July 7, 2003

I always look forward to my monthly read of Fred Hickey’s, “High Tech Strategist”. Fred is very bearish on the market and continues to feel that technology stocks are in severe overvalued territory. There were a few excellent paragraphs in his July 2, 2003 issue. Here is one of those discussions.

“Consider all the help from the U.S. government in the late 1920’s and 1930’s. After creating lots of money in the 1920’s, the government immediately reacted to a rapidly falling stock market by slashing rates from 6 % to 1 %. Then it raised rates after the dollar plunged. Following that, they raised tariffs to protect U.S. industries from predatory countries that were stealing our jobs.”

I never realized the similarities between the depression period and the period we are in now. I was not aware of the jobs lost overseas. I have been in ongoing discussions with a client regarding current job losses overseas. Hence, for me to see this similarity to 1929 is amazing.

Fred goes on later in his report to discuss the current consumer spending situation. He explains that credit being available to all with a pulse and a few without, at near record low interest rates has caused an argument that there is an arsenal of $2 trillion sitting in money market accounts. Hence advocates of continued consumer spending point to this money on the sidelines. If you recall, this is the same “mountain of money” argument when everyone was so bullish in March of 2000. He goes onto explain that he thinks the recent resurgence of tech stocks was because of giddiness of this alleged liquidity in our system. What is interesting is that Fred does not feel that this $2 trillion is excessive or earmarked for unusual spending or investing. He feels it is merely a normal collection of dollars in the money market system.

It is difficult to interpret Mr. Hickey’s views and facts from what is real and what is sarcastic. Yet, upon conversations with Mr. Hickey, it is true that he thinks the days of ridiculously easy and low cost liquidity, excessive consumer spending, surging house prices and possibly record low interest rates are nearing their end.

It is my belief that consumer spending has peaked. It has been mentioned previously that I believe that the real estate market is in an overvaluation phase. If consumer spending has peaked, then it would make sense that certain retailers, such as Bed, Bath and Beyond (BBBY, 39.23) will not be able to hold onto their growth multiples.