From: Greg Simmons [mailto:GSimmons@rothcp.com]
Sent: Tuesday, January 04, 2005 4:36 PM
To: Greg Simmons
Subject: "MARKET UPDATE" JAN 5 05 + COMMENTS FROM RUSSELL RE: BULL/BEAR MARKETS
JANUARY 5 2005
THE SPX CLOSED DOWN 14.03 @ 1188.05
THE VIX CLOSED DOWN? .10 @ 13.98
HOW THE VIX WAS DOWN WITH THE MARKET DOWN THIS MUCH IS A SURPRISE, BUT AS I MENTIONED IN YESTERDAY'S UPDATE IT HAS BEEN RUNNING HARD FOR THE LAST SEVEN DAYS MAYBE "FRONT RUNNING" A REAL DROP IN THE MARKET?
THE SUPPORT LEVELS ARE CURRENTLY AT 1153.76 AND 1138.76
BELOW ARE SOME COMMENTS FROM RUSSELL REGARDS "BULL" AND "BEAR" MARKETS THAT ARE ALITTLE REPETITIVE, BUT WORTH READING TO KEEP THINGS IN PERSPECTIVE AS WE START THE NEW YEAR.
January 3, 2005 -- Judging by the consensus of experts and professionals, it seems clear that the year 2005 is going to be "nice,"
if not actually bullish. Maybe this headline in today's Wall Street Journal says it all ("Money & Investing" section) -- "For 2005, Rising
By now I guess subscribers know how much credence I give to the consensus of experts, strategists and economists. On a scale of 1 to
10, I give 'em a big fat zero. Of course, longer-term "forecasts" tend to be more accurate than short-term forecasts (and by short I mean a
few months, six months, even a year).
Here's my thinking. A bear market started in late-1999-2000. The first leg of the bear market took stocks down to lows in October of 2002. But
at those lows stocks were still very expensive, meaning that the bear market had not exercised its classic function of eliminating the
over-speculation, the overvaluation and the extremes of the preceding bull market. And I might add that the bull market that ended in 2000
contained some of the most outrageous speculation ever seen in Wall Street history.
At some point in the collapse, the Fed under Alan Greenspan realized reluctantly that "the bubble had burst." Next, the Fed stepped in
(having learned from the deflationary collapse of the Japanese stock market and their economy) and brought interest rates to generational
lows while flooding the system with liquidity. Even now with short rates at 2.25%, the short rate is below the inflation rate, meaning
that rates remain negative. This is another way of saying that at current low rates, money is being given away.
Since short rates are still negative, there is tremendous pressure for people (I won't refer to them as "investors") to speculate. And
speculate they have -- in housing, in stocks, in hedge funds, in mutual funds, in longer-term bonds, and in foreign securities.
Let me offer subscribers my conclusion. The primary bear market that began in the year 2000 is not over. It's been interrupted, held back,
by a Fed that is out to prove that "there don't have to be stock market corrections, and that there don't have to be economic recessions. And
above all, absolutely above all, there don't have to be periods of deflation in the US economy, not while the Federal Reserve can give
And I truly believe that's what the battle is all about. Can the Fed hold permanently back the tide? Can the Fed, by literally giving money
away, eliminate periods of recessions and deflation? Personally, I'm skeptical, very skeptical.
As subscribers must know by now, I'm a firm believe in the thesis the bull markets follow bear markets, and that bear markets follow bull
markets. From a Dow Theory standpoint, the big question is always --when is the bull market ending, and when is the bear market ending.
Bull markets end amid high speculation, overvaluation in stocks, high volume, low dividend yields, and extreme bullishness on the part of the
public. Bear markets end amid high valuations, low price/earning ratios, fat dividend yields, dismal volume, and a background of gloom
and black pessimism on the part of investors and the public.
I maintain that since the bull market top of 2000, we've never seen anything remotely resembling a bear market bottom. A bear market
bottom? That is a situation, I firmly believe, that lies ahead. How far ahead? I don't know, nor does anyone else. My job is not to predict the
time of the final bear market bottom (that's impossible, and I don't care what technique you use), my job as always is to IDENTIFY the bear
market bottom when it appears.
This is the first trading day of 2005, so I might as well go further into the big picture. The biggest bubble in the land today is the
housing bubble. This is where most Americans have their assets, and their paper profits. My father was a real-estate man all his life, and
I grew up listening to "real estate talk." I know one thing about real estate. Like stocks, real estate prices can "go nuts" on both the
upside and the downside. The last two generations of Americans have,for the most part, only seen the upside.
I treat the price of houses on a return basis. When I can buy a home and, after all expenses, rent that home out and cover my costs then the
price of that home is not a bad deal. When I can buy a home and after all expenses make a good profit, that home is a "good deal." Today, try
to buy a home and then rent it out and make a profit or even cover your costs. You can't do it. Which means to me that homes are overpriced.
Here in San Diego homes are ridiculously overpriced, more so than any other place in the country. But in general, housing is overpriced.