Wednesday, July 27, 2005


The bull is back

Up $1200 today. I must admit that this market is much more solid that I had thought it would be. Over the near term, I think the major indices can go much higher. Despite the big run up over the past 2 months, the NASDAQ is barely positive for the year; still plenty of upside.

Over the longer term, I remain very bearish. As I've mentioned before, valuations are severely stretched. About one quarter of S&P 500 earnings are attributable to the financials (if one includes financial entities like GMAC and GE Capital). If the yield curve continue to flatten, this will hurt the banks and other financial institutions. Of course, tech will be less affected, but since the P/E ratio on the NASDAQ is close to 40, many tech stocks are already priced for perfection or close to it. Not my sort of odds, but unfortunately in this environment every asset class (bonds, housing, stocks) seems overpriced, so you just have to take what the market gives you.

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