|Everybody's Got One
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Saturday, July 06, 2002
I've been watching the stock market more closely than usual the past couple of weeks - a couple of companies I'm interested in are approaching one- or two-year lows (the only time I make non-dollar-cost-averaged buys). For what little it's worth, here's my take (online, on record):
There isn't a bottom coming anytime soon. Anybody looking for a capitulation will keep looking and miss it, for a couple of reasons. First, the market demographics have changed significantly - all the new small investors over the past two decades or so have completely invalidated predictions based on past performance of fund managers and other institutional investors. The new shareholder class doesn't really have significant holdings outside mutual funds, but there are a lot of them (us) and they tend to move together. Partly inexperience, partly safety in numbers, partly the greater fool investing theory of the late 90s. What I suspect this will do to market movements is heighten volatility in the short term and dampen it in the middle term (God knows what will happen in the long term, as the snout of the pig in the python hits retirement and begins pulling money out of the market.)
Second, there's no place else for all that money to go right now. Interest rates are at generational lows (great phrase; thanks, Kiplingers) so bonds aren't so attractive. Older ones with decent coupons are selling at premiums, and the one thing everybody knows about interest rates is that they're going up eventually, so anything bought today will have to be discounted tomorrow, or the day after. Real estate is already bid up pretty high in most places, and refinancing means people are pulling equity out, not putting it in. Overseas, Japan's a shell game waiting to collapse, and the Eurocrats have no idea what they're doing with the Euro; EU expansion is going to make the reintegration of East Germany look simple and cheap. And the rest of the world couldn't absorb big cash flows if there were anyplace safe to put them.
So, meaning what? I think the market's going to go sideways for a while, swinging pretty sharply within a 15-20% (max) range but neither rising or falling much from year-end to year-end. There's money to be made in momentum and sector trading, and a new premium on stock selection - assuming accounting gets itself straightened out and people begin to agree on what numbers make sense now. Dividend yield grows more important as earnings slow/get restated. Quants are in; passive investors are headed for a rough patch that's neither bull nor bear, as they lose money every time an index gets re-aligned.
Then again, something could blow up. Oil prices and defense stocks could go sky high, the Euros could get spooked and pull their money back offshore, any of a half-dozen demographic time bombs could implode ...
At least I'll be able to look back and see what I missed. posted by Kelly | 5:39 PM link