Off the TableWhat did I sell? Many of the "tech specs" that I purchased last autumn have been revalued to much fairer levels. Through last Friday, most of the small-caps from my
What's Behind the MovesThe reasons for my lower equity exposure relate to valuations, sentiment and business fundamentals. At current price levels, the stock market trades for price-to-earnings and price-to-sales levels that appear fair to expensive on an absolute basis. Since the big rally, investors have become much more aggressive and bullish. Sentiment surveys and action in speculative stocks support this assertion. Finally, business fundamentals, especially corporate operating rates and unemployment claims/levels, are deteriorating. Current stock prices are discounting that ever-elusive second-half profit explosion. Things may get better, but I don't think they'll improve enough to support the big move in stock prices.
Some important differences do support higher equity prices. Lower interest rates and lower tax rates on dividends and capital gains represent important changes from my sell call of 2002. But I think these factors raise the trough level I expect from this secular bear market. They do not justify ever-higher prices for telecom, computer tech or biotech shares.Over the past two years, I have repeatedly admonished both the perma-bull and perma-bear positions. The perma-bulls have been utterly crushed over the past three years and, more significantly, have destroyed their credibility with irresponsible "analysis." Resist the very recent claims for a new bull market, as the perma-bulls have done this since 1999.