Are We Re-Running 1999?

Jeff Saut, of Raymond James, has deja vu. In his latest daily missive Saut points out some remarkable and eerie similarities between today’s market and the 1998-99 environment. In 1998 Russia defaulted on their debt, the Hong Kong Monetary authority was forced to intervene in the HK market, the Yen surged during the Asian currency crisis and LTCM imploded here in the U.S.A. Global markets got crushed, but were quickly revived by a record sized Fed induced liquidity injection and one of the original bailouts of a “too big to fail firm”.

At the time, most investors remained risk averse heading into 1999 and the market took off in a Fed induced liquidity craze. It was one of the greatest divergences between small investors and professional investors in the history of the market and towards the end of 1999 the small investor threw in the towel and rushed into the market. We all know what happened next. The Fed induced recovery proved to be entirely fake and the market rolled over in 2000 in dramatic fashion. Sound familiar?

Saut believes we could potentially experience the same thing here towards the end of 2009. Much like 1999, Saut believes investors will chase the best performing names or high beta assets. What are some of his favorites? La-z-Boy (LZB), Brigham Exploration (BEXP), RF Micro (RFMD), TNS (TNS), Rads, Dine Equity (DIN), Hughes (HUGH), Clarient (CLRT).

Whether this move turns out to be a total head fake like the 1999 market is another story all together. Is this in fact a 1999 repeat all over again? If so, you might want to be a renter of equities….

Comments

[Tony Petroski:]

Why beat around the bush?

Sell all?

Oct 23 11:15 AM

[Mad Hedge F...:]

iin When everything is working, and my portfolio is firing on all 12 cylinders, I pinch myself and ask “Is this real? What can go wrong?” I’m reminded of the slave whose task it was to remind conquering Roman generals “All glory is fleeting.” Virtually all of my recommended core longs in gold, silver, Canadian, New Zealand, and Australian dollars, Brazil, Russia, India, South Korea, Taiwan, Vietnam, and junk bonds are at or near highs for the year. I called the bottom in Natural Gas within 40 cents, and mercifully baled on my one short in US government bonds, the TBT. What we are seeing is a global surge in liquidity as cash emerges from the bomb shelter, squints at the day light, and then rushes to buy the first thing it can find. Everything is going up, regardless of fundamentals. It is the proverbial tide that is lifting all boats. You can make a lot of money in these conditions, but there is no way of knowing if this will last for one week, or another year. But they can go on much longer than you think. In the last two liquidity driven markets I traded, Japan in the eighties and NASDAQ in the nineties, fundamental analysts railed against the tide for years, claiming that stocks were overvalued, each call getting their office moved ever closer to the elevator and men’s bathroom. When someone finally did throw the switch on these markets, it got dark amazingly fast. Tokyo went out at an all time high on the last day of 1989, and then dropped a staggering 45% in January. NASDAQ plunged just as fast from its 2000 top. The one thing we can all be certain about is that the survivors have vastly improved their risk control after our recent crash. Make hay while the sun shines, but keep your finger hovering over that mouse. The level of risk is definitely high than it was in March. When the next real downturn starts, it could resemble a flash fire in a movie theater.

Oct 23 11:54 AM

[Roger Knights:]

"you might want to be a renter of equities"

Quite a euphemism there--I like it!

Oct 23 06:05 PM

[aussiereader4:]

Too many nines in the title, it should be 1929

Oct 23 06:32 PM

[EE:]

BEXP is a small holding of mine. It is sitting on a huge pile of oil and beginning a major drilling program after refining its horizontal multiple re-frac process and bringing in several wells this year. Should the market crash as is likely, and idiot margin players get stopped out, shouldn't the possible damage be limited and quickly recovered by the sweet spot BEXP seems to be in ? Can anyone explain the error of this simpleton thinking. I'm a two to three year horizon trader looking for triples so 1/3 can be recovered and then play with the markets gain on a shorter term basis.

Oct 24 10:25 AM

[saltydog:]

ee, as an old oilfield hack from the 70's boom in ne ohio,you picked a first rate company with bexp. the people i worked for drilled hundreds of clinton wells that made 1 to 10 bpd. they were tickeled to death with these stripper wells and just kept on drilling. if one company well made 1,000 to 2,000 bpd at that time,totaly unheard of,they would have ben the new age Rockerfeler!

Nov 03 06:14 AM