Subject: IC940828: Debate, Where the market is going? - Ken Gu

From: "Gray Zhu, 800-289-2498, 212-279-6700" <[email-masked]>
Date: Sun, 28 Aug 94 12:12:28 CDT

==================    IC940828: Investment Club  ======================

1. Re: IC940827: Thoughts about Market ......................... Ken Gu
2. Another book ................................................ Ken Gu
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1. Re: IC940827: Thoughts about Market ......................... Ken Gu

From: [email-masked]
Subject: Re: IC940827: Thoughts about Market - Jianping Zheng

> 
> At the time, things were still uncertain. The most obvious: people were 
> still haggling whether the Fed should or should NOT raise the rate again. 
> And perhaps more important, whether the market will react to such a move 
> or non-move. 
> 

Well, I don't think things are "certain" at any stage of the market.  One
thing is certain though: last week's rally is good for the market trend.
Also, if you knew that the analysts were mostly wrong in their views of
where the market was heading, you would have made a lot of money last week.
When interest rates go up, the market goes down.  But, it is also true, when
the Fed is done with interest hikes, the market goes up about 15% on average
in the next six months (I may be wrong in the time window).
If you decided to stay out because you were uncertain where the market was
heading, you would have missed a lot in the past two months.  Again, if
you are still uncertain where the market is heading, you will continue to
miss a lot of opportunities.

> However, the unexpected rate-hikes in Italy and Sweden did betray the market
> psyche. Rather than seeing a great turbulance, many markets stabilised 
> after the initial shock. What it told us? Well, the market is waiting 
> for something: some GOOD news (or excuses) to muscle a rally. Seeing that,
> the decision of riding over the storm would not be too difficult to make.
> 

Europe's economic recovery is ahead of expectations.  Unlike the US, the
unemployment rates are higher, thus keeping the inflation down.  Many expect
many European countries will follow the US by raising interest rates.  If
you agree, then stay out.  If you don't agree, buy on sell-off (like a week
ago).

> It is a bit funny to see how the coverage tried to relate the 50 points
> rate-hike with the market rally, and particularly, how badly the non-rate
> -hike (which would never happen afterwards) would damage. If we remember
> the days market used every excuses to drop, we should not be difficult 
> to see that the market will rise even without such a rate-hike. Poor
> economists, they should really resort to psychology books rather than 
> stick to their thick economic books.
> 

Again, if the economists could predict where the market is heading, they would
have quit their posts.  They would have made billions of dollars already.

> Don't Forger: The Bull has been Wounded
> ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I would said the bull has been recharged or refueled.

> 
> It will be unwise to think that the market will rocket regardless of the 
> recent deep scar. The Bull is already severely wounded. 

A particular stock may go up like rockets.  Some stock indices may as well
(like the Hengseng Indix or the Shanghai Stock Exchange).  But not the three
major indices in the US!

> 
> If the 70 points rise of Dow tells that the market is still a place to stay,
> the afterwards 50 points rise should be an alarm. A too rapid rally would 
> only bring, at the best, a subsequent prolonged period of consolidation.
> I would rather see a few months digestion at the current level rather than
> a sharp up-and-down, which will give us an ominous short-term double-top 
> pattern and an extremely difficult time.

Why a few months of digestion?  Are you saying we buy in a few months?
Why not next year or now?  You seemed to be "certain" in when the market
will go up higher.

> 
> When over-pessimism turns to over-optimism, it is probably the time to make
> an orderly retreat.

I agree when you are overly invested at this stage, you probably want to
lighten up.  I would not stay out completely.  I would lighten up on
cyclicals for example, but stay with some of the technology sectors.
Always keep some cash available when opportunities arise.  Read the
WS Journal daily and keep an eye on the healcare debate.  Some drug
and hospital supply stocks have made quite a come-back recently, but
it is not over-yet.  Also, look for stocks that have been slashed
badly, but are still fundamentally sound.  Furthermore, computer prices
are being cut drastically.  What does it mean for this sector, and
what will happen to the computer peripheral stocks (chips, keyboard,
computer screens, memory, HD, CD ROM drives, etc.)?  Lastly, but not the
least, the dollar is at all time low.  What does it mean for companies
doing bussiness with Japan, the European countries, and booming markets
in Asia?  

My advice is: spend less time worrying about interest rate hikes, but
instead, focus on fundamentals.  The US economy is robust.  The weakness
in dollar is helping its competitiveness in world economy.  Stay invested
and use any sell-off as buying opportunity.  Stock market is the place to
be in the 1990s!

> 2. Book, Interest rate and stock market
> 
> The first book I read was "Understanding Wall Street". I do not know
> much about other books, but this one is enough to start with.

This is a good one.  Another one I would like to recommend: "One up
on Wall Street", by Peter Lynch.

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