Semi,
There is another jaws of death out there and that refers to the bond market versus how they are behaving with the stocks. Wiliams often mentioned that a prolonged discrepancy leads to the jaws shutting down hard.
HOWEVER, in our cases the bond market is suggesting that if the equity market has not bottomed yet, it will do very shortly. Bonds have rallied amazingly well and the 10 year yield has broken quite a few important support levels. Unless something is changing that I am not aware of, I will take the bond rally as a sign that hte market is in good shape overall.
Yeah, bond market is probably responding to the Feds... but I don't think there's any guarantee they will do anything... and lowering the discount rate didn't really help much... except psychologically... History and the charts I have already presented on this site from 1/2001 already show what a reversal to a rate cut from a rate raising environment produce...about a month of rally and then a journey to new market lows... There's no growth model out there for us.. credit is shrinking, risk premiums are escalating and overall there's a crimp on lending and borrowing because the logic and psychology of it has changed... better known by stock hounds as "fundamentals"...
Overall it's not just the psychology of borrowing and lending... it's also the psychology of buying and selling. There are always going to be the folks who want to see a reversion to the mean... fully invested in the old model. That's not now new bull markets are born though. New bull markets are born out of bear markets, where buying and selling stocks is a "dirty" business... we are a long way from that now, except for the dirty business part... you know those darn AAA ... subprime instruments. Now there is the height of bullishness.... who in their right mind would buy a AAA "SubPrime" anything? So there are always some folks that are just going to buy anything, are butt-headed bulls... History has been kind to them recently. I've seen the fall before... from 1969 when the DJIA went from 1000 back to under 300. What were they rationalizing? Vietnam Wars, Presidential Scandals, Middle East Wars, Gas Prices, and inflation. The more things change the more they are the same...
There are new bull markets emerging in next-generation social computing and consumerized healthcare, for example... it's too soon to put your money there now...
Cash is King folks, you heard it here first. Good Luck Bottom Pickers!
Edited by SemiBizz, 01 September 2007 - 08:19 PM.