Tokyo TV

I’m doing a spot tonite on TV Tokyo America; Should be interesting, as I speak not a word of Japanese, and thats the language its broadcast in.

Here’s the discussion topics:

1. Where are
the markets now?

The markets have
been in a higher trading range since the elections, over 10,400 on the
Dow, 2,000 on NASDAQ and 1185 on the S&P.
That range has now broken down.

What’s happened is that the market has gradually recognized that
inflation is heating up a bit and the economy slowing and therefore the
environment for equities is a bit less attractive than before. I’m seeing signs that mutual funds are less
aggressive on the long side, which suggests that stocks will get cheaper and
eventually fund managers will step in again. Until then, however, the stock market is in a period of basic

2. How does
that look from a technical point of view?

For the past 6
months, you’ve seen support at 10400 on the Dow; during that time the market
went to support and bounced back about 5 or times. In about March/April the markets suddenly saw the Fed, oil
prices, and GDP in sharp focus. The
broken support levels on the major indexes , even with present oversold
conditions, makes it hard for the markets to make major headway. Look for a deeper correction. I think there’s a new range now where fund
managers look to get aggressively long over next 60 days and we see bottoms of
1850-1900 on NASDQ, 9800 or so on DJIA and 1100 on the S&P.

3. What
should investors do?

I’m staying
neutral until this choppy market resolves itself. We’re oversold enough now that another little bounce is likely,
but I don’t think it’s sufficient. I
made my bearish call to step aside on March 29th when I decided to
wait for a better entry point on the upside or downside. In my assessment, at current prices the
opportunity for reward (maybe 5%) doesn’t justify the risk. I’m waiting for an opportunity where the
reward is a 10-15% gain, and thus more commensurate with the risk. Our previous
model assumed there would be real reform on Social Security by now which would
push the market higher. That failure combined with the geopolitical situation
means we’re going to have to wait.

4. What’s
your outlook for stocks?

I need to see the
psychological shift that happened among institutional investors to change
again; they need to become more aggressively bullish or realize that inflation
is under control and growth is robust, and expectations for future earnings
need to be adjusted. At the moment,
neither the 10-yr or 30-yr bond suggests robust growth. In the meantime, the markets will be choppy
with little 100 point rallies and retreats, directionless. I’m guessing it’ll be mid-Jun/July before things change.

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