Sunday, October 31, 2010

Archived Repost: I Am But Him - The Contrarian (28 Sep, 1998)

The following is the original first-post of The Contrarian - notes from the wall street underground; I published September 28, 1998. The date precedes an important bottom for the equity markets (especially for the Nasdaq, which would mark the low of 1,492.40, on it's way to the ultimate top of 5048.62, one and a half years later).

This 1998 bear market came on the heels of the Russian financial crises and culminated with the blow-up of Long Term Capital
Management (LTCM). Emotion was running high during this period, and while leadership stocks were considerably strong, especially in terms of relative strength, sentiment in the investing community was resolutely negative.

The material is poorly archived, as it was published pre-Blogger and with a password-protected site. I'm typing-up these now because I am using the material on a related work. One note: you might notice I was not against making market calls publicly during this period. I no longer commit myself to a future-direction for the markets. One might be very good at predicting what lies ahead, but ultimately it's a fools game. I was a good trader, but perhaps more lucky-good, as this was the greatest set-up of my time (this 1998 Nasdaq low precedes a 255% move higher in just 18 months, which is followed by a 78% decline over a two and a half year period). One might have a sense that something big or important is coming, but what is the point of predicting specifics when you're holding a tiger by the tail? You're going to experience some scratches - better to shut-up and keep the tiger in front of you.

Finally, The Contrarian was based on Dostoevsky's Notes from Underground. This is entirely intentional. Enjoy (ha!)

Write this down - Gold, gold stocks especially, the Yen, Japanese stocks even, and oh yes, small-cap US growth stocks are all moving significantly higher in the next few months; perhaps even more.

This is madness? Yes, I am mad. I am sick as well. Sick and mad. I think I need another root canal, but I refuse to see a dentist. I've had no less than six of these rootings and they always seem to come in pairs; rotten dentists. And not two at a time, mind you, never. It is only during or soon after your root canal that it becomes apparent a second will be needed - oh yes, required. Yes, my roots are not good at all, certainly not. But you can be sure I refuse to see a dentist.

I have digressed. You want profit, I know, and I am but ranting about the dental community. But this, dear reader, is my first entry. My prelude. My graceless entrance. And who am I? Why, a sick fowl man in need of root canals and a proper bath. Yes, yes - but I am more like you than one might think. I'm not as much fun as you, perhaps, but you see I know something important. I know something about even you. Try as you like to ignore it, but we are in this together, my reader. This little delightful place. And while I can't show myself face to face (among all those perfect teeth!), I know enough to understand this. We are of this world together. This paradise is a reflection on us both. We are not much fun at all.

I am net-short this market and planning to get a lot more so as soon as this counter-rally quits, don't get me wrong. And I would be perfectly happy to announce to you we are now at the beginning of the end; that we are doomed; that as long-term investors we are about to test our will in the face of the most severe torture. That we are staring at the face of a 70%+ bear. Unfortunately I cannot. You see I am actually getting bullish.

Small-cap stocks. What a call that is? Who among us isn't savvy enough to know the ills and perils of investing in that class of stocks these days? Well, you can laugh at me now because I am such a fool. I am accumulating small, illiquid Biotech stocks for Christmas. The market's still ugly, I'm not denying it. But I'm buying Biotechs I've never heard of on the next wave down. Yesterday you see, and rather quietly, just about every Biotech traded to new highs on enormous volume. Sure, the market has been up for a couple of weeks now, but aside from the Internet group it's tough to find new highs in any stocks. Bet me these will not make higher-lows the next time down. Sell me your shares even. You don't have small-cap shares though, do you? How do I know that? How can I be certain, in fact? Yes, I'm certain. I can also surmise those Financial stocks have got to be pretty tempting to you here, right? They have fallen so far, so fast. The selling is clearly "overdone." It makes no sense these stocks could down this much. Well, it's even more incredible than that, my friend. This is the case, even though every expert on Wall Street knows the Bank and Brokerage stocks to be "oversold," "overdone," and definitely a good buy for long-term investors.

These are no dummy experts, either. These are the same regulars from CNBC and anywhere else that will give them TV-time who explain tried and true concepts such as "never stand in front of a freight train," "never catch a falling knife," or "leave it for stuntmen to play on falling pianos," etc. In spite of this, and even when their stocks have acted this badly, apparently they've yet to sell a single share. And if they aren't holding on for their dear long-term lives already, then they are stepping up to stand in front the freight train and buying even more Financials! God bless them and the horse they rode in on. Yeah, I'm short the market; just looking to buy the small-cap losers coming down from new highs. You'll hate me for it. You'll know me a fool. I am a fool too. Don't think for a minute I am bragging. I'm more miserable and foolish than any of you. But I'm nothing next to the bank stocks. There is misery for you. You can have the money to be made in the bank stocks.

Names, names, names. Give me names you insist. You must be insisting by now. You're still here, surprisingly enough, so I'll satisfy you. Watch this group: Genzyme, Medimmune, Centocor, Biogen, Entremed, Immucor, Immune Response, Liposome(or other), Serologicals, Pharmaceutical Product Development, Covance and Kendle. There's more on the list but I can't stand mentioning any more. I don't know which I'm going to buy. I'll be in with orders under the market for the ugly days to come. Days when Lehman and Bankers Trust are gasping for long-term air. And regardless of which are my favorite, I feel compelled to buy at least a bit of the last three names (PPDI, CVD and KNDL) - three dental Biotechs. I was lying to you when I said I hated dentists. I love dentists. And especially this new-found dental technology - whatever it is. I'm not going to see a dentist, that was the truth. I'm just going to buy these Biotechs. Covance, I read, is involved with integrating a more Chinese-style treatment into western mouths. I'm buying that one for sure. I'm looking to buy all three. I hadn't heard of any of them before yesterday, but I'm going to buy them and not just out of spite. These stocks could double from the lows they post in the next two weeks, before the end of January. I'm not going to convince you to buy them now, I know. By January though it will be OKAY to invest in them. In the meantime do watch.


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