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“Are We There Yet?”
We’ll show you six ways to turn stock-market carnage into turn-around profits
by J. Christoph Amberger
What a month it’s been!
The Swiss army’s bicycle brigade is being retired...
An English fruit-and-vegetable vendor was found guilty of selling his wares in pounds and ounces, not in the metric measures demanded by European bureaucrats...
A Chinese aerial cowboy lost his life harassing a U.S. spy plane... and triggered a Chinese relapse into the good old Maoist tradition of demanding public self-criticism from the U.S., before the actual cause of the accident was ever determined.
And both the NASDAQ and the Dow Jones Industrial Index posted impressive rallies... after suffering horrendous decimation only days before.
By now, the slide in the U.S. markets over the last 12 months has cost investors more than US$5.3 trillion — more than three times the amount of President Bush’s original tax cut proposal, before the Senate took a bite out of it last month.
And yet... I’m still waiting for the bad times to arrive. They’re fashionably late so far. Gas prices are down from a year ago. Food is cheap and plentiful. And former dot-com ponytails have yet to populate the streets selling #2 pencils and apples to passers-by.
“Can you spare a dime?”
In fact... despite large layoffs at Intel, Cisco, Lucent, Motorola... there are still long waiting lists of people eager to drop US$60,000+ on the new Lexus convertible. J.D. Powers and Associates thinks 2001 is going to be the 3rd best year in history for car sales. Credit is cheap. And “consumer confidence” is rising along with the temperatures.
And as I write this, the market seems to be following suit. For a day or two at least. Because after stocks hit bottom, they often bounce up and down for weeks. Even months.
Hoping to be persuaded that things have gotten as bad as they’re going to get, investors are now scrambling to find signs that the turnaround is imminent... that the bad earnings announcements are finally coming to an end.
Japanese parallel
But there are some who believe the NASDAQ’s collapse mirrors that of the Nikkei Dow a decade ago.
Japan’s Tokyo Stock Price Index still languishes at 60% of its high at the end of 1989. Japanese premiers are stepping down faster than their Italian counterparts did in the 70s. And the overall state of the economy in the Land of the Rising Sun appears to be teetering on the brink of the abyss.
Sure, they are parallels. Both stock market booms were fueled by debt, speculation, and a trance-like belief that nothing could ever go wrong.
Stock prices rose sharply, and with them economic activity. Companies raised new capital at virtually no cost, spending like a mob of drunken Congressmen. And in both countries, the governments tried to banish the specter of inflation by hiking interest rates.
But that’s really where the parallel ends.
The boom in U.S. technology resulted in an unmistakable rise in productivity... which will be a positive influence on economic growth in the medium to long term. (Japan’s asset bubble, conversely, relied heavily on inflated real estate prices.)
Plus, the Federal Reserve has been cutting short-term interest rates since January, which should help stimulate the economy in the medium term. The Bank of Japan, however, kept hiking interest rates for twelve months after the Nikkei began its precipitous slide. And, not to be outdone, the government continued to raise taxes (especially sales taxes) until the country was mired in a full-blown recession. That’s a far cry from the tax-cutting climate that moved into Washington with the election of George W. Bush.
When is it going to get better?
Stock prices tend to reflect investors’ expectations of future earnings, rather than past earnings performance. At this point, no one expects too much positive news about first-quarter results. (In fact, Amazon’s recent announcement that it wouldn’t lose quite as much money as projected in Q1-2001 sufficed to trigger a 30% rise in the stock price.)
Even a minor dose of positive news is sometimes enough to do the trick. Dell’s announcement of first-quarter earnings estimates, and Alcoa Inc.’s release of slightly better earnings, boosted the entire market for about a week.
Recessions typically last 11 to 18 months. Stocks often rebound halfway through, as investors position themselves for the elusive recovery. And if the U.S. economy succeeds in averting a full-blown recession, this may be the time to start loading up on dirt-cheap stocks.
Then, of course, you can always lose another 99% of your holdings...
At this point, timing and pricing become crucial. Even more so than usual. That’s why I asked the Taipan team of editors to give you their honest assessment of the current market climate... and their favorite plays for making money out of it.
I also invited Adam lass, editor of Options Underground, to share with you what his proprietary WaveStrength system is indicating. (The track record of the Options Underground team in calling the highs and lows of the NASDAQ, particularly during the upheavals of February and March, has been nothing less than spectacular.)
All this to prove to you that there’s always the opportunity to make money, no matter what direction the markets are moving in!
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