AI
Saturday, July 27, 2002 10:19:20 AM
Hi Jennie, They talked about a "soft landing" for the economy for a long time and actually, as recessions go, that is what we got. This really wasn't mirrored in the NASDAQ index. It was pumped so full of hydrogen gas that it quickly rose. Then in Hindenberg fashion came down in flames after getting too close to the sun. How's that for a mixed metaphor???
Lucky for the Hindenberg passengers, I don't believe there were any deaths. That's probably true for the NASDAQ investor. However that doesn't mean it didn't scare the Begezus out of everyone involved!
I can understand the prognosticator's thoughts on it being a 'lumpy bottom.' There will be many individual stock resistance points along with cumulative major index resistances to overcome in the future. Fits and starts probably will describe what will happen.
I watched Lou Rukheyser on CNBC last night for the first time since his move from PBS. I was pleased to see the format hasn't changed too much. Ralph Acampora (SP?) a long time guest was there. I believe he's more from the "technical" camp than fundamental. He felt that the rising volume and volatility was describing the week's events as a bottoming process. Most of the other guests seemed to agree.
There was some debate about where money would first flow into the market place. I guess this is natural. Opinion ranged from the return of money to the Tech sector leaders to it flowing to consumer staples and possibly cyclicals. The case was made that the Tech stocks were possibly the most over-sold. The other side felt that "real" earnings of consumer stocks although not as exciting were none-the-less something one could bank on.
The main guest I have to congratulate for stating quite clearly that "Value" has been over-bought. He cautioned investors in those value funds and stocks to be quite cautious and to consider re-allocation to some of the over-sold areas. In my newsletter and here in recent times I've mentioned the same thing. To a much smaller degree, the value end of the market has been pumped like the growth side had been up through 2000.
We think about sector rotation as being from one business sector to another. However, we have to only go back and review the statistics leading up to the 2000 bubble to learn there had been a huge pendulum swing leaving value behind, forsaking it for the rah-rah (to differentiate it from the Go-Go stocks of the '60s) growth stocks. I don't have the statistics at hand, but there had been a couple of years when the "average" stock had declined significantly even while the indexes were piling on record rises. The indexes were weighted for the high cap companies which were also the growth companies. Investors ignored and took their money out of the huge Value side of the market. Those companies capitalizations shrunk so they weren't represented well in the indexes.
One year the NASDAQ rose over 80% even while the average stock on the exchange fell in price. That's when the pendulum reached it's furthest swing to the Growth side. Then, as techs crashed and the NASDAQ dropped 75%, Value was all the rage. It had become a two sector market at the extremes - the Growth and Value Sectors.
Pity the poor soul who arrived late to the Value party. If that person doesn't move deftly the loss will be a compounding of the problems of staying late at the Growth party. Now that we're starting to see some bottoming activity, I am guessing we'll start to see some more normal business sector rotation. This will show up as money quickly flows into these segments of the economy that first show signs of recovery, then exit and head for the next sector. Let's call this "Gold Star Investing."
In Gold Star times, just like in elementary school, gold stars are handed out for good behaviour and performance. Whatever the performance catch-word of the week is, those business sectors that do well in that area will get their stars and money will rush that way. With so much money chasing individual business sectors, they tend to go from over-sold to over-bought very quickly. And, once rewarded, they can just as quickly be abandoned for the next gold star winner.
Needless to say, under such a scenario, AIM will be very happy. It will be there as each sector in turn has its five minutes of glory, proudly displaying its latest gold star. Remember, AIM was there to support that sector when it was unloved. It will be paid a nice reward for its loyalty.
I guess I had too much sleep last night! Sorry to get so verbose!
Best regards, Tom
Lucky for the Hindenberg passengers, I don't believe there were any deaths. That's probably true for the NASDAQ investor. However that doesn't mean it didn't scare the Begezus out of everyone involved!
I can understand the prognosticator's thoughts on it being a 'lumpy bottom.' There will be many individual stock resistance points along with cumulative major index resistances to overcome in the future. Fits and starts probably will describe what will happen.
I watched Lou Rukheyser on CNBC last night for the first time since his move from PBS. I was pleased to see the format hasn't changed too much. Ralph Acampora (SP?) a long time guest was there. I believe he's more from the "technical" camp than fundamental. He felt that the rising volume and volatility was describing the week's events as a bottoming process. Most of the other guests seemed to agree.
There was some debate about where money would first flow into the market place. I guess this is natural. Opinion ranged from the return of money to the Tech sector leaders to it flowing to consumer staples and possibly cyclicals. The case was made that the Tech stocks were possibly the most over-sold. The other side felt that "real" earnings of consumer stocks although not as exciting were none-the-less something one could bank on.
The main guest I have to congratulate for stating quite clearly that "Value" has been over-bought. He cautioned investors in those value funds and stocks to be quite cautious and to consider re-allocation to some of the over-sold areas. In my newsletter and here in recent times I've mentioned the same thing. To a much smaller degree, the value end of the market has been pumped like the growth side had been up through 2000.
We think about sector rotation as being from one business sector to another. However, we have to only go back and review the statistics leading up to the 2000 bubble to learn there had been a huge pendulum swing leaving value behind, forsaking it for the rah-rah (to differentiate it from the Go-Go stocks of the '60s) growth stocks. I don't have the statistics at hand, but there had been a couple of years when the "average" stock had declined significantly even while the indexes were piling on record rises. The indexes were weighted for the high cap companies which were also the growth companies. Investors ignored and took their money out of the huge Value side of the market. Those companies capitalizations shrunk so they weren't represented well in the indexes.
One year the NASDAQ rose over 80% even while the average stock on the exchange fell in price. That's when the pendulum reached it's furthest swing to the Growth side. Then, as techs crashed and the NASDAQ dropped 75%, Value was all the rage. It had become a two sector market at the extremes - the Growth and Value Sectors.
Pity the poor soul who arrived late to the Value party. If that person doesn't move deftly the loss will be a compounding of the problems of staying late at the Growth party. Now that we're starting to see some bottoming activity, I am guessing we'll start to see some more normal business sector rotation. This will show up as money quickly flows into these segments of the economy that first show signs of recovery, then exit and head for the next sector. Let's call this "Gold Star Investing."
In Gold Star times, just like in elementary school, gold stars are handed out for good behaviour and performance. Whatever the performance catch-word of the week is, those business sectors that do well in that area will get their stars and money will rush that way. With so much money chasing individual business sectors, they tend to go from over-sold to over-bought very quickly. And, once rewarded, they can just as quickly be abandoned for the next gold star winner.
Needless to say, under such a scenario, AIM will be very happy. It will be there as each sector in turn has its five minutes of glory, proudly displaying its latest gold star. Remember, AIM was there to support that sector when it was unloved. It will be paid a nice reward for its loyalty.
I guess I had too much sleep last night! Sorry to get so verbose!
Best regards, Tom
Port Washington, WI 53074
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