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verfasst von Peter, 19.05.2000, 16:50

The Contrarian's View

Vol. XIV, #9, April 30, 2000



The Contrarian's View is published 11 times per year on a mostly-irregular schedule, and the views expressed are those of the author and editor, Nick Chase. Because nobody
can predict the future, results of past suggestions or recommendations are no guarantee of future results. Material in this publication may be freely quoted provided proper attribution
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DEATH OF THE FREE MARKET

After the dramatic plunge in the markets on April 14, on the"computer warmline" I offered up the following:



Market Outlook: Welcome to the"computer coldline". Now that we're seeing some real bear action and it's finally time to update the
so-called"warmline", I was surprised when I reread what I had written in the last warmline on January 4: In case you were wondering,
yes, this is probably the start of the Crash.

OK, so I missed by two months (for the NASDAQ; I was right on target for the Dow). But there can be little doubt that today's market
action qualifies as a"mini-crash", strongly reminiscent of 1998, 1997, 1989 or perhaps most similar to the Friday action that preceded
the Monday crash on October 19, 1987. (Half of today's male market participants don't remember that crash very well.... they weren't
even old enough to have peachfuzz to shave off their chins back then.) The tech-bloated NASDAQ is off by one-fourth for the week and
by more than one-third from its early-March peak. That's a bear market in anybody's book.

The underlying question is, has the psychology shifted? Yes, I think it has.... somewhat. We no longer hear a plethora of reasons why
stocks must continue to go up forever, but we hear plenty of reasons why the current"dip" is a"healthy" correction of"excesses" that had
appeared. (Why weren't these self-proclaimed experts telling you about these"excesses" before they got"corrected"? Just wondering....)

At any rate, as in 1987, people.... especially those who will be getting margin calls on Monday morning.... have all weekend to rethink
their market holdings. Even Joe Six-pack, who logs on to see his portfolio value shrinking by the hour, while the home equity line he
floated or the credit-card-debt he's carrying to maintain his equity portfolio doesn't shrink at all. (Hey, Ma, maybe we should'a paid off
our loans instead!)

And unlike 1987, the Plunge Protection Team has all weekend to move its heavy guns in place. (There was no"plunge protection team" in
1987.)

Monday should be interesting. Federal Reserve vs. margin calls. Soothing words from the"experts" vs.
increasing levels of public doubt about the infallibility of those"experts", leading to panic. Heavy buying of S&P futures vs....??? There
is no opposite for the last-mentioned, it's merely a question of the Fed versus the public's propensity to panic. I have no doubt the Fed
believes that, even should it be unable to avert a crash through its market-manipulation tactic of futures buying, a crash does not mean that
a recession/depression will follow. (I see, people who bought stocks at too-high prices lose their shirts, the"wealth effect" due to stocks
goes into reverse, and this will have no economic impact? We'll find out.)

What do I expect on Monday? Volatility. Perhaps a crash. Perhaps a spike to the downside, followed by a cancelling reversal, all in one
day, as happened on April 4. Perhaps a violent rise from the market's opening, as the PPT's maneuvers kick into action. I really don't
know which will win out (and I wish I did), I only expect extreme volatility. And since (weather permitting) on Monday morning I'll be
marching with the Carlisle Colonial Minute Men unit in the Patriots' Day parade in Concord, I won't find out until after the fact. (After
all, I was prepared for this long ago.)

Here is more of what I wrote on January 4: Current"fair value", based on competing rates of return, is about 3200 for the Dow, a level
likely to be the intermediate"stopping point" in any crash (as 1987 demonstrated). However.... I must advise you that the Federal Reserve has
not lost its clout. The"plunge protection team", in my opinion, still has the power to engineer a reversal, and no doubt will try to do so when
they feel it's nec essary.Whether the crash will overwhelm the government's efforts this time, or whether they will succeed, once again, in
blowing up the bubble to even more grotesque proportions.... flip a coin, equal odds for either outcome. I lean slightly to favoring government
failure this time around, this time the sucker will really crash.... but only slightly. Regardless of which is the eventual outcome, I expect a
really violent traversal.... swings of several hundred, maybe thousands, of Dow points up or down in a day's time.

Though the market may have changed from January, my opinion has not.... though I now lean slightly to the Fed succeeding, at least one
time.

In the January issue of The Contrarian's View I wrote: The stock market's technical condition (particularly in the divergence between the
advance/decline line and the popular averages) is strongly reminiscent of the spring and summer of 1929, and suggests that the crash lies
only a few weeks away. But the crash may not look like 1929's.... rather, I expect violent swings of hundreds or thousands of Dow points per
day (so far, we've seen hundreds; the thousands lie ahead).

In the February issue of The Contrarian's View I wrote: Thousand Dow-point days, both down and up, likely lie ahead as the market
repeatedly crashes, then is propped up by the Fed. When? Darned if I know. But each month, as I enter the figures used to calculate"Timer's
Trend", and I see the overwhelming downward plunge of the NYSE advance/decline line, and the number of new lows exceeding new highs
even on rally days, and advancing stocks regularly trounced by declining stocks, I know that this can't go on forever. Eventually the technical
deterioration will be so great that the bullish psychology will break.... that is, the bubble will burst.... even if the Fed does not try to pop it
first. But when? Similarities to 1929 suggest, not more than a few weeks, but this bubble is much bigger than 1929's, so maybe it will last
longer.

In the March issue of The Contrarian's View I wrote: Eventually, from an as-yet-unknown trigger, some-thing will snap. As volatility (wide
swings, with"hot money" sloshing from one stock fad to the next) increases, and stocks swing hundreds of points per day for both the DJIA
and NASDAQ averages, we may see an occasional whiff of panic. Then the panic will be more than just a whiff, as thousand-point declines
descend on us. Then we'll see how much clout the Federal Reserve has to reflate a stock market that has crashed in an old-fashioned panic. I
expect them to be successful at least one or two times, but I offer no guarantees. When, oh when?, you cry out. Darned if I know.... things are
currently so strung out, it should have happened by now. Could come anytime. My"gut feel" says it's likely to happen before summer.

Now I ask you, who has better prepared you for the market action of the past two weeks, me, or those bloviated shills you watch on TV?



Boy, did I get e-mail flak after posting this message! Here are some of the comments: It takes quite a bit of audacity to come out and state
(as you did in your April"warmline") that you missed calling the crash by about 2 months... Really, Nick, isn't it more like 4 YEARS!!!

And this: Come on, predicting that you got the crash dates spot on, who are you trying to fool? Whilst yes, you have been talking about the
dangers (for years and years and years) of the markets (and that other big story, Y2K), anyone who has ignored your advice and invested in
the markets would still (even if tomorrow is Black Monday 2) be way ahead. In your rush to self-congratulate, you ought to put your own
performance in perspective..... If you are going to try and take credit for accurately predicting this, then you are nothing more than a fraud....

Needless to say, I was taken by surprise. Now, I have been writing about the high risk of a crash since the spring of 1995, but to my
recollection the number of times I wrote that I thought stocks were on the verge of crashing was few. But, no need to guess, I went back
and rechecked the past issues of The Contrarian's View, and, you know what? My critics are right (more or less). The best I have been
able to do is anticipate downturns which occurred in the fall of 1997 and 1998, and April of this year. But none of these has turned into
"the big one", while each of these minicrashes (except this year's, so far) has been followed by even higher prices in the stocks which
make up the most-widely-followed averages. When I reread my own writings, I am struck with an overwhelming overall bearishness,
while the reality is that the averages continued to climb (until this year) even when punctuated with occasional bouts of panic. I was also
completely wrong about the impact of Y2K on stocks; from an investment point of view, Y2K was a non-event.

What has happened to my stock-market"radar" which worked so well in anticipating (in a timely manner) the 1987 Crash and 1989
minicrash? When one is out of stocks, waiting for"the big one", what difference does it make whether I can foresee by a few weeks or
months these crashettes?

I attribute it to one factor: Foiled by the Fed. The free stock market died after the 1987 Crash, as you can see from the first quote for the
month in this issue. Now we have a stock market that is"mostly free"; the majority of issues are not interfered with, but when panic
threatens to bring down the Dow or S&P, a timely intervention (through massive purchases of stock futures) brings the averages up again.
The footprints of the Fed (or its agents) are evident in July 1996, October 1997, September 1998 and April 4 of this year, and possibly
there have been interventions at other times where the intervention is not as easily detected.

When I look at the April 4 intervention, it appears to me as if the Fed can go on to do this sort of thing indefinitely. Do I expect the Fed to
fail in these resuscitations some day? Of course. Can I tell you when? No, I haven't the foggiest idea. Nothing in my years of living
through and studying market behavior and psychology gives me the slightest clue as to when a panic will strike that's large enough to
overwhelm these manipulations. Nor do I think that any other expert market observers, whether they be fundamentalists, technicians,
Elliott-Wave theorists, sunspot-cycle watchers, astrologists, or whatever, will be able to tell you when the Fed will fail. Of course,
when the Fed does finally fail some lucky few will have"predicted" it, but it will only have been a good guess.

So, I give up trying to anticipate when the crash (the one the Fed fails to avert) will occur. I have never done well in the past trying to
guess when the government will lose its clout, and I'm not likely to in the future, so there's no point in trying. I intend to focus on the
reality of the situation.... the majority of stocks have been in a bear market since April 1998, and the NASDAQ is clearly in a bear
market by anybody's definition. I'll try to look out for those crashettes, but as to which one will progress into the crash?..... I have not the
slightest clue.

Do I care? Not really. In my TIAA-CREF retirement portfolio (where the big bucks are) my options are limited.... the various equity
funds all practice some variation of the momentum-chasing games which have proved so successful in this bubble.... so the only viable
strategy for me really is maximum safety, following my own Rule #1 for investing in stocks: Own them when they're cheap or fairly
valued, be out of them when they're overvalued. In my much smaller"fun-and-games" portfolios shown here in The Contrarian's View,
just accept that my bearish tack, taken long ago, now puts me in the position of waiting for the government to screw up. Yes, it will
happen someday, I just don't know when.

Am I eager to see"the big one"? Well, yes, of course, having anticipated it for so long. But I'm in no hurry. Look, times are good, I'm
enjoying them while they last. Unfortunately, the longer the crash is deferred, the more painful the correction and economic fallout will
be. While only a masochist would wish for a depression, it's realistic to recognize that the longer the return of stock prices to historical
norms is postponed, the greater is the likelihood that a full-blown depression will follow. I don't think the government has made a wise
choice, but it's not my place to say. Let the good times roll on; it gives us more of an opportunity to get ready for the hard times that will
follow.

What I would like to see is a really good, relatively-low-risk investment opportunity (other than cash or near-cash) for my retirement
funds. A stock market which is grossly overvalued by all historical measures of value, which is in bear mode except for relatively few
stocks which make up the averages and give the perception of an ongoing"bull" market, and which is prone to periodic panic spells
requiring rescue by the government, is not my idea of a safe investment. The next good opportunity (from the choices available to me in
TIAA-CREF) is likely to be in bonds, but this won't happen until the gas comes out of stocks and the Federal Reserve switches from
tightening to easing mode by reducing the short-term interest rates it controls.

Returning to my critics: Have you noticed, from the quotes above, how those presumably fully-invested fools are apparently either
expecting me (or maybe somebody else) to tell them just the right time to exit stocks, before the deluge, or have bought into the stocks
only-go-up-over-the-long-term myth? Folks, nobody can foretell the future, though you wouldn't know it from the claims advanced by
many self-professed investment gurus. It's up to you to seek your own comfort level in your own investments, not deride others who have
sought their own comfort levels, just because they don't match yours.

As for coming out"way ahead", it ain't over until you cash in. I am in cash or near-cash; you merely own, either directly or indirectly, a
portfolio of stocks which will be worth either more or less than what you paid for it when you do finally sell. Until that time, I'm ahead of
you.

In the July 1996 issue, in the midst of the unfolding bubble, I expressed a sentiment about which I feel exactly the same today: If I feel
frustrated, it is not because I have been unable to precisely predict when the ultimate top will occur. I feel frustrated because I seem unable to
convince people to be cautious during a time when their accumulated wealth is at great risk.

QUOTES FOR THE MONTH

Sec. 2. Purposes and Functions. (a) Recognizing the goals of enhancing the integrity, efficiency orderliness, and competitiveness of our
Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider: (1) the major issues raised
by the numerous studies on the events in the financial markets surrounding October 19, 1987, and any of those recommendations that have
the potential to achieve the goals noted above; and (2) the actions, including governmental actions under existing laws and regulations (such
as policy coordination and contingency planning), that are appropriate to carry out these recommendations. (b) The Working Group shall
consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market
participants to determine private sector solutions wherever possible. - Executive Order EO1263, March 18, 1988, establishing the Working
Group on Financial Markets ("Plunge Protection Team")

My theory is that when people go through their formative years or early maturity -- and I'll guess those years to be between 17 and 30 -- they
get imprinted with the theme of the period. Many of us have parents who went through the Depression, for example, and we get to hear tales
of woe as if it never ended, or as if it will happen again any minute."When I was your age, we worked for a nickel a day--and that was good
money back then!" So what happens to these young dot-com executives when the scene tanks and they have to get real jobs? Few, if any, will
take their pots of cash and put them in municipal bonds; of that I'm sure. They'll plunge it back into what they know best: the crapshoot, go
go, dot-com scene or something that feels the same. They'll be in the best position to benefit the next time a boom comes around, if it comes
around again in their lifetimes. But until then, I'm predicting that these people will become some of the worst investors and worst managers in
the history of business and will take the country to ruination when times change. (I just need to get this on the record before the competition
does!) The result: a depression that will rival 1929. - John C. Dvorak

Something happened at around 1 p.m. our time yesterday [April 4] that pulled the stock market back from the edge of the cliff. Traders say it
was almost like divine intervention. One minute the Nasdaq was down 11 percent -- say it out loud,"Eleven percent in one day" -- and then it
suddenly rallied several hundred points in the matter of an hour. The Dow followed suit. Down 500 points around mid-day, the blue chip
index's decline -- along with the horrible showing of over-the-counter stocks -- was destined to make yesterday's market an unqualified
disaster for investors and the country. Then, traders said, someone started buying large amounts of stock index futures contracts through two
major brokerage firms -- Goldman Sachs and Merrill Lynch. These transactions are usually done on the QT so we don't really know how
many of these contracts were purchased. And unless the brokers tell, there is no way of knowing which of their clients were making the
purchases.... But traders said enough were bought to catch everyone's attention. In fact, the buyers seemed to want people to know they had
an appetite for stocks. - John Crudele [Nick's comment: Score one point for Alan Greenspan and his Wall Street friends.]

The [April 4] intervention provided confidence. It was one more example of the seeming inability of people to lose money in stocks if they buy
and hold. There is always someone who comes to the rescue through the financial futures market -- someone who simply does not fear massive
losses in case he bets wrong. It is as if someone were not investing his own money, as if he could create all the money he needs to sustain his
position in the futures market, someone too big for the shorts to challenge.... It's nice to have a buyer of last resort whenever the stock market
tanks.... The Fed is the surely lender of last resort. The question is, is it the buyer of last resort? - Gary North

Stocks were falling like rocks tossed off the Empire State building. It really was beginning to look like doomsday! Then, like clockwork, it
happened again! Americans began to behave in a psychological manner, which until about the 1990s was unknown in the history of man.
Suddenly at 1:20 PM [on April 4], millions of Americans suddenly, spontaneously, collectively and mysteriously understood that stocks were
a great bargain precisely when the Dow was down 503.53 and Nasdaq was down 574.57. In the past, participants in markets have not
behaved that way. In days of old, this kind of frightening market action begat even more fear as panic overtook rational behavior, thus
leading to bear markets that resulted in stocks being as underpriced as they were overpriced when the fall began. But now, thanks to the
Clinton Administration's excellent management of the economy, and our superiority as Americans, we have evolved to the point where we are
able to avoid fear and hence stock market undervaluations.... Quietly and perhaps subconsciously, that is what Americans seem to believe.....
Any serious student of markets must wonder how it is that Americans have this unique ability to"catch a falling knife" without getting injured,
as we did again this past Tuesday. What some of us have begun to notice is that this unique ability began to take place since 1989 when a
former Federal Reserve Governor, Robert Heller, spoke about plunging stock markets. He suggested in a speech that year that sharp market
declines could and indeed should be avoided by the U.S. Treasury through massive purchases of stocks by the Treasury in the futures
markets. Having free reign of the printing presses, this of course is not a difficult task.... In essence, what Mr. Heller was suggesting is that the
U.S. Treasury should rig the equities markets because it is for the common good! - Jay Taylor

A friend went looking for some beer to cry in this week. All of his dot.com stocks crashed and burned. Two weeks ago, he was talking about
building a vacation house at the beach and buying a plane. Now he needs a loan to keep his kid in college. He's not alone. Like so many
amateurs who thought playing the stock market was a piece of cake, he found that the only thing easier than making money on Wall Street
was losing it. - Doug Thompson

I attended the April 5 White House Conference on the New Economy. When Mr. Greenspan stood up to deliver his speech, it was hard to hear
him at first because of the noise from all the photographers' cameras. There must have been 50 Greenspan paparazzi in the back of the East
Room. - Ed Yardeni

If I seem unduly clear to you, you must have misunderstood what I said. - Alan Greenspan

Cisco Systems.... had to finagle its tax payments last quarter so that it could report a crucial extra penny of earnings per share. The important
thing to note about Cisco is that employee compensation, which includes an extravagant stock options program, is running well ahead of
revenue per worker. Most recently, operating expenses were growing 41 percent faster than operating income. This can't last, and it is a
particularly dangerous development for a company whose shares sell at more than a hundred times trailing earnings. - Rick Ackerman

Consumer credit has risen by 11.8% annualized to February, or by an amount equal to the current savings rate. Indeed, total household
liabilities have increased by nearly half, or an 8.2% compound rate in the Bubble years ­ accelerating to 12.7% in Q4'99 - while personal
disposable income has only managed a 5% gain. Liabilities have thus moved from 87% of income to over 100% now..No wonder that,
despite lower interest rates, the debt service burden on households is at 13.5% - the highest since the last cycle ended in 1989. Critics will
argue that household net worth has gone up even faster in this period. We have repeatedly countered this by pointing out that unless you can
persuade your creditors to index your outstanding borrowings to the stock market, when it declines, you had better find the wherewithal to
service and amortize your debt from some other source than the paper pyramid. - Sean Corrigan

The income tax in effect makes us vassals to the government -- the politicians decide how much income we can keep. No mere"reform" of this
slave tax, such as flattening the rate, can correct its fundamental denial of control over our own money. Only the abolition of the income tax
itself will restore the basic American principle that our income is both our own money and our own private business -- not the government's. -
Alan Keyes

The hardest thing in the world to understand is the income tax. - Albert Einstein

The politicians are at it again, blaming teachers for the poor performance of students. What the politicians are really doing is running from
the truth. They don't want to admit that the performance of the students tracks perfectly with the socioeconomic-racial-ethnic makeup of the
neighborhood where the kids come from. They want to maintain the egalitarian myth that all kids are equal and that if their performance is
unequal, it must be the teachers' fault. In doing that, they commit an injustice both to the teachers and to the students, because they are
demanding from both something they cannot give. - Charley Reese

In recent years it has been suggested that the Second Amendment protects the"collective" right of states to maintain militias, while it does not
protect the right of"the people" to keep and bear arms. If anyone entertained this notion in the period during which the Constitution and Bill
of Rights were debated and ratified, it remains one of the most closely guarded secrets of the eighteenth century, for no known writing
surviving from the period between 1787 and 1791 states such a thesis. The phrase"the people" meant the same thing in the Second
Amendment as it did in the First, Fourth, Ninth and Tenth Amendments -- that is, each and every free person. - Stephen Halbrook

In 1929, the Soviet Union established gun control From 1929 to 1953, approximately 20 million dissidents, unable to defend themselves,
were rounded up and exterminated. In 1911, Turkey established gun control. From 1915 to 1917, 1.5 million Armenians, unable to defend
themselves, were rounded up and exterminated. In 1928, Germany established gun control. From 1939 to 1945, 13 million Jews, gypsies,
homosexuals, the mentally ill, and others, who were unable to defend themselves, were rounded up and exterminated. In 1935, China
established gun control. From 1948 to 1952, 20 million political dissidents were unable to defend themselves and were rounded up and
exterminated. In 1964, Guatemala established gun control. From 1964 to 1981, 100,000 Mayan Indians, unable to defend themselves, were
rounded up and exterminated. In 1970, Uganda established gun control. From 1971 to 1979, 300,000 Christians, unable to defend
themselves, were rounded up and exterminated. In 1956, Cambodia established gun control. >From 1975 to 1977, one million"educated"
people, unable to defend themselves, were rounded up and exterminated. That places total victims who lost their lives because of gun control
at approximately 56 million in the last century. Since we should learn from the mistakes of history, the next time someone talks in favor of gun
control, find out which group of citizens they wish to have exterminated. - John J. McNight



CLINTON QUOTES FOR THE MONTH

In a perfect world, Bill Clinton would face the music for his many crimes. But this ain't a perfect world. It's a mixed-up, crazy, corrupt world
where good people get hurt and criminals get radio talk show gigs, guest shots on TV shows and $50,000 a pop on the lecture circuit. Which
is why William Jefferson Clinton, the most corrupt President in modern American history, is so successful in it. - Doug Thompson

By now, everyone has seen the photo: An INS border guard wielding a fully-automatic assault weapon and reaching to pull 6-year-old Elian
Gonzalez from the arms of the fisherman who rescued him from the sea last Thanksgiving. Whatever you might think of whether or not the boy
should be with his Cuban-American relatives or back in Cuba with his father, the image of that armed cop seizing the kid in a pre-dawn raid
tells only one frightening story: Janet Reno sent in the storm troopers to terrorize an American family and a small child.... Her pathetic
attempt to spin the incident by saying the cop didn't have his finger on the trigger or that the muzzle was not pointed directly at young Elian
would be laughable if the mental midgets who make up so much of the national press corps didn't actually believe such drivel. The horror
that the kid must have felt at the second he was grabbed by that gun-toting goon will live with him forever.... There was no reason or
justification for sending in an armed assault force to kick down the front door, threaten to shoot anyone who resisted them and then haul off a
screaming and crying kid.... It was nothing less than insanity. And it is not the kind of terrorist act that should ever be tolerated in a free
country. - Doug Thompson

Now, with time to digest the most unholy act of law enforcement we have witnessed since Waco and Ruby Ridge, we see clearly that the
Clinton Dictionary of Forked Tongue persists. The gun wasn't pointed at Elian. A finger wasn't on the trigger. The Gonzalez house may have
been a fortress of weapons. Elian is happy as a clam. And, for all you faint of heart out there who can't take a bit of"real TV," go fly a kite. -
Steve Dunleavy

Janet Reno and the INS initially said that the boy's custody should be decided by a Florida family court. They reneged. Clinton personally
promised Sen. Graham that he would not permit Elian to be remov

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• Guter Artikel von Contrarian´s View (mvT) - Peter, 19.05.2000, 16:50