Conference nyoss1::market_investing

    If Forbes is sounding a warning then clearly there's another 300 points
    left in the market.
    
    In the bad old days (1974, 1981) nobody wanted stocks.  The future
    looked bleak.  High interest rates did not tempt buyers into the bond
    market, causing still higher rates with no end in sight.  The money
    supply expanded at an incredible pace.
    
    Of course it was a great time to buy stocks and bonds, they were cheap.
    But it took a great deal of guts to spend your precious cash on a risky
    instrument, especially with that idiot in the White House.
    
    We seem to have come half circle.  Everybody wants stocks.  The future
    looks rosy, according to 92% of economists surveyed.  Cash is trash,
    better to put it to work in a sizzling stock market, with no top in sight.  
    Bonds too are hopping in their market.  Even junk bonds look better
    than cash.  The stock and bond supply is expanding at an incredible pace.
    
    Of course it is a great time to sell stocks and bonds, they are expensive.
    But it will take a great deal of guts to conserve your cash in a safe
    instrument, especially with that idiot in the White House.
    
      John

    
    re: -.1   
    
    	ayup.
    
    re: .0
    
        The market is grossly overvalued from many perspectives,
    particularly the number of new and secondary offerings, P/E's, and
    dividend yields.
    
        Without doubt, Paul Greenspan is pulling the strings that makes
    this market dance.  A few weeks ago, when the Japanese market and the
    American markets appeared ready to hit the dirt face first at any
    moment, the FED stepped in with a mere 1/4 percent cut in the Fed funds
    rate, and stabilized the markets again.  And of course, don't forget
    the lowering of the prime rate last November, the discount rate in
    December, and the reserve requirement a couple of months ago.
    
        Nope, our man Paul is not about to let Mr. Bush get fired, no
    matter what.  He has given every indication that he plans on keeping
    the financial spigots wide open, after all, if it wasn't for the
    success of the financial markets, evidence of a recovery would be
    pretty difficult to spot, and that's not a good thing in a presidential
    election year.
    
        One thing that is in the markets' favor right now is that
    institutions have 8.6% in liquid assets; with TBill rate hovering below
    4%, this indicates that the institutions have a lot more firepower
    to expend before the top finally arrives, despite the fact that 8.6%
    is, in recent absolute terms, rather low.  
    
    	So here's what my crystal ball says:
    
    	1.  Between now and summer, evidence for a robust recovery will be
    	    lacking, despite a few bright spots.  The recovery is here
    	    already, but its strength by early summer will not justify the 
    	    valuation of the market.  People will start to get worried. 
    
    	2.  The FED will ease yet again, just as things start to look 
    	    really dark
    
    	3.  The institutions will dump a sizable chunk of their cash into
    	    equities, and the market will move up one more time.  Bulls
    	    congratulate each other on their wisdom.  The reluctant bears
    	    admit their mistakes and join the bulls.  Sentiment turns
    	    lopsidedly bullish.
    
    	4.  The bond markets, rightly fearing another round of inflation,
    	    drive up the 30yr TBond rate to somewhere over 8.25, and
    	    the TBill rate to somewhere around 4.25
    
    	5.  President Bush is re-elected in a landslide, and/or October
    	    panic sets in, and/or Newsweek magazine has a picture of a
    	    triumphant bull standing atop the rock of Gibralter on the
    	    front cover.
    
    	6.  A small, simply dressed girl in the back of the crowd whispers
    	    to her mother "but mommy, the Emperor has no cloths on"
    
    	7.  The inevitable occurs
    
    

    Hi,
    
    re. .3 "What is the inevitable ???  Oct./87
    
    I have put in a note on International investing (127) for exactly some 
    of the reasons mentioned above.  The US economy is leading and has had
    a pretty good run up although it's not done yet.  Most of Europe and
    the Pacific Rim have been so-so performers over the last 3-5 years and
    there is opportunity outside of the US.
    
    However,  my indicators are still bullish (I follow currently 2
    newsletters of good track record) although they are sounding a little
    more cautious.  The US is the largest market so I don't recommend
    ignoring it but just reducing your exposure.
    
    Asset allocation recommendation for 5 year time horizon.
    
    US - 20% stocks
    Global- 70% stocks/bonds
    Cash - 10%
    
    I agree with .2's point that becoming more conservative in the US
    market in the late summer/ early fall will be prudent.
    
    Currently, I'm not investing any new monies in the US market.
    
    Good Luck

    
    
    I moved here from Engalnd two years ago. After buying a house I had
    some money left over. 
    
    I looked at the US stock market, and said gee, look at those PEs and
    new highs daily! And look at the gloom and doom in industry(this was
    March 1991, Gulf War started, Digital nose down). So I sat out one of
    the most amazing surges its been my misfortune to watch from the
    sidelines 8-(
    
    Will the same thing happen this year? I expect so. Wall Street has
    proved itself out of tune with industry, the "system" will not allow
    any disasters in an election year, there doesn't seem anything that
    will stop the market.
    
    Having said that, I'm not off to buy US stocks! I'm going to wait,
    maybe buy some international stocks. I don't think the stocks will fall
    with Wall Street, they are already good values. The Pacific Rim is
    interesting but volatile.
    
    Simon

    
    Did I say "Paul" Greenspan??  I must have had my 1980's bit set.  Make
    that "Alan" Greenspan!!!
    
    re: -.1  the inevitable?
    
    	the inevitable is that "the market will fluctuate".  it is very,
    very high right now.  it may possibly go higher, but it is sure to go
    lower.
    
    re: /87?
    
    	i've been looking at the 1962 crash as a similar example, though
    there are a lot of similarities to 1987 as well.  In 1962, in
    particular, the monetary conditions were very favorable (discount rate
    lowered to 3% and never raised).  The only thing wrong with that market
    was excessive speculation.  We've definately got excessive speculation
    now, although there is (believe it or not) less public participation
    than in 1961-62.
    
    	I've gone back and read Barrons throughout the 60-62 period.  The
    public was positively mad about stocks.  To quote one analyst from that
    time "out and out gambling has been grafted onto speculation", and the
    ads in Barron's were gooey with optimism.
    
    	Just look at the number of secondary offerings that are announced
    each week...  secondaries dilute the value of existing stock, suck
    liquidity out of the market, and transfer shares away from the insiders
    who ought to have the best knowledge about whether the future of the
    stock price is up or down.  Any way you look at it, secondaries are not
    bullish, and a lot of secondaries over a long time has historically
    been a leading indicator of bear markets.  (btw, secondary
    distributions also hit a peak prior to both the 62 and 87 bear
    markets).
    
        /Jim
    

    I read the Forbes issue, especially the "gloom and doom" article
    detailing why the market was topped out and ready for a dive.  It made
    much sense, thought I, since that week the market had been steadily
    sagging towards 3200.
    
    I reconsidered the only valid reasons for buying stocks with their PEs as
    high as they are today: 
    
    * We are in a recession.   
    
    * We should expect earnings to be a tad low during a recession.
    
    * We will come out of the recession.
    
    * We should expect earnings to increase as we come out of the
    recession - then the PEs might not look so bad.
    
    * George Bush will do everything he can to make the economy look good
    before election day.
    
    Since yet_another_expert was writing that the market was heading
    towards a crash and since the market was sagging (although that might
    be expected at the bottom of a recession), I decided to delve into my
    scholarly tomes of Macro Economics and Market Dynamics to see if I
    would like to change my position.
    
    While I was delving, the market turned around and headed back up
    towards 3400.  
    
    Sigh.....if I had only read Playboy instead of Forbes I would have
    picked up just as much useful market strategy and saved myself the
    effort of digging out ancient textbooks.  Gawwwd, Samuelson is boring!
    
    What does all this mean?  Beats me.  Perhaps if enough experts predict
    market upturns and downturns, some of them will be right.  And then
    they can be paid to give lectures to the Washington Press Club.
    
    	Dave
    

    re. 6
    
    If you can pull your head out of Playboy a little bit longer.  Why
    don't you give us your market position/asset allocation and some of the
    Funds or Stocks that you invest in.
    
    For the most part your initial comments sound very much in Tune with
    what I read.
    
    Looking Forward To Some More Info......

    
    re: -.1
    
    	The argument about high P/E's being caused by the low "E" and not
    necessarily a high "P" is valid.  It could certainly be caused by both
    a high P and a low E, which I believe is currently the case.
    
    	Based on expected earnings, the S&P 500 P/E is supposedly standing
    around 18 or so rather than 26 or so based on trailing 12 mo earnings. 
    But 18 is still very high.
    
    	If P/E is considered in conjunction with dividend yield, a clearer
    picture emerges.  Prior to most recession recoveries,
    companies normally need to provide attractive dividend yields to
    attract investors back to equities.  Prior to the market recovery in
    '32, the P/E's were in fact fairly high (because of low "E"), but the 
    high dividend yield correctly indicated low valuations.
    
    	The dividend yield turns out to be an excellent medium-term
    prognostic indicator.  When the S&P P/E is extremely high and the S&P
    500 dividend yield is extremely low by historical norms, that indicates
    that it is the "P" side, not (only) the "E" side, that is driving the 
    multiple up.  The dividend yield therefore enables the P/E ratio to be
    properly interpreted.
    
    re: good days, bad days
    
    	You really have to look at more significant moves before concluding
    that the advice of some market sage is right or wrong.  Obviously,
    there's a helluvalotta noise in the market indexes...  not to mention
    the special problems with the DJIA.
    
    	A really significant move, a move that would indicate to me that
    the bears are hibernating when they should wake up and admit they were
    wrong, will occur if:
    
    	o  There are two 9:1 up:down NYSE volume ratio days within 3 mo
    	   of each other, or
    	o  The advance decline ratio averages 2:1 over a 2 week period
    
    and I'd probably limit my upside risk if:
    
    	o  The Value Line geometric index increased by 4% or more week-to-week
    
    These indicators were developed by Marty Zwieg and are written about in
    his book.  Their historical record is quite good, but of course past
    performance is no guarantee of future success, etc.
    
    That's my 4�
     

    RE .6
    
    Briefly - VERY briefly.   
    
    If you do not already understand, this should present my position
    sufficiently to cause you to study more (if you really care to) and
    understand the underlying rationale. If you already understand, please
    don't pick on me for leaving out lots of details and justifications. 
    
    Also, I REFUSE to argue in this forum the merits of my position.  That
    would constitute advice and I care not to do that for free.
    
    .....
    
    Short term changes in share prices in general have little to do with
    much of intelligence.  Share prices are determined by "what the market
    will bear" (sorry, make that `pay').  If you want to sell, you need to
    find someone who is willing to buy. Now, if you think about it, that's
    scary.  If all your analysis absolutely proves beyond a reasonable
    doubt that the market is ready to crash and you are selling out, why is
    there a preponderance of "professionals" who are eager to buy?
    
    If share prices were determined by rational means, we could expect to
    do a Financial Analysis of a company, take the "liquidated value" of
    that company, divide by the number of shares outstanding and come up
    with a fair Share Price based on `worth'.  However, much of the share
    price is set by how much the potential buyer BELIEVES (end of rational
    thinking) each share is worth - usually based on what the buyer's hopes
    for as a Return on Investment.  The market, therefore, is based on
    emotion and perception.  
    
    
    My position is based on:
    
    1) Economics
    
    The economy, in general, is in a recession.  If that's a surprise to
    anyone......
    
    We will come out of the recession.
    
    Because of all sorts of reasons that you really need to study in detail
    (Economics textbooks are cures for insomnia), economies rebound from
    recessions - even when left alone to respond just to market dynamics.
    When economies come out of recessions, they do so buy increasing the
    total value of goods, services, etc.
    
    
    2) Timing
    
    Bush is in trouble (latest polls show a horserace twixt Bush, Clinton
    and the not_even_declared Perot), Bush has publically stated that he
    would do anything to be reelected (and I believe him), Bush "holds the
    keys" to US monetary policy.  I expect him to assist our economic
    recovery (and his reelection) in any manner he can.
    
    So, not only do the traditional Economic indicators suggest the
    recession has bottomed out, but the political scene suggests a boost is
    in the works.
    
    
    
    3) Investment Strategy (selections)
    
    Historically, small company stocks grow the fastest coming out of a
    recession.
    
    With RARE exceptions, the values of the S&P 500 companies will show a
    3-5 year annualized growth rate of 12-16% depending on how many sags
    (and how deep) within any given window.
    
    Invest predominently in well managed companies (or mutual funds) that
    will support your investment goals. (If you want to make a killing,
    stay away from utilities. If you cannot afford risk of losing your
    principal, stay away from Biotechs).
    
    Balance your portfolio.
    
    Pay attention to ROI NET taxes. 
    
    
    
    So, for my investment portfolio, I have:
    
    A Tax Exempt Money Market Fund for the bulk of my ready cash.
    
    A Tax Exempt, aggressive (hi Yield, moderate risk) Bond Fund.
    
    A S&P 500 based index growth and income fund.
    
    A convservative, large company stock growth fund.
    
    An aggressive large company stock growth and income fund.
    
    An AGGRESSIVE stock growth fund. (keeps me awake at night)
     
    A small company growth and income stock fund.
    
    SAVE split between Windsor and the Institutional Index.
    
    DEC stock (guilty of contrarian thinking)	
    
    Bank stocks.
    
    Auto industry stocks.
    
    Two utilities that actually do VERY well.
    
    Disney stock :-)
    
    
    
    Hope this helps.
    
    Dave

re .6:

If you read Playboy instead of Forbes, you'll learn a lot about inflation.

Sorry, I couldn't resist.

re: .9

Thanks very much for a good balanced discussion.

This recession does seem to be different?  Very slow growth?  Chance
of a "triple-dip" - article in last week's Barrons.  Also there is
stagnation caused by high interest rates in Europe? 

Bush will do anything to get re-elected, but what happens then?  
Might there be a dip with a "dead cat bounce" (love that expression;-)
after he wins re-election?  

There would be another scenario based on the possibility he doesn't win.

Any comments on these possibilities?

Mardy

    
    There are 2 ways Bush may lose.
    
    1. The Democrats win outright ....low probability
    2. Perot wins enough electoral votes to throw the election into the
       House of Reps and the Democrats win by their majority there.
       (he wins Texas and California .....)
    	
    Consider the above when trying to view the market right after the
    election. Both 1 and 2 would have the market decline.
    
    

    How about Perot simply winning?

.9>    and the not_even_declared Perot), Bush has publically stated that he
.9>    would do anything to be reelected (and I believe him), Bush "holds the
.9>    keys" to US monetary policy.  I expect him to assist our economic
.9>    recovery (and his reelection) in any manner he can.
    
    Monetary policy is made at the Federal Reserve, under the leadership of
    Bush's good buddy Alan Greenspan.  It is both amazing and frightening
    how a tiny move in the Fed Funds rate can cause a Pavolvian reaction in
    the markets.  Surely Greenspan can be counted on to come through anytime
    things look bleak in the markets.  Note, however, the same situation
    held in 1932 when President Hoover, formerly Secretary of Commerce, was
    ultimately unable to engineer his own reelection.
    
    Years from now analysts will look back at these times and wonder why
    nobody saw the handwriting on the wall.  Truth is, those that do see
    tend to think they're going to get out just before the crowd.
    
      John

.12>    2. Perot wins enough electoral votes to throw the election into the
.12>       House of Reps and the Democrats win by their majority there.
    
    I'm not so sure.  What do you think the vote will be?

    .14
    
    What I am eluding to is that Perot gets enough electoral votes so
    that neither Bush or a Democrat have the needed number to be declared
    the winner and the vote then goes to the House .....What is the fine
    print you 're refering to ..... ? 

re: .14

Why the Pavlovian reaction?  Isn't it because of the extreme sensitivity of
the bond market, which is due in turn to the very high national debt?  

So, unless we have a strong recovery we'll never get a handle on the national
debt, but becuse of the high debt the rates stay high and we can't get a
recovery?   And if Alan lowers rates too abruptly, we get runaway inflation?

Is this a scenario or a reality?

Mardy

    re Perot
    
    Since you asked......
    
    There is, according to some polls (pols, as well) an even chance that
    Perot will win in November.  The "professional political
    prognosticators" (Sam Donaldsons, too) all spout drivel about how Perot
    cannot possibly be elected; as if THEY could predict rain.
    
    I expect that a Perot win will bode well for a small company
    environment.  His attitude is that of "can do, will do, just DO IT"; a
    common theme in small companies.  His policies will favor the
    environment that he, personally, is comfortable with - just like every
    other President.  Perot's election would be a boost for the small
    companies and small company funds.
    
    At any rate, euphoria (as well as Bush's artificial boosts) should
    peter out sometime after the election. Most shareholders of mutual
    funds will greedily keep their $$$ in the funds waiting for the
    December "gifts" of CG and Income.  (Most do not realize that they can
    sell out just before distribution and walk away with the same returns.)
    
    Most of my portfolio is dedicated to loonnngggg term growth.  Much of
    it is in funds and I know I will need those monies within 1 year.  
    
    As of today (and I may change my mind later on), my strategy is to pay
    close attention to my "short term" investments and sell all before the
    end of October (unless I need the cash before then); probably move the
    returns into a Tax Free bond fund.  
    
    The closer we get to then, the more sensitive I will be to short term
    "market psychology" considerations.  Although I prefer to buy at the
    bottom and sell at the top, my desire for peace of mind lets me be
    happy buying along the negative slope  of a rolling 52 week FMV plot
    and selling on the upward slope (a kind of dollar averaging).  I
    believe we are on the upward slope so I would not mind selling in the
    next few months.
    
    So, Post-Election strategies???
    
    Bush re-election - 
    	S&P Top 50, Blue Chips, etc;
    
    Clinton (or any other Democrat other than Tsongas who is more like Bush) -
    	medium sized companies, service industries, social services, health
        care industry
    
    Perot -
    	small companies, civil engineering/construction, service
    	industries, banking
    
    
    
    For what it's worth, I would like to see H. Ross Perot be the first
    independant president since Teddy Roosevelt's second term.  But that's
    another topic......
    
    Dave
    
    
    

    .18 
    
    Your scenario is an interesting one ..... only one flaw I can see
    is that it is assumed that Perot can work with congress and that he
    would get the respect needed to execute the plans ..... electable
    yes ....workable ...we'll see.
    
    It may be better then what we have now, anyway.
    
    

For the benefit of those in the "stocks-for-the-long-haul" camp,
I thought the following table from the Burton Malkiel book 
might be of interest. This is just to give an idea of the risk
the Feds are transferring to holders of paper should they get a 
bit too zealous in stoking the inflationary fires (and the current 
climate appears most conducive to such stoking, given the size of 
the national debt, coupled with extremely tight fiscal constraints). 

1968-79, Traditional vs. nontraditional investments
---------------------------------------------------
                   Compounded annual
Investment          growth in value
--------------------------------------
Gold                       19.4%
Chinese ceramics           19.1%
Stamps                     18.9%
Rare books                 15.7%
Silver                     13.7%
Coins (U.S. nongold)       12.7%
Old masters paintings      12.5%
Diamonds                   11.8%
Farmland                   11.3%
Single-family home          9.6%

U.S. CPI (inflation)        6.5%

Foreign currencies          6.4%
High-grade corporate bonds  5.8%
Common stocks               3.1%
--------------------------------------

I'm not sure what the "long haul" means to most people, but to me,
anything that hasn't caught up with inflation after 11 long years
represents a terrible investment (what was that again about stocks 
as an "inflation hedge"?). I wonder how many of the stock and bond 
mutual funds of 60's vintage retained enough of their shareholders' 
money to remain operational through 1979 and beyond.

Significantly, the boom years of the sixties were characterized
by official proclamations in the press that inflation "was dead",
and that the art of fine-tuning by the Feds had been perfected. 
I heard on the radio the other day that gold is "no longer 
an investment" since it doesn't even respond to inflationary fears 
due to "oversupply". I'm not so sure about that given the history; 
and besides, gold has been around a bit longer than 200 years, 
which is more than one can say for the dollar. I also hear gold 
continues to enjoy its traditional popularity back in India, where 
inflation has been running rampant for decades.

In any case, most mutual funds appear to represent paper assets only
and thus do not offer total diversification, including "real assets". 
If anyone knows of a fund that buys Chinese ceramics, please do
drop me a line :-)

Ganesh.

    Hi,
    
    Thanks .9 and .18 for your significant contributions.  When I have a
    bit more time I will provide our growth oriented, long term investment
    portfolio.  We are in our 30's with a realistic and achievable goal of
    retiring at 50.  Serp or no Serp.
    
    JD

    
    	Re: .19
    
    	That line of reasoning holds true for _any_ presidential candidate,
    not just Perot.  Bush hasn't shown an exemplary record of getting
    everything that he promised four years ago either.
    
    	The more I watch politics, the more I like parlamentary systems. 
    By definition, the person at the top has a working relationship with a
    majority of the people in the house, so they can get things done.
    
    							-craig

re: .16
    
>    What I am eluding to is that Perot gets enough electoral votes so
>    that neither Bush or a Democrat have the needed number to be declared
>    the winner and the vote then goes to the House ...

      I  don't  think  it  necessarily  follows  that the failure of any
      candidate to get a majority of the electoral votes would send  the
      election  to  the House.  My personal opinion is that electors are
      not legally bound to vote for the  candidate  to  which  they  are
      pledged.  Some will agree with me; others disagree.
      
      As  a practical matter, I would expect electors to vote as pledged
      at first. However, when it became clear that there was no winner I
      would  expect  that  there would suddenly be a lot of wheeling and
      dealing in the Electoral College as the electors, politicians all,
      would maneuver for the advantages they/their state/their interests
      could get from throwing their  electoral  votes  to  the  "highest
      bidder".   I  would  guess that the odds are about 2:1 in favor of
      such a tie being broken in the Electoral College rather than being
      sent on to the House.

    
    	Re: .23
    
    	There is only one act of casting the electoral votes, and if
    someone doesn't get a majority in that election, it does go to the
    House.  The political wheeling-and-dealing has to be done before that
    one voting occurs.  (In other words, this isn't like the way
    conventions work where they keep going through iterations of voting
    until someone finally gets a majority.)  And you're correct, the
    electors are not legally bound by Federal law (state law may require it
    in some states -- I don't know) to vote for the candidate they were
    elected to represent.  In the last election, one Democrat elector
    actually voted for Benson for President and Dukakis for VP.
    
    	Will political deal-making work to keep it out of the House?  I doubt
    it.  Since the Democrats hold majorities in a majority of the state
    representative groups, if it goes to the House Clinton will be elected.
    Therefore, there is no advantage to the Democrats for them to participate
    in any deal-making.  Would the Perot electors (presumably fervent
    supporters of a non-politician getting into office) and Bush electors
    (presumably fervent supporters of the status quo) find a way to work
    together?  Who would the "compromise candidate" be between two such
    opposite positions?
    
    	Something interesting that might happen -- the Constitution
    requires that the House may select from only the top _five_ electoral
    vote recipients.  Bush, Clinton and Perot fill only three slots, so I
    think both parties will scramble to try to get electors to vote for
    other partisan candidates to fill the other two slots.  I think it is
    in filling these slots where the real deal-making might occur.
    
    	My guess?  Unless Perot stumbles, I think this election will get
    thrown to the House with the result being that the absurdity of an 18th
    century election method being applied in the 20th/21st century will be
    evident and, hopefully, a constitutional amendment will be offered to
    switch us to a direct popular vote method.
    
    								-craig

    
    
    	Given the scenario in .24 the question now becomes what would the 
    	effect be on the markets not only here but around the world ....
    
    	Back to the basic question.
    
    

    
    	Re: .25
    
    	Ah, whoops, I missed offering my answer to that in .24...  Sorry.
    I think that if either Bush or Clinton is elected (even if it goes to
    the House), the effects will be minimal since it will be just an odd
    way of getting back to business as usual.  If Perot wins the election
    (outright or, even more a long-shot, in the House) or if someone else
    gets elected by the House, the effects might be negative since the US
    political system won't be viewed as being as stable as everyone thought.
    Any changes to our (silly, IMO) political situation might be good in the
    long-run, but changes do, by definition, include uncertainties that the
    markets might not fully appreciate.
    
    								-craig

    (Revisiting the past)
    
    Well, John H. in 1. was right--there was another 300 points in the
    market!
    
    Is _this_ the top?  I ask again because FORTUNE just had a cover
    article about being bearish on US equities and investing abroad (one
    of my themes for the past several years, by the way, so I'm possibly
    prejudiced).
    
    I'll make a prediction: this is within a month or two of the top.
    Some bad news is due from somewhere--I don't know where, but I think
    the US markets are fragile (maybe I should price S&P 100 puts and
    put my money where my mouth is...).
    
    		-John Bishop

    It doesn't \feel/ like a top -- there's not enough optimism.
    
    The summer rally is due to start on Monday July 26th (switch into
    mutual funds Friday July 23rd) and run at least thru August 13th,
    possibly even Labor Day.  After Labor Day, 6-Sep, look for things
    to begin to unravel.  By then everybody will be satisfied they know
    what's coming out of Washington and a lot of doubts will be gone.
    THEN we have the conditions for a major sell-off.
    
      John (H.)

re:                       <<< Note 185.27 by TLE::JBISHOP >>>
    
>    Is _this_ the top?  I ask again because FORTUNE just had a cover
>    article about being bearish on US equities and investing abroad (one
>    of my themes for the past several years, by the way, so I'm possibly
>    prejudiced).

I read this as a sign there's still plenty of life in the market, as in a
contrarian signal. When optimism oozes from the covers, that's likely a
better indicator of a top.
   
>    I'll make a prediction: this is within a month or two of the top.
>    Some bad news is due from somewhere--I don't know where, but I think
>    the US markets are fragile (maybe I should price S&P 100 puts and
>    put my money where my mouth is...).

Good luck. I note that you are still a bit skeptical yourself. When you are
no longer skeptical and the optimism is high, that's a good time to reduce
the exposure. The last time I was real optimistic was the summer of '87...

FWIW - YMMV

    By the way...John H. also predicted in May '93 that rates would drop
    at the end of July.  I just got a quote from a mortgage place for a
    15-year-fixed no-points no-closing-costs mortgage: 7.25%!
    
    		-John Bishop

    Based on John H.'s "ding ding ding ding" note (548.12) and the 
    article in _The_Economist_ (559.8), I hereby assert that this is
    the "top", plus or minus a few percent.
    
    I further predict that there will be a drop of 10% to 20% in the
    S&P 500 within a few months, to be followed by two or more years 
    of sideways or downwards motion.
    
    The question for me is how to bet on this...and how much to bet
    (after all, I've been wrong before).
    
    		-John Bishop

    This is all the maturing fixed income stuff getting parked in the
    market waiting for a better home.
    
    When interest rates start to rise there will be a crush at the exits of
    the market.
    
    This may not be the top, interest rates could still far further.

I predict that the market is at the top.....plus or minus something.....

I am, thereby, guaranteed that sometime in the future I can look back and point 
out to my clients that I correctly called the top.

Just don't ask me to quantify "plus or minus".


:-)

Dave

        
        If you believe this is the top, where should you divert savings
        that is tied up in stocks and stock-mutual funds?
        
        b
        

>        If you believe this is the top, where should you divert savings
>        that is tied up in stocks and stock-mutual funds?
    
    If you don't want to do active trading, then stuff your cash under
    your mattress.  Terrible return (0%) but better than the market (-N%).
    
    OK, money market funds are a little better.  I gave a bunch of other
    possibilities elsewhere in this file.

    I just put in an order to buy DEC 400 puts on the OEX (currently
    at 424).  I was considering making a synthetic long term index
    option by buying several LEAPS (e.g. CocaCola  and CityCorp, ...)
    but I don't have the money to do a good job at that and there
    aren't many long-term puts available to purchase.
    
    		-John Bishop

    That's great John! Could you spend a minute and explain what it is
    exactly you did for the neophyte?  Thanks!

    re: .37
    
    That's easy! When people get some gambling money, they go out to look
    for excitements. Some people like to bet it on race tracks, some people
    like to bet on lottery tickets and some people like to bet on
    options...
    
    Sorry John, I just can't help it.     :-)
    
    Mike

    John B, et. al.:
    
    You can buy long-term OEX Puts; they trade at 1/10th the OEX index.
    So you could buy a Jan '95 S&P 100 40 Put.  They're listed in _Barron's_
    under "Long Term Options".
    
      John (H.)

    re:  <<< Note 185.35 by VMSDEV::HALLYB "Fish have no concept of fire" >>>
       
   > OK, money market funds are a little better.  I gave a bunch of other
   > possibilities elsewhere in this file.

    What about short-term bond funds? They offer ~350 basis points more
    than money-market funds; a fund with a $10 NAV would have to drop more
    than 35� to produce an inferior total return. What's the likelihood
    (i.e. macro scenario) of that happening in the coming correction?
    

>    What about short-term bond funds? They offer ~350 basis points more
>    than money-market funds; a fund with a $10 NAV would have to drop more
>    than 35� to produce an inferior total return. What's the likelihood
>    (i.e. macro scenario) of that happening in the coming correction?

If you look at the price range for the Scudder Short Term Bond fund for 
the past year (a year of generally declining interest rates, though there
have been some blips in short term rates), the price range has been
something like $11.88 to $12.22, a $.34 range.  In my opinion, "large"
swings of this type can and do happen to short term bond funds.  Invest
at the wrong time and it can take many months to recoup your principle.

John Piekos

    Keep in mind that the price of the Bond Funds (really any fund) are
    reduced by the amount of any dividend paid.  I've learned this by being
    in the Kemper Investment Portfolio US GOVT Fund for the last 5 years.
    Each month the fund pays a dividend.  Some people receive a check,
    others like myself reinvest the dividend and buy more shares.  At each
    month end the price of the fund is reduced by the amount of the
    dividend paid.  I mention this only to make everyone aware that the
    price volitility (the spread mentioned in the previous note) was
    probably higher given the fund going ex-dividend either monthly or
    quarterly. 

    
    
>>    What about short-term bond funds? They offer ~350 basis points more
>>    than money-market funds; a fund with a $10 NAV would have to drop more
>>    than 35 to produce an inferior total return. What's the likelihood
>>    (i.e. macro scenario) of that happening in the coming correction?
>
>If you look at the price range for the Scudder Short Term Bond fund for
>the past year (a year of generally declining interest rates, though
>there
>have been some blips in short term rates), the price range has been
>something like $11.88 to $12.22, a $.34 range.  In my opinion, "large"
>swings of this type can and do happen to short term bond funds.  Invest
>at the wrong time and it can take many months to recoup your principle.


This is true, but (from Morningstar) the NAV and TR as computed by
Morningstar for the last 10 or so years looks like:

Date           1985      86     87     88    89    90    91    92     Current
NAV            11.35   11.92  11.23  11.19 11.71 11.72  12.24 11.93    12.20
Total Return %  20.9    14.6   1.25   6.3   13.3  9.9    14.3  5.5      6.5

Alpha = 2.7  
Beta  = 0.38 
RR    = 73   

Even in down (stock) markets, the Scudder ST Bond Fund  has produced a positive 
total return (though you could have done a lot better in 87 and 88 with
CD's). It appears that the NAV does bounce around a bit, but maybe for
the long run (being about 1-2 years) this should not be so much a
concern? I would  think that bond fund NAV rates would tend to fluctuate
due mostly to interest rates and and dividends (of the bonds in the
fund).  If this is true, then downward NAV fluctuations due to dividend (
the payment of dividends to fund shareholders) is of less importance
than the fluctuation of NAV due to rising interest rates ( a real loss
in principal). So, the real risk for short term bond funds as a temporary 
parking spot for money is that interest rates will rise. Even
at that, interest rates would have to rise about 2% in a year before a short 
term bond fund  like the Scudder Short Term Bond Fund would produce a negative 
total return. I am NOT an expert, and welcome comments on the above. 



doug                                                                
 


 


    

    I can now reconcile my personal feeling that the US markets are
    headed for a bad time with my personal belief that technological
    miracles will contine to flood the world with wealth.
    
    The current Economist (Oct. 30) has a big survey of Asia; the
    previous one had a big survey of telecommunications.  So it's
    clear to me that the flood of wealth will be in Asia, and the
    US is not the place to invest, as demographics (and its 
    political consequences) are going to prevent any significant
    growth and may well cause 'negative growth' or shrinkage.
    
    So my future practice will shift heavily to "invest abroad".
    
    By the way--my S&P December 400 puts have lost one third of their
    value, but I'll hold them for a while longer.  So far, I'm losing
    that bet!
    
    		-John Bishop

    re .36
    
    My puts expired worthless, so my pessimism was not confirmed by
    reality!
    		-John Bishop

There's a school of thought that says the decade of the 90's will
be one of low interest rates, low inflation and moderate growth.
Some have compared the 1990's with the the 1890's.

Under this scenario, the SP500 would continue to climb but at a
single digit rate.

Gim

    
    
    
    To resurrect an old topic: Is this the top? Will the recent 3-4%
    decline in the DJIA and other markets continue, or is it just 
    some February let-down combined with (slightly) rising interest rates?
    
    Comments?
    
    
    doug

    Zweig says his monetary model lost and is 39 points - worst level since
    1990. AAII sentiment shows modest improvement - not so hot though. Tape
    indicators are bad, short term trend is negative and so is his gold
    model. Zweig will sell half of Value Line positions March
    futures, which is 10% of his investment, at the opening Monday. He's
    pushing up his stops in stocks and dropping them in bonds.
    
    

    
    A large portion of the negativity of Zweig's monetary model can be
    attributed to rising interest rates.
    
    This market has done well largely due to low interest rates and any
    hint of a rise makes the market very nervous.
    

    My market timing system is fully invested, and will remain so this week.
    After that, well it all depends. If we don't set new highs in another
    month or so, it looks to be downhill. A long way down.
    
    Maybe the right question should be "Was THAT the top?"
    
      John

    
    
    
    Well, it's been a long time since anyone added to this topic. Where
    now from here? Now, 8 months later, we have been through a (small)
    correction, have suffered inflation fears and interest rate hikes. 
    The market(s) have bounced around but are at(near) record highs.
    Inflation hasn't (yet) been a real problem. Interest rates are much
    closer to "normal" or "average" levels.  October didn't clobber us. 
    Where now for the U.S. market?
    
    Doug 
    
    

    
    influence on stock market:
     !
     v
    (-) interest rates are in an uptrend worldwide
    (-) commodities are rising
    (-) DJIA failed to break through 3980 level three times
    (-) Weak technical indicators (advance-decline, New-High/New-Low)
    (+) Bearish market sentiment throughout the year
    (+) Positive earnings in Q3
    
    After all the talk about an october crash, the market is probably ripe
    for a year-end rally based on better than expected earnings. But
    interest rates keep rising and are more attractive to investores today
    than a year ago. A number of reasons are in place for a major (20%)
    correction on the Dow.
    
    Klaus