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| Prices as of: November 16, 1998 |
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Gold: $296 |
30-yr Bond: 5.24% |
You bet I'm still a bear. Even if the market smashes through to new highs I won't become a bull at this point. I have no desire to lose money on sucker bets. As you know, I'm not afraid of risk - but only when things look really cheap. Sure, you can always be wrong about how cheap something can get, but it's important to at least have the odds on your side. This month is the Quarterly Open Positions edition. The print in that section is a little smaller, there are a lot of statistics, and the things I say there only change slowly. But go through it closely; it's a good overview. I suspect you may want to investigate the unusual new bank I'm investing in. And I also suspect you've never seen before some allegations I make against the IMF.
As you read this, I'll be back in New Zealand, looking at property. I'm not particularly afraid the Y2K bug will cause a collapse of civilization in January 2000. But I am afraid it could cause a lot of people and groups to get fairly wild and woolly. That would cause the U.S. government to step in, and the situation could get completely out of hand. Maybe, or maybe not. Still, I'd rather watch it happen on CNN from a safe distance than out my front window.
Make Terror Your Friend: Part 2
I'm pleased the DJIA hit at least a temporary bottom on Aug. 31 at 7539,before rebounding. The question at this point, of course, is what's next. I'm of the opinion that this most recent bottom bounce is nothing more than a classic sucker rally. It's an old, but entirely accurate, saying that the purpose of a bear market is to return capital to its rightful owners.
The volatility of the market really doesn't faze people much anymore; it's been a feature for the last several years that's mainly presented buying opportunities, so people think it's a good thing, a friendly feature of the cosmic landscape. It was pretty much like that in 1929. After the market hit a top of 382 on Sept. 5, 1929 it weakened. But even the Black Thursday crash of Oct. 24 only took it down to 300. At that point, the bankers and the other "big boys" were known to be actively at work to kiss it and make it better - just as the IMF and the Fed, among others, are today. A lot of stocks were down 50% by then; it looked like a great buying opportunity to latecomers. The really famous crash, Black Tuesday, Oct. 29, took the Dow down to 230. Grim. But the market came all the way back to 294 by mid-April of 1930. For a while you still might have looked OK even if you had bought during most of 1928 or 1929, when the market was fluctuating between 260 and 300.
But by mid-April of 1931 it was 165. And mid-April of 1932 it was 63. And it bottomed finally on 1933 at 40. Could something like that happen again? I don't see why not. If anything, the foundations of prosperity are much shakier than they were in the '20s. The government is far bigger and more intrusive. There's far more debt. It's been a far longer and steeper bull market - perhaps the greatest in history. The currency is now only a floating abstraction. The world military situation is more dangerous. There are dozens of things that are working against the market. It was one thing if the world could get nasty when stocks were yielding 6%, selling at P/E's of 8-1, and about book value. It's something else again if at today's levels.
Of course lots of things are better, too. But almost everything that's improved is in the realm of technology. And a high level of technology has nothing to do with whether an economy is stable, or the financial markets are in a mania. The one thing that's certain about markets is that bulls follow bears, and bears follow bulls, in infinite series. Most people no longer believe that, it seems.
I hope I'm dead wrong, the bull market resumes, and it turns out recent events were just one more buying opportunity. But I don't think so.