December 9, 2003
For any of you paying attention to the financial markets, you probably expected this little missive. I can be so predictable sometimes, just like the market itself....Once again the script was followed to the tee. One twist this time is that the Dow made a run for 10,000 TWICE today before falling back on its heels. The Dow even made it about 3 points higher than the milestone whereas the Nasdaq couldn't manage one more full dollar after 2000.
Again, it is hard to believe that this is a market in rally mode given how much pain is underlying the indices. The dynamics I have recently described continue almost unabated. The market has achieved milestones that seemed next to impossible just seven or eight months ago (heck, you KNOW I would have called you crazy! In fact, as late as September I was even predicting to some friends that the Nasdaq would end the year around 1750 - although a rally shortly thereafter forced me to drop my bearishness all over again.). But this tease with the milestones and the selling on good news bespeaks a market that is looking for "the next big thing." Everyone is asking "what's next?" and waiting for the other guy to keep buying. The news is neither good enough nor "surprising" enough to justify the continued buying of over-valued stocks that have long since priced in what good exists in the economy. Add to this a fear of a Fed getting ready to raise rates, and you get a very wobbly landscape.
One side note - today featured the first bit of truly bad news that the market has had to digest in quite some time. Washington Mutual declared that it will lay off as many 3000 people due to a "dramatic" slow-down in their mortgage business. It would be too easy to say this is the beginning of the end of the housing boom, but we must certainly pay attention. The problem is that if the housing boom gives out before the corporate sector truly picks up the pace, we will have a vacuum into which all bullishness will get sucked out. Given that the economy so far has been goosed by unsustainable forces, this sucking sound could be quite loud (and is why even those of you who don't care about stocks should be paying attention).
I will close by saying that if you are an aggressive investor that has held on this long, you might as well keep taking your chances and hope the market is simply in a long drawn-out process of forming the next (and likely the last) leg of this upward trend. As hard as it is right now, even I am sticking to my earlier "gut feel" that the market will surprise us as to how far it will go before topping out. If you have yet to participate and want to, I suppose you are hoping that the market is about to finally get the serious correction that has been long overdue. Do not be surprised if it does not come yet again. Remember that throughout this rally, the market has shot back up from precipices just like the one it is teetering on right now. All the market needs is another excuse, likely some psychological boost, perhaps some kind of unforeseen good news to continue to make the bears, like the one lurking behind my pen, look stupid all over again... But you better believe that when this magic fails, the failure might be quite spectacular. We will have to wait and see under what conditions such a correction occurs to decide whether it will be a dip worth jumping into.