2. This Reminds Me of 2001

Tom Au
4/3/2009 12:02 PM EDT

One thing that strikes me about this market is the narrowness of recent strength. Of the 10 S&P economic sectors, only two are ahead for this year, technology and basic materials, hence my recent purchases of Microsoft ( MSFT) and Dell ( DELL), and earlier (but premature) purchases of Alcoa ( AA) and Dow Chemical ( DOW).

In this regard, the current market reminds me of that of 2001. The latter got off to a bad start, because of fears for a recession, and then recovered as recession fears diminished. Much could happen the same this year, with the averages down only 5%-10%, thereby approximating current levels at the end.

But the flip side is that next year then figures to be "2002," the worst of the three years from 2000 to 2002. That was a "recovery" year, but one that went was the worst of the three years, because the recovery was less than expected.

I don't see where all the bulls are coming from with their expectations of a strong recovery. I'm looking for a "flat-line" well into the next decade. This is not a classical (industrial) recession, which is why we probably won't have a classical recovery. Instead, it will be held back because the (marginal) consumer has been "mortgaged" for a generation.

Even so, I'm edging up my stock positions for a short term (rest of year) trade, having bought Caterpillar ( CAT) and Zale ( ZLC) this morning, at lower prices than I paid (and sold them for) previously.

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