Grizzly's Growlings Current Report

Monday Morning Market Musings    05/01/2000

"Mayday... Mayday... Mayday!!"

Today is May Day, celebrated around the world as "the International Working Class Holiday." You've no doubt seen television footage of workers around the world parading and protesting against low wages, unemployment and "the evils of capitalism." Yeah right.

"Mayday" is also the international distress call. You've no doubt seen those overly dramatic low-budget movies where the pilot of a small plane frantically screams "Mayday... Mayday... Mayday..." into the radio as the plane plunges into a death spiral.

Or, it may be the captain of a luxury liner going down with his ship.

For May Day 2000, it may be the portfolio manager of a large hedge fund as he liquidates any remaining assets to give him enough for bus fare home.

Last week, star fund managers Stanley Druckenmiller (no, not Drunkenmiller, though he probably had a snifter or two of brandy to ease his pain) and Nicholas Roditi were given the boot by George Soros. Druckenmiller's Quantum Fund is down 22% this year, falling for that %5 billion in April. Roditi's Quota Fund has lost more than one-third of its value so far this year. "We are bringing an epoch to an end," said Soros. You don't know how right you are, George.

Hedge funds by nature assume much more market risk than your average growth and income mutual fund. What is killing the hedges isn't the precipitous market drop so much as the market volatility. Short-term hedging is just a failed strategy when markets move up AND down 2-3% on a daily basis. 

As Jim Stack InvesTech Research pointed out for us a couple of weeks ago, the markets are gyrating through unprecedented volatility. 

Jim concluded his analysis with:

Unfortunately, history has shown that high volatility usually keeps getting more extreme... up to the point that a major bear market wreaks havoc and restores a healthy respect for risk.

Right on, Jim!

We concluded our April 12th market update with:

Which month of the year is second behind infamous October for crashes and mini-crashes? It's May. The only question is whether the markets can hold up until then. Stay tuned for ride of your life!

The markets indeed mounted a counter-trend rally through the end of April, thus setting the stage for a potential May crash. Both the Dow Jones Industrials and the NASDAQ Composite are up a net 550 points apiece from their "Friday the 14th" mini-crashes.

In our April 3rd update, we stated:

A sizeable relief rally (some would call it a sucker rally) should carry the NASDAQ Comp back towards the 4500-4700 area, thus setting the stage for a major crash, perhaps 1200 points over 3-4 days. 

For speculators prepared to handle the risk, the top of this relief rally might present one of those once-in-a-lifetime shorting opportunities. (Please read our disclaimer.) 

The NASDAQ Comp has only been able to rally back to the 3800 area so far, so there may be more upside potential over this week to complete the rebound.

The DJIA has been so weak that it has already fallen 400 or so points from its post-mini-crash peak last Monday (April 24th). 

The Elliott Wave patterns suggest the markets are a clinging to the edge of the precipice, a devastating third wave crash. 

What will be the final catalyst for the Great Crash? We don't know and we don't think anyone else does either. Frankly, it's irrelevant. Whatever it is, it will just be a scapegoat for the excessive speculation of the historic Great Bull Bubble.

US STOCKS REMAIN ON FULL CRASH ALERT!

"Mayday... Mayday... Mayday..." may also be the call of Bill Gates looking at his portfolio statement and realizing he's lost a staggering $30 billion in the last five weeks. When market historians write the final chapter on the historic Bull Market, the Microsoft saga will be cited as the straw that broke the Bull's back.

Analogies are being drawn by the pundits to the breakup of old Ma Bell back in 1984. From there the "Baby Bell" stocks performed admirably and have been solid long-term holdings. Yet so have the markets in general. 1984 was just a couple of years into the Great Bull Market that was launched in the summer of 1982.

Microsoft will of course appeal and oppose the Justice Department's proposal. The case will surely remain tangled in the courts for many months to come, consuming literally tens of billions in lost productivity and usurious lawyers fees, not to mention tens of millions in taxpayer funds. (The Feds just have to find something for the thousands of bureaucrats in the Justice Department to do!) 

"No warning can save a people determined to grow suddenly rich."
Lord Overstone, 1846

grizzly@bearmarketcentral.com
Please read the disclaimer.