Now watch for the upside surprise
November 13, 2003
I have been remiss in updating you all on my changing attitudes on the market. I still do not have much time to wax poetic as I would like, but here are my few thoughts for now....
As bearish as I am about the sustainability of this bull run (and the good economic news), the simple fact for now is that the economy has long-since stabilized and continues getting better. The market has priced in a lot of the goodness (and more!) and is naturally hesitant now. This explains the very slow progress we are witnessing now, and even the constant selling on good news. But the good financial news that DOES continue to seep through the haze seems promising enough to suggest to me that the market is going to surprise a lot of people to the upside. More and more CEOs are finally exuding confidence in the prospects of their companies, and we are finally seeing signs that companies are putting money to work and investing in their operations. We should look back in the not-so-distant future and wonder why we were even worried about Nasdaq 2000 (and Dow 10,000?). I remain amazed at the number of skeptics and pessimists that are still trying to talk this market down. Misery loves company, but the bear camp is still too big for me to believe that we are seeing the market make a top right here.
As usual, risks abound. Many have not changed all year. The latest thing scaring the bears (or the fair weather bulls like myself!) is the specter of the Fed raising interest rates as the economy improves. The Fed has made it clear that they will err on the side of economic weakness and will keep interest rates low for some time (seems the betting tables are guessing at March for the first hike). I take them at their word on this. I imagine that when the Fed does make that first rate hike, the market will go into convulsions, but it will be buyable, even if for a short to intermediate trade. Just as buying stocks as soon as the Fed started dropping rates in 2001 failed miserably, I suspect that automatically selling as the Fed raises rates will fail just as much as selling has failed throughout most of 2003. Interest rates are so low right now that it should take a lot of rate hikes before the economy truly cools down from the moves.
This has been some year, and we should still see some fireworks ahead. As the market bottomed from the panic over the incursion into Iraq earlier this year, I suggested that speculators should go ahead and hop on the market's rising tide. After the market ran further and faster than I was imagining, I got more cautious, first around May, and then got seriously worried in August - I even suggested selling everything but the kitchen sink! But after Sept and Oct failed to bring any serious correction to buy into, it became clear to me that the market is simply not going to let us in on the cheap for now (unless you are really good at doing your research on individual stocks). It will be hard for investors to put fresh new money into this boiling cauldron, but speculators and aggressive-types can still find plenty of octane to light a few fires.
Again, I am again not going to try to call the inevitable top to this bad boy, especially since it tends to blind us to the opportunities that do exist out there. But I will re-iterate that my longer-term view remains bearish (for all the litany of reasons you have heard too many times from me before!). In other words, I still have not been convinced that we have launched into a new secular (meaning sustainable) bull market, but instead we are enjoying a cyclical bull market that will at some point in the near future give way to the kind of selling we saw during the last bear market. We should enjoy the good news for what it is for now as long as we do not completely tune out the caution of the bears. So, buyers beware and be careful out there!
Be careful out there!