... use rebound in stock indices to quit markets and go long on precious metals
The obvious question investors are facing now is whether the current
stock market rout around the world is similar to the 1998, 1990 or 1987 corrections, which all provided great buying opportunities or whether we just completed the first leg of a more severe and longer lasting bear market. I can sympathize somewhat with the goldilocks’ crowd view that the current decline does provide a buying opportunity because the magnitude of the decline is similar to the 22% drop in 1998 (from the October 9, 1998 low the stock market rallied by 33% to the end of the year) and the 19.3% decline in 1990, which was followed by the great bull market of the 1990s.
In 1987, the S&P 500 collapsed by 33% between August and October and provided at its panic low a tremendous buying opportunity, as it resumed its up-trend, which lasted until 2000. The goldilocks view is best summarized by Thomas Peterson of Bull Eye research, who pointed out in mid January that, “this decline has been a market event, not an economic event. That may change this week. But we note the Fed has amble room to cute rates - is it too late? We don’t know. What we know is the money supply has been rising significantly in the past 12 months as central banks have tried to inject funds to offset some of the financial institutions’ losses. That money hasn’t disappeared. Companies still have lots of cash. As of last week, there were also enormous piles of cash sitting in many US funds, in addition to that recorded in money market funds. US stocks are under-owned according to several surveys. These are reasonable buffers to limit the downside. In the past, when we have had this combination of factors, the market has gone down temporarily. As in 1990 and 1987, but it has always become a great buying opportunity.”
Personally, I am not so sure that we are dealing here merely with a ‘market event’ and not with ‘an economic event’. I am leaning more toward the view of George Soros, who thinks that, ‘the current crisis is not only the bust that follows the housing boom, it’s basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency’.
Moreover, I doubt that there are ‘enormous piles of cash sitting in many US funds’ because equity mutual fund cash positions were at the end of last year at a record low. Also, at the end of last year, Barron’s surveyed 12 Wall Street strategists. With the exception of two strategists in the US whose 2008 year-end target for the S&P 500 was 1525, all the others had year end targets of between 1600 and 1750! In other words, just before the current rout in the stock market, Wall Street was very positive about stocks. Under these conditions it would be unusual to sit on ‘enormous piles of cash’.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
The obvious question investors are facing now is whether the current
stock market rout around the world is similar to the 1998, 1990 or 1987 corrections, which all provided great buying opportunities or whether we just completed the first leg of a more severe and longer lasting bear market. I can sympathize somewhat with the goldilocks’ crowd view that the current decline does provide a buying opportunity because the magnitude of the decline is similar to the 22% drop in 1998 (from the October 9, 1998 low the stock market rallied by 33% to the end of the year) and the 19.3% decline in 1990, which was followed by the great bull market of the 1990s.In 1987, the S&P 500 collapsed by 33% between August and October and provided at its panic low a tremendous buying opportunity, as it resumed its up-trend, which lasted until 2000. The goldilocks view is best summarized by Thomas Peterson of Bull Eye research, who pointed out in mid January that, “this decline has been a market event, not an economic event. That may change this week. But we note the Fed has amble room to cute rates - is it too late? We don’t know. What we know is the money supply has been rising significantly in the past 12 months as central banks have tried to inject funds to offset some of the financial institutions’ losses. That money hasn’t disappeared. Companies still have lots of cash. As of last week, there were also enormous piles of cash sitting in many US funds, in addition to that recorded in money market funds. US stocks are under-owned according to several surveys. These are reasonable buffers to limit the downside. In the past, when we have had this combination of factors, the market has gone down temporarily. As in 1990 and 1987, but it has always become a great buying opportunity.”
Personally, I am not so sure that we are dealing here merely with a ‘market event’ and not with ‘an economic event’. I am leaning more toward the view of George Soros, who thinks that, ‘the current crisis is not only the bust that follows the housing boom, it’s basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency’.
Moreover, I doubt that there are ‘enormous piles of cash sitting in many US funds’ because equity mutual fund cash positions were at the end of last year at a record low. Also, at the end of last year, Barron’s surveyed 12 Wall Street strategists. With the exception of two strategists in the US whose 2008 year-end target for the S&P 500 was 1525, all the others had year end targets of between 1600 and 1750! In other words, just before the current rout in the stock market, Wall Street was very positive about stocks. Under these conditions it would be unusual to sit on ‘enormous piles of cash’.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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