SUMMARY - "PIG":
The Contrarian's View is published 11 times per year on a mostly-irregular schedule, and the views expressed are those of the author and editor, Nick Chase. Because nobody can predict the future, results of past suggestions or recommendations are no guarantee of future results. Material in this publication may be freely quoted provided proper attribution is given to its source. Subscription rate: Free on the Internet through the World-Wide Web service at Assumption College. Using your favorite Web-browsing program, Open URL http://nick.assumption.edu. Mailed paper subscriptions, one year for $39 to The Contrarian's View, 132 Moreland Street, Worcester, Massachusetts 01609. There is a limit of 50 paid subscribers at one time; please check for availability before sending any money. Sorry, Visa and Mastercard are not available. Overseas subscription rate, U.S. $54. Unsolicited material sent to us by UPS or by courier other than the postal service is refused and returned to sender! Phone: (508) 757-2881
January 31, 1999: $174.42CREF gain for the past 13 months has been 14.3%, for a compound annual rate of return of 13.21%. Not too shabby, but it is below the 15% to 16% rate of return since 1987, and well below most investors' expectations of 30% to 35% per year. Nevertheless, a bull market, right?
March 30, 1999: $174.92
April 23, 1999: $183.47
May 28, 1999: $177.79
June 21, 1999: $185.28
September 30, 1999: $179.11
October 29, 1999: $187.85
November 26, 1999: $197.00
December 17, 1999: $197.83
January 31, 2000: $197.17
February 29, 2000: $199.43
Look again.
Virtually all of the gain came in October and November 1999, when the Fed was goosing the money supply in anticipation of Y2K problems. There wasn't much progress during the first three quarters of the year, and CREF has been virtually stagnant since November 1999.
And this is in one of the strongest and most popular segments of the market, capitalization-weighted index funds. What about the other areas?
€ The majority of stocks have been in bear mode since April 1998, almost two years ago. Currently about three-fourths of all stocks are declining.
€ The S&P 500 (apparently) peaked in late December 1999.
€ The Dow (apparently) peaked in January and is now about 15% off its highs and in the range where a crash could come at any time.
€ Classical Dow theory says we're in a bear market.
€ The only areas of "the market" still doing well are the tech-stock-weighted NASDAQ and the dot-com stuff. A similar pattern prevailed (in reverse) in 1968-69, when the majority of unlisted stocks peaked in late 1968, but the industrials didn't top out until the spring of 1969.
In other words: We're in a bear market.
But don't expect to read or hear about it in the media. Which reminds me of that old puzzle: If a tree falls in the forest but nobody's around to hear it, does it make a sound? It depends on your definition of "sound": If, by "sound", you mean the air is disturbed, then the falling tree did make noise. But if your definition of "sound" means there must be a receptor.... that is, a sound must be heard to exist.... then the falling tree made no noise. (My own interpretation: The tree made a sound, because it would have been heard if somebody had been there to hear it.)
Similarly, is it possible to be in a bear market if nobody will acknowledge it as such (except me)? In other words, must prices decline and must a majority or a significant minority of the investing public realize that the majority of stocks are declining before a bear market exists? Is a bear market impossible if the public, and especially the media, are focusing only on those segments of the market that are still rising?
My own opinion, of course, is that if an investor's (long) portfolio is declining in value, then it's a bear market. But the psychology is important; if most investors have been lulled into believing that this is still a bull market (even if they're losing paper profits themselves), then it will take only the turnaround of a very small minority of stocks.... the tech and dot-com stuff..... to trigger an enormous psychological shift. In other words, the market is extremely crash-prone. Nothing new here, of course; but what this bull-market illusion, in the face of hard evidence to the contrary, means is that when the bubble bursts and investor psychology does finally do an about-face, the crash will be phenomenal.... perhaps as much as a two-thirds decline in a few days' time, with the value of those earningsless dot-com thingies virtually disappearing.
Even though the Dow is currently in a "crash alert" zone, as a practical matter stocks (as a
whole) are unlikely to crash until the NASDAQ weighted average peaks and rolls over.
Wish I could tell you exactly when, but since a crash also implies a failure of government
action (to some extent), that's an unpredictable element.... there is little historical precedent
for guesstimating when or how the Fed's support will fail. Comparisons of the market's
technical condition with that of the 1929 market suggest that we have only a few weeks'
wait until stocks crash, but no guarantees.
We even changed a department name to "Millionaire Mindset" from "Finance Fundamentals" to more accurately reflect the editorial mission of Young Money. Think about it. Wouldn't you rather learn what it takes to become a millionaire rather than grasp a working knowledge of finance fundamentals? - Todd Romer (publisher, demonstrating poor grammar and judgment)
One day, I went to my rich dad, and asked him.... "So is investing risky?".... "No," said rich dad.... "There is risk but investing itself is not risky if you take the time to learn to invest.... [most people] often seek and take advice from people who have very little money and are not very good investors." - Robert T. Kiyosaki (Actually, not bad advice, provided you have a rich dad to ask. But if you don't, unrelated rich folks are unlikely to give you investment advice for free. Especially Kiyosaki himself - he's peddling a book, plugged in the magazine. Guess he hasn't learned enough yet from rich dad to make it from investments alone.)
Send me Sallie Mae's "Borrowing for College", A Guide for Students and their Families - advertising postcard insert (Yeah, start your career right by going deeply into hock.)
How do you become a millionaire entrepreneur by the time you're 17? It helps to start early: Tolga Tarhan's interest in computers started in fourth grade.... [school district IT director Moe Farsheed] and Tolga.... formed a business partnership, JavaNet.... when Tolga was 15.... Wazzu Corporation gave them a small project on Friday with a following Monday deadline.... Wazzu was so impressed with the results, JavaNet was given a development contract for the whole next year.... Last spring, Wazzu approached JavaNet about buying them out. Their company was valued at $2.5 million at that time. Moe took his share of the proceeds and moved on. [Smart man! - /Nick] Tolga took his estimated net of over a million dollars in cash and Wazzu stock, converted the cash into mutual fund shares and kept on working for Wazzu as their senior engineer.... Hopefully [the future of Wazzu] will lead to an IPO. - Daniel Christopher
It's never too early to start building a strong credit history.... Remember, if you're under 18 you'll need the consent of your parent or guardian to apply. - inside back cover ad
Am I the only person who thinks this anybody-can-get-rich-easily type of magazine can
exist only at the
top of an enormous government-fed credit bubble? Certainly the magazine's content
reflects a lack of historical perspective.... why, all you need to get rich is to invest and
wait, profits are automatically yours. Recessions and depressions? Not on their radar. My
guess is that its creators are very young themselves, as they neglected to copyright their
product. The Contrarian's View is intentionally a public-domain publication, but I
doubt that this was the intent of the producers of Young Money. Especially when they
expect people to pay $18 per year for six issues of this bullshit.
Today, on CNBC, I noted that a number of "name" market analysts presented their targets for the end of the year 2000. To a man (and in some cases a woman) the target prices were higher. Frankly, I wouldn't give you a nickel for any of these predictions. The fact is that none of these experts have the slightest idea of where the Dow or the S&P or the Nasdaq will be next week, next month or the end of the year. None of them even subscribe to the thesis that this is a bear market. Your best bet is to totally, and I mean TOTALLY, ignore all these crystal ball predictions and just let the market tell its story. The story that the market is telling me is that this is a bear market. Where the market will end the year 2000 I haven't got the slightest idea, except that I think it will be lower, maybe very much lower. - Richard Russell
The US monetary authorities have in fact not established a market-based system, punishable by the disciplines meted out by the free market but, rather, a socialized system which underwrites losses through taxpayer-generated bailouts, thereby engendering even more reckless financial behavior and even greater use of derivatives risk. - Marshall Auerback
It can be shown that if hedge financing dominates, then the economy may well be an equilibrium seeking and containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation amplifying system.... Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. - Hyman Minsky [deceased economist. Translation: When the good times roll on for too long, we get a speculative financial bubble followed by a crash.]
Money market funds have been the key conduit for non-bank lenders, particularly the GSE's, Wall Street firms, and captive finance companies. Free from reserve requirements, money market funds have teamed with these aggressive non-bank financial institutions for what has been an historic bout of unfettered money and credit growth. Moreover, this mechanism proved particularly effective in sustaining rapid credit growth during past bouts of systemic stress and faltering financial system liquidity.... Today, however, the key issue becomes the soundness of these funds.... One fund from a major US brokerage had 40% of its assets in repurchase agreements.... Looking at another major brokerage's money market fund, it had 37% of its assets in "repos" and 24% in commercial paper from the likes of Aegon Funding Corp, Old Line Funding Corp, Greenwich Funding Corp, Tulip Funding Corp, and several Wall Street firms. We looked at another large fund that held significant commercial paper holdings from a long list of "Funding Corps" including Central Capital Corp, Corporate Asset Funding, Amsterdam Funding Corp, Park Avenue Receivables Corp, Delaware Funding, Edison Asset Securitization, International Nederland Funding Corp, and General International Funding, to name a few. These funds also have large exposure to Fannie Mae, Freddie Mac, the Federal Home Loan Bank System, GE Capital and the major brokerage firms. ....the US financial sector is one massive and precarious interest rate arbitrage. Well, it is clear.... that money market funds are the key source of liquidity for this historic speculation. Instead of the expected reasonable role of funding the short-term borrowing requirements for businesses involved in actual commerce, money funds are predominantly lending to holders of securities, most likely mortgage, credit card and auto receivables.... Wall Street has created a structure where conduit "funding corporations" purchase much of the long-dated loans with liquidity created through the money market funds. This is a powerful new twist to the age-old game of borrowing short and lending long. - David W. Tice
When? Darned if I know. But each month, as I enter the figures used to calculate "Timer's Trend", and I see the overwhelming downward plunge of the NYSE advance/decline line, and the number of new lows exceeding new highs even on rally days, and advancing stocks regularly trounced by declining stocks, I know that this can't go on forever. Eventually the technical deterioration will be so great that the bullish psychology will break.... that is, the bubble will burst.... even if the Fed does not try to pop it first. But when? Similarities to 1929 suggest, not more than a few weeks, but this bubble is much bigger than 1929's, so maybe it will last longer.
Since I expect violent, thousand-point swings, I'm debating whether I should try to trade them. Both the 1929 and 1987 crashes demonstrated that, after the (first) crash, it pays to wait about 3 to 5 weeks before jumping in to catch a rally. I'm leaning to being guided by past behavior, so if the violent swings come much more quickly, I'm going to miss out. On the other hand, the primary objective is to survive the bear (and possibly an ensuing depression) with one's capital intact, so I will not feel it's any great disaster if I miss catching these swings. Better to be a safe and sound chicken.
Original cost (adjusted): $ 4,998.21
Present value: $ 3,923.70
Increase: $-1,074.51 [-21.50%]
The performance of this portfolio and its predecessors ("Hedger's Delight", "Present and Future Income", "Crapshooter's Folly") from January 1987 to the present is -10.98%, for a compound annual rate of return of -0.86%. COMMENT on "Phoenix": There is no change from the January issue.
B. "Professors' Investment Group (PIG)" - investment club portfolio.
SUMMARY - "PIG":
Original cost: $ 9,024.00
Present value: $15,651.98
Increase: $ 6,627.98 [+73.45%]
COMMENT on "PIG": Other than the sale of 50 shares of Alexion, there is no change from the last issue.
The PIGs' Web page is at http://www.assumption.edu/HTML/Faculty/Kantar/WPigs.html
C. Roth rollover IRA - real portfolio, includes commissions:
SUMMARY - IRA:
Original (1983-86) cost: $ 8,326.19
Present value: $10,929.47
Increase: $ 2,603.28 [+31.27]
The performance of this portfolio (including its predecessors)
from January 1, 1987 to the present is -0.34%, for a compound
annual rate of return of -0.01%.
D. CREF Pension plan; I switch between indexed stock/bond/money funds:
Date Sold Bought
13Mar1992 stock @ 56.65 MM @ 13.41
29Apr1992 MM @ 13.48 bond @ 31.19
19Jun1992 bond @ 32.14 MM @ 13.55
29Jun1992 MM @ 13.57 stock @ 56.74
24Jul1992 stock @ 56.76 MM @ 13.61
29Oct1992 MM @ 13.72 stock @ 58.61
23Dec1992 stock @ 61.48 MM @ 13.78
16Jan1995 MM @ 14.83 equity-index @ 26.44
20Jan1995 eq-index @ 26.19 MM @ 14.84
30Oct1997 MM@ 17.24 bond@47.56 (27.17%)
30Oct1997 MM@ 17.24 i-i bond@26.12 (27.17%)
11Feb1998 bond@ 48.84 MM@17.52 (27.17%)
11Feb1998 I-I bond@ 26.23 MM@17.52(27.17%)
16Jun1998 MM@ 17.84 TIAA Traditional (45.87%)
23Sep1999 MM@18.99 I-I bond@27.56 (53.32%)
Values, 29Feb2000: stock, 199.43; MM, 19.44; bond, 52.15; inflation-indexed bond, 27.98;
TIAA current yield in SRA, 7.25%
Gain, 1988: 18.91%; 1989: 14.48%; 1990: 8.28%; 1991: 27.93%; 1992: 10.20%; 1993: 3.08%; 1994: 4.07%; 1995: 4.80%; 1996: 5.28%; 1997: 5.38%; 1998: 5.72%
Gain, January 1 through September 30, 1999: 4.129% (5.52%
annual rate of return)
Total gain since January 1, 1988 (11.75 years): 185.35%
Compound annual rate of return: 9.33% (My long-term target: in excess of 15%)
Gain shown excludes the impact of additional monthly cash contributions.
Buying CREF stock on January 1, 1988 and holding it gained
472.60%, for a compound annual rate of return of 16.02%.
COMMENT on "Timer's Trend":
Yes, we're still on the July 20 (1999) SELL signal.
______________________________ TIMER'S TREND _________________________________ Mon 22 Nov 99 #. I . |11089.52 | - * Tue 23 Nov 99 # . I . |10995.63 | .- * Wed 24 Nov 99 # I . |11008.17 | . - * Fri 26 Nov 99 .# I . |10998.91 | . - * Mon 29 Nov 99 # . I . |10947.92 | . - * Tue 30 Nov 99 #. I . |10877.81 | . - * Wed 1 Dec 99 # I . |10998.39 | . - * Thu 2 Dec 99 # I . |11039.06 | . - * Fri 3 Dec 99 . & . |11286.18 | .- * Mon 6 Dec 99 # I . |11225.01 | .- * Tue 7 Dec 99 # . I . |11106.65 | .- * Wed 8 Dec 99 #. I . |11068.12 | .- * Thu 9 Dec 99 #. I . |11134.79 | . - * Fri 10 Dec 99 .# I . |11224.70 | . - * Mon 13 Dec 99 #. I . |11192.59 | . - * Tue 14 Dec 99 # . I . |11160.17 | . - * Wed 15 Dec 99 #. I . |11225.32 | . - * Thu 16 Dec 99 #. I . |11244.89 | . - * Fri 17 Dec 99 # I . |11257.43 | . - * Mon 20 Dec 99 #. I . |11144.27 | . - * Tue 21 Dec 99 .# I . |11200.54 | . - * Wed 22 Dec 99 # I . |11203.60 | . - * Thu 23 Dec 99 . I# . |11405.76 | .- * Mon 27 Dec 99 # I . |11391.08 | .- * Tue 28 Dec 99 # I . |11476.71 |~-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~* Wed 29 Dec 99 . & . |11484.66 | - * Thu 30 Dec 99 . & . |11452.86 |-. * Fri 31 Dec 99 . | #. |11497.12 |-. * Mon 3 Jan 00 .# I . |11357.51 |-. * Tue 4 Jan 00 # . I . |10997.93 |~-*~~~~~~~~~~~~~~~~~~~~~~~~~ Wed 5 Jan 00 # I . |11122.65 | - * Thu 6 Jan 00 . & . |11253.26 | - * Fri 7 Jan 00 . | # |11522.56 | - * Mon 10 Jan 00 . | #. |11572.20 |-. * Tue 11 Jan 00 .# | . |11511.08 + . * Wed 12 Jan 00 .# I . |11551.10 + . * Thu 13 Jan 00 . | # |11582.43 +~.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~* Fri 14 Jan 00 . | # |11722.98 + . * Tue 18 Jan 00 . # . |11560.72 + . * Wed 19 Jan 00 . & . |11489.36 + . * Thu 20 Jan 00 .# I . |11351.30 + . * Fri 21 Jan 00 . #I . |11251.71 + . * Mon 24 Jan 00 # I . |11008.17 |*-~~~~~~~~~~~~~~~~~~~~~~~~~~ Tue 25 Jan 00 #. I . |11029.89 | - * Wed 26 Jan 00 .# I . |11032.99 | .- * Thu 27 Jan 00 .# I . |11028.02 | .- * Fri 28 Jan 00 # . I . |10738.87 | . - * Mon 31 Jan 00 # I . |10940.53 | . - * Tue 1 Feb 00 .# I . |11041.05 | . - * Wed 2 Feb 00 .# I . |11003.20 | . - * Thu 3 Feb 00 . & . |11013.44 | .- * Fri 4 Feb 00 . #I . |10963.80 | - * Mon 7 Feb 00 .# I . |10905.79 | - * Tue 8 Feb 00 . I# . |10957.60 |-. * Wed 9 Feb 00 #. I . |10699.16 | - * Thu 10 Feb 00 # I . |10643.63 |~-~~*~~~~~~~~~~~~~~~~~~~~~~~ Fri 11 Feb 00 # . I . |10425.21 | .- * Mon 14 Feb 00 #. I . |10519.84 | .- * Tue 15 Feb 00 . #I . |10718.09 | . - * Wed 16 Feb 00 # I . |10561.41 | . - * Thu 17 Feb 00 .# I . |10514.57 | .- * Fri 18 Feb 00 # . I . |10219.52 |~.*-~~~~~~~~~~~~~~~~~~~~~~~~ Tue 22 Feb 00 # I . |10304.84 | . - * Wed 23 Feb 00 #. I . |10225.73 | . - * Thu 24 Feb 00 # . I . |10092.63 | . - * Fri 25 Feb 00 # . I . | 9862.12 |~.~~*~~~~~~~~~~~~~~~~~~~~~~~ Mon 28 Feb 00 .# I . |10038.65 | . - * Tue 29 Feb 00 . & . |10128.31 | . - ========================================================================"Timer's Trend" is based on 4% and 10% exponential moving averages of the New York Stock Exchange advance/decline line (that is, the ratio of advancing to declining stocks). There are many symbols shown above, but the ones that count are the braces: {, } = "Timer's Trend" (4% exponential confirmed by 10% exponential) SELL ({) or BUY(}) signal.
NEXT ISSUE - will appear about March 28. /Nick Chase