Re: market turning point [was Cynical Musings on War, the Economy and Po

On Wed, 14 Apr 1999 06:02:35 -0600 Tracy Hart <tracy.hart@CWIX.COM>
writes
on the Concord Coalition List:

>Curt Priest has opined that debt levels make a depression inevitable.=
> (Part of me believes this is likely to happen.)
>
>Curt.  What is the likely time frame for a depression to occur?

Tracy,

Bubbles are the most confounding things.

They have a whole life of their own.  Any naysayer is commonly and
immediately dismissed.  The market -- whether for stocks or tulips --
can _only_ "go up."  The literature on the relationship between bubbles
and mankind's generally hopeful, optimistic spirit pervade every
study of panics and bubbles.

This bubble should go down in history as the grandest of them all based
on the length of rise.

We have had the "goldilocks" economy now for well over a decade and
it has been seven years since the last wrinkle -- the '92 recession.

Some dozen prominent writers such as Davidson/Rees Moog and Ravi
Batra wrote their best sellers in the late '80's about the coming
depression.  Many other writers have written about the same, such
as John L. King and another twenty or so whose books lie stacked
around here.

Only yesterday did the Boston Globe print Robert J. Samuelson's editorial
on "US economy defies predictions but is not invulnerable: Confidence
vs. conceit."  And today we see that Arthur Levitt, chairman of the
SEC, say that Wall Street is too bullish and:

	I worry that investors are being influenced too much by
	analysts whose evaluations read like they graduated from
	the Lake Wobegon School of Securities Analysis -- that's
	the one that boasts that all securities are above average

Recall Keillor's description where "all the women are strong, all the
men are good looking, and all the children are above average."

There are two main players today that are pushing the bubble up:

	1.  "babyboomers" who are determined that by investing their
		pensions in the stock market -- they will be
		millionaires by retirement time

	2.  Hordes of neophyte market players sitting at PC terminals
		and making trades by the minute  (it is the ultimate
		"slot machine")

These two groups plus the mutual funds in general, have been pouring
gasoline onto the fire, looking to make money in the market at 
(imaginary) double digit rates.

As Beranek of BBN (Bolt, Bernaek and Newman) said one time to an audience
I was in, a company's profit is the difference between two very large
numbers.

It does not take much to make that number change dramatically -- one
way or the other.  The Asian "flu" will affect this number --
dramatically.

As for actually calling the top, I rely on the advice of Harry L.
Schultze,
author of several books on panics and making money in a bear market.

His advice is not to predict the turning point, but to detect it.

As a "technician" he analyses the swings of the market and the swings
of various stock prices, and, when they meet certain criteria (for
example the top of the current "swing" is so many percent less than
the top of the last swing, etc.) he then leaps into the market, sells
many "highflyers" short, and walks away one of the richest men in
the world.

Problematically, those who thought they called a downturn over the last
fifteen years have lost a lot by shorting stocks and these traders have
been weeded out of the market.

This weeding only leaves the bulls.  Contributing further to the bubble.

In recent discussion with Dr. Batra, Batra is expecting the "one hour"
melt down.  There is so much imaginary money in the market today that
very few can "take it out" without prices dropping by incredible 
amounts.  I would imagine even "stop loss" orders might be executed
anywhere between 20 and 60% below the stop loss order amount if
such a melt down occurred that quickly.  Those without stop loss
orders, not glued to a PC, could blink only to find their entire
portfolio worth 5% (5%, not 5% less) of what it was earlier that day.

Regards,

Dr. Priest

           W. Curtiss Priest, Director, CITS
      Center for Information, Technology & Society
         466 Pleasant St., Melrose, MA  02176
         Voice: 781-662-4044  BMSLIB@MIT.EDU
 Fax: 781-662-6882 WWW: http://www.eff.org/pub/Groups/CITS