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Iceberg Dead Ahead!
by Professor von Braun
March 4th, 2000
That which is currently pushing stock markets higher at present is a mystery to many commentators. With the Nasdaq powering towards the 5000 level, which in itself is mind boggling, European markets knowing no bounds, the Australian market doing a fair imitation and life just "roses, roses" for the "new economy" investors, is the party about to come to an abrupt end?
Certainly the "bears'" calls for a turnaround at any point have faded to not much more than a muted growl. There is an eerie silence at present, reminiscent perhaps of a time when the party was ending and the iceberg was appearing. The last of the party-goers, feeling the effects of a glass or two of their favorite beverage too many, returned to their cabins, and prepared for a good night's rest. The call "iceberg ahead" was not taken seriously to begin with. This would change and change very quickly. Nothing quite like a dose of realism in the form of a sudden jolt, to change the perspective.
In a conversation I had with a stockbroker the other day he mentioned that one of the now retired senior members of his firm participated in the pre market conference call that starts the daily ritual of market trading. This particular gentleman, now in is late seventies, when asked for his current market comments said that he had seen this type of market activity at least five times before and it always ended the same way. Badly.
It is interesting to note that this firm now records all phone conversations. "Why?" one could ask. Do they know something the average lunatic investor does not? Like there is no money and very little value in dot-com? Is this a sign that it is time to prepare for the worst? Or is this just a precautionary measure? Full steam ahead but put a life vest on just in case?
We are at a critical juncture when it comes to markets. The CRB index is rising, ending a long decline as commodity prices dropped to multi-year lows. Stock markets are beginning to falter. Early signs of a topping process are beginning to appear. Some would say many early signs. Not only do we have the shoe shine boy giving out stock tips, but we have cab drivers, grandmothers, cocktail waitresses, kitchen hands, television commentators, internet chat rooms and even bankers playing the "lets become a millionaire" game.
Even more surprising, these people are buying the dips, justifying their purchases with such terms as "ridiculously undervalued". Have they all gone mad? Why would a sane investor who purchased a stock at $5, saw it rise to $30, watch it fall to $20, then brought more because it was ridiculously undervalued, expect it to return to $30? When it already was overvalued at $10? And we are not talking dotcom here, we are talking banking sector stocks. A sector that several serious (as in old fashioned) analysts have been saying for some time is overvalued. Oh well, so much for the new house.
We suspect that the availability of new money to keep this game going is at an end. The smart money is leaving this market en masse. The daily turnover of the Nasdaq certainly suggests that this is so. A turning point is at hand and it will be interesting to watch. Maria 'the mouth-piece' Bartiroma should be great entertainment as she begins to shriek in the opposite direction. Was that a mouse running across the floor of the NYSE? Perhaps a strait jacket will be needed.
In the Early Warning Signs Department, has anybody looked at mutual fund disclaimers recently. They have become considerably longer, extremely legalistic and consequently, more complicated. What they are saying is "put your money here and take your chances". What they are telling you is that fund managers are becoming concerned at how this will end and are trying to cover their "derrieres".
What some fund managers don't realize is that, like the Titanic, when this party ends very few will escape. The very few will be those that cashed out prior to the top being confirmed by a lack of dip buyers, those astute (as in stock market traders with all of three years experience) believers in "ridiculously undervalued" situations.
Even those that have cashed out will have the dilemma of where to put their money. Certainly not as bad as having no money at all, but a dilemma never the less. Which takes us back to the concept of owning physical gold. Any chance to purchase physical gold, the old fashioned cash equivalent, and take delivery at under $300 should be regarded as an opportunity too good to be true.
We at the Rocket School of Economics have never yet seen old worthless gold bars for sale. But worthless stock certificates are easy to find. Some people even collect them. They look great, especially the old ones dating back to the 1860's. The designs were impressive, they looked valuable and yet they ended up worthless. Old paper currencies abound as well. They too look impressive. But try using them as legal tender and see what happens.
The Prof can be contacted by email at firstname.lastname@example.org
Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.
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