Pre-May 2000 Trading Strategy
IS YOUR PORTFOLIO READY FOR Y2K?
As we have previously mentioned the broad market topped in April 1998, the month we first contacted Money Managers to begin exiting the stock market. A strong case can be made for a stealth bear market from 1998-2000.
Years ago, we proposed a REAL economic behavior model of a four tiered economy or that percentage of companies (stocks) that are in depression, recession, recovery, and prosperity and the need to weight the percentage of each. For example, in a deep recession, bankruptcy lawyers are often in greatest prosperity. Similarly, if you ignore the top 100 stocks in prosperity or manic bull phase, out of 7000, the remaining 6900 are not in record territory but many are in a bear market. For example, last week 30% or 1,116 of NYSE stocks traded reached 12 month lows, while only 5% or 180 made new highs. [In future we may list our calculation of stocks in 10% correction, 20% bear, 10% recovery, 20% bull.]
"Most traders are in disbelief of the economic numbers. We keep waiting
for the truth."
Matt Frymier Banc of America Securities trader
HW: I hear it is coming RIGHT AFTER Godot arrives!
The US government is said to be trying to further reduce inflation numbers
by taking more items that go up out of the CPI and substituting cheaper
goods and services. With the price of Chestnuts by Rockefeller Center rising
25% this year, they would price peanuts rather of chestnuts. Even though
money managers eat at the Four Seasons, eventually, all the CPI may be
monitoring is the price of McDonald's happy meals....
What about December? Are stocks a "good buy" or is it "good bye"?
With five weeks to Y2K, the stock market is not behaving as if it is scared. Will Y2K have NO effect in December? January 1? The stock market has lost some of its upward momentum and some last minute tax selling is due. Will investors wake up to the fact that asset inflation (stocks and real estate) is beginning to spill over into good and services?
In what history may refer to as the "stealth" bear market of 1998 to
2000, we find a broad divergence between the Tech leaders and most other
stocks. The former continues to go through the roof while the rest of the
market remains dormant. More and more investors have decided to join the
party rather than miss the action. Still, as I am sure you remember,
from November 18th to December 18th of 1899, the Dow lost 23%. Will
history repeat? Will 10,000 hold? Stay tuned.