Thursday, August 10, 2006


Market thoughts

I got my ass kicked today: down 0.8 percent. A reader asked my thoughts about the state of the market and where it's heading. I don't know if I have a good answer. In the near term, I think the market is more oversold than overbought and once August is out of the way, I wouldn't be surprised to see a nice rally. Longer-term, I think we are in a sideways market. I've believed that for the last two years, and I have been right so far. I don't buy the line of argument that we are in a secular bear market. Bears always sound convincing, but in my experience, are usually wrong. On the other hand, there are enough risks in the global economy that I doubt we'll see a big upwards move in equity markets. Thus, it will be a stock pickers market for the foreseeable future.

The Nasdaq, for example, has been in a "sideways" market for 3 years with a range of 1750 to 2350 in CURRENT dollar terms. But, if you take real (as opposed to the underreported government CPI) inflation into account, you quickly see that the Nasdaq has been in a bear market for some time. Same for the other indices. Amazing that so many can't see this. Doesn't mean individual stocks or sectors don't have bull periods (as do the indices for up to a few months at a time), but that doesn't change the story on the overall market.
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