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The
down move has not been finalized
and encompassed
enough stock market participants.
Speculators continue to hold profits and
maintain some certainty that the down
move will end and soon reverse. Stock holders are
waiting. They are confident that the down move will terminate
and an up move will start. They are
certain the up-trend will
resume. They believe the recent
months of
selling are a pause in the up trend. |
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Even
today's rapidly declining interest rates have not
ameliorated equity price declines nor un-seized credit
markets. |
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Another
aspect which further exacerbates the ease at which today's
stock markets may someday, relatively soon fall, is the proliferation of stocks that
have not split at traditional price points. These
stocks of companies including RIMM, GOOG, GS, CME, DE, AAPL
and several others, have in the past
split around the 80 to 100 dollar area. Instead, these
companies' stocks have been elevated well into triple-digit
numbers leaving them and the market vulnerable to a rapid,
reflexive wave of selling by participants who sit with
large, long-term profits which suddenly feel overvalued and
profitable. Fear may easily set in during some
unanticipated, overly-emotionalized market condition. Additionally, some
old-line industrial companies such as MMM and UTX have
traditionally split somewhat over 100 are approaching that
territory and could falter in an emotionalized market. |
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In
1929 RCA stock was over 520. Within two years, at its low,
RCA had fallen to less than 5. |
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Volitility
will decrease when the stoically-confident participants holding
large gains sell into a very heavy volume
providing a large percentage
down move. When these participants sell and are washed
out of the market, the down move can end.
Likely only after even the high-profit holders have
surrendered -- dumped -- their positions. |
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There
is no certainty that a significant up move will follow. Today is not October, 1987. Relative
stability --
that old non-gaming market pattern -- may not interest many of today's
oh-so-smart players. They may not re-enter the game since,
for them, markets
are only fun when up trends are obvious and can be played
like games and anticipated losses are few. |
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Another
Problem: A recovery today will likely be slower than the
bounce-recovery that followed
the October,
1987 crash. The investing public and financial
professionals have been educated by the myriad of Enrons and
WorldComs
with their well-known, personalized
top-level master planners. Trials pop up from time to
time, the dockets remain packed, and
the perpetrators are displayed everyday in headlines and business news. The
public and every market
participant has learned of the lacking ethics of corporate
executives and fund managers. Ironically it is most
likely that money managers are as unethical, criminally, and
greedily-oriented as their counterparts at most other
corporations and funds. And
so on, around and around in 3-dimensional spiraling
concentric circles of greedy, unethical, borderline criminal
behavior. But markets are based upon trust. Nowhere, not even for companies listed on the old-line NYSE,
might a corporation or fund be implicitly trusted to have
produced a thoroughly legitimate financial statement.
Without trust in underlying financial integrity, markets
will move with sluggish indifference and be weighed down by
sellers who sell into each rally to eliminate their
over-hanging loses. |
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There
is are similarities in today's
high-flown stock
markets and the multi-decade housing cost inflation phase.
Much of the past decades' seemingly unending housing price up-trend may be
justified under the guise that, "People need a place to live.
There are more people seeking homes than ever before". |
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However many so-called homes are second and third dwellings
and time-shares. Also and separately, there are
quantifiable rational limits to the extent that
today's two-wage earner households are able to sustain
and how many defaults lenders can financially tolerate and
sustain their own viability. And further separately,
there many "home owners" who were extended more credit than
should ever have been justified. These people are the
"weak hands" and weakly fortitude individuals holding a significant segment of the real
estate market. They may not care or have any intent of
working to sustain their housing and credit lines. These
borrowers may desert their housing, thereby leaving lenders
holding assets declining in value and with indeterminate
valuations that, when
marked-to-market, cannot rationally match their home owners'
mortgage defaulted valuations. |
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Interest rates are one of
the powerful forces impacting financial markets. Interest rates must be factored in
to decisions and anticipated to have significant impact
upon prices. |
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