Don't get faked out!!!

By Duru

August 26, 2001


This is good commentary on the latest stock action! It matches my thoughts EXACTLY...and saves me some writing time.

Here are my additional thoughts:

It seems to me that while I can hold to my 2002 recovery scenario, the economy is going to recover even more sluggishly than even my skeptical self was thinking. Let's say a slow crawl for at least the next 18 months. It could get worse because we have a knucklehead Republican in office who really cares more for big biz than us little fry. We also have a housing boom and consumer spending boom that has not busted yet. When these bust, we will know we are finally approaching the real end of this downcycle. The long-awaited decline of the dollar is also a mixed blessing: brightening the prospects for exports (as long as our international partners still have $$$ to buy anything themselves!), but making things more expensive for American consumers just as we finally decide to start saving some $$$ for a rainy day.

Back in April I declared that the markets had finally broken their long-term downtrends. What has ensued since is that the markets have gotten trapped into NEW downtrends. Here is how I see it:

S&P 500 (500 biggest companies in America): never broke its overall downtrend.

DOW (30 "representative" industrial companies): still stuck in the same trading range that started in the beginning of 1999. No hope in sight for this index.

Nasdaq (tech companies and other smaller cap companies): has established new and ugly-looking downtrend

There are other indices you could take a look at. For instance the Mid-caps have been flat-line for a while, and I hear the small-caps have been in a minor bull market ever since last year's crash. You can also find some different (and better) behavior amongst SOME financials, consumer cyclicals, and drug/health care.

We are now stuck in an awful conundrum. The markets stink short-term and interest rates are so low our fixed income investments look terrible compared to inflation (Greenspan will cut at least one more time and may keep cutting until the economy turns around). Fixed-income investments are close to netting ZERO now. Conservative investors continue to stay wise to stay out of the markets until the economy shows REAL signs of improvement (rather than signs of bottoming). More aggressive investors should be watching the market NOW for excellent bargains for the long-term. If Friday's rally continues into September (which I doubt), the October crash scenario becomes extremely likely. If September turns out as horrible as last year (and years before that), October will simply feature continued carry-over selling. In other words, there is NO RUSH to do anything, be selective, and be heartened that we are probably experiencing the final worst days/months of this market.

These CONTINUE to be treacherous times in the markets! So be careful out there!

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