACK. Most who invest in these markets
are well aware that stock prices can
be arbitrarily & unjustly increased through manipulation of its trading range. THE INDIVIDUAL acts quickly & recognizes a
unjustified run up in a stock price &
begins to short the stock. The result? The PTB lose some of their power. The reverse situation is also true. When ANY
stock is pressure BELOW its FMV,
there will be some, if not many, who will recognize this fact & invest! Since there is power in numbers, & since the vehicle
to facilitate immediate communication
exists, the SMART INVESTORS, will broadcast their suppositions in public in an effort to have those suppositions
challenged. Where there are no challenges, you can be fairly well assured that you may have reached the correct
conclusion, (and I SAY, MAY! because LIARS also exist).
The comical part is ... IF you perceptions of reality are correct, YOU WILL PROFIT! If you are profitting while huge amounts
of capital are sitting on the sidelines,
when they decide that it's "time to buy", who will be the benefactor? Hint: Buy LOW! Sell HIGH!!
The tables are a turning imo... Remember, what goes up, comes down again. What goes down also comes up!! We've
experienced the down. What do you think
is going to happen next? Justify your assumptions! If you cannot refute those assumptions, generally, you will be correct.
Take Care
Fundamental Thinker
PS ... If any of what you've read makes you feel any better about you personal investment situation. If any of this has kept
you
entertained. Please do me a HUGE
FAVOR & POST IT EVERYWHERE YOU CAN!! Individuals NEED TO KNOW ... Individuals NEED to COMMUNICATE ...
Merry Christmas everyone & a Happier New Year!!!
S&F
