There has been the usual over-reaction to events generated by (largely) US-sourced companies who have extended credit without commensurate risk premium. Here is an alternative view you may be interested in perusing. I am personally sick of hearing about why the glass is half empty. These stories are promulgated by people who appear afraid of success and who try dragging everyone within hearing into the realms of their depressive illness. I like to look at background fundamentals related to population ageing, consequent shortage of labour, inevitable development in technology and in particular replacement technology to overcome labour shortage and so on. TZL is a classic example of a company slated for overwhelming success in that it is positioned to greatly relieve critical labour shortages as well as saving users pots of money. But still the presence of those with lack of imagination and/or research provides buying opportunities for those with a more positive outlook. You might be interested in reading the following article from FN Arena News from yesterday. My sentiment on this stock is placed at ST Buy only because there isn't a category of VST Buy!
Bottom Forming, Dow At 20,000 Soon?
FN ARENA NEWS - 27/03/2008
In 1970 it was the Penn Central bankruptcy. In 1984 it was the failure of Continental Bank. In 1994 it was the Mexican peso devaluation and in 1998 the collapse of Long Term Capital Management. At 67 sprightly years, equity strategist and now consultant James Finucane has seen it all.
Finucane has made his reputation as a picker of bottoms. Not a particularly tasteful rap, but one which makes him a go-to expert at the current time. He's not a tops man - he was too early on the 2000 high, for example - but bottoms have brought him success. He correctly called the bottom a week after '87. So it would be interesting to know whether Finucane has his eyes on a bottom right now.
Barron's Jonathon R. Laing asked, and was told that we're now at yet another "extraordinary" low. From here, Finucane foresees an "explosive" rally that will have the Dow rushing to 18,000 or 20,000 within a year. On the timing of the surge Finucane is not yet fully certain. It might happen shortly, or it might take "a few months of backing and filling". But he believes the US stock market lows of January 22 and 23 will hold. (That's the intraday low of 11,508 on the Dow - 914 points below last night's close - which clearly leaves room for another downside shift).
The Bear Stearns bail-out was a "crescendo event", Finucane argues, just like the events listed above. In each of those cases, an extraordinary low was made either immediately or within a month after the event.
Finucane's argument draws a lot from contrarian principles and the nature of human emotion. Each crisis is at its worst when the level of doom and gloom rhetoric peaks. He cites the recent assertion from former Fed chairman Alan Greenspan that the current financial crisis is the worst faced by the US since World War II. Such a statement was all too familiar.
Greenspan had also said that the 1998 LTCM collapse was the worst he'd seen in his lifetime. The Dow tanked in August of '98 but passed through its highs again in November. In March of '94 Time magazine called the government group put together to solve the Mexican peso crisis as "The Committee To Save The World". By August the Dow had hit new highs. In October '87 legendary trader George Soros called an inevitable depression. This had been the biggest crash since '29, but the Dow was back at its highs by July '89.
Soros calls a depression every time something goes awry. See "'I Got It Wrong', Says Soros" (Sell&Buyology, 25/01/08). The point, however, is that someone always announces the sky is falling just before a recovery.
In a more general sense, Finucane told Laing that "governments and central banks have a clear incentive to promote growth, so to bet on a prolonged slump is to bet against the government, markets and human nature". But there are a number of more tangible indicators Finucane has drawn upon.
The last peak in money market cash holdings (ie, an indication of the number of investors having shifted into the safety of "cash") was US$2.2 trillion at the time of the 2003 stock market low. Today that figure stands at US$3.45 trillion. US domestic equity funds have now seen a consecutive nine months of outflows. The previous record was eight months, following the '87 crash. Monthly consumer confidence is at a seventeen year low. The American Association of Individual Investors finds its members more bearish than any time since 1990. And so it goes on.
At the last low in '03, the market had been falling for 36 months (which puts this current weakness into perspective). Some tech stocks had lost 90% of their value. Retail sales were at their lowest ebb as the US invaded Iraq. United Airlines was chapter 11. McDonald's registered its first ever quarterly loss. Many forecasters were warning of another dip into recession. The Dow hit a monthly low of 7,891 in March '03. The next stop was 14,000.
Such statistics have urged Finucane to suggest a fuse has been lit for an explosive rally. The mood will shift from abject fear to tentative confidence (there are signs already) and inevitably to wanton greed.
Finucane's argument is compelling. But one must remember there are always compelling big-picture arguments put forward at such crisis times. The best ones usually emanate from the technical fraternity who predict, for example, the Dow will return to about 500 given the pattern looks similar to '29. Providence will be offered by the fact they picked '87. There is never any mention of the fact that they have never been right since.
A quick look at a historical Dow chart shows there were other inflexion points not mentioned here, such as 1975 and 1982. Nor is it said whether or not Finacune has ever been wrong on a previous call. But his argument is clearly food for thought. As far as statistics are concerned, of course, records are made to be broken.
TZL Price at posting:
0.0¢ Sentiment: ST Buy Disclosure: Held
