-Caveat Lector- from: http://cbs.marketwatch.com/news/current/tice.htx?source=htx/http2_mw Click Here: <A HREF="http://cbs.marketwatch.com/news/current/tice.htx?source=htx/http2_mw"> CBS.MarketWatch.com - Ten bearish points Wall S…</A> ----- Ten bearish points Wall Street won't tell you By David W. Tice, The Prudent Bear Last Update: 12:47 PM ET Dec 4, 2000 NewsWatch Latest headlines Get Alerted NEW YORK (CBS.MW) -- Some of the most respected names on Wall Street have assured investors that the weakness in the stock market presents a buying opportunity. What Wall Streeters may be less willing to share are solid reasons investors should be wary of stocks today, despite their so-called depressed levels. In our view, the credit excesses that drove the late phase of the great bull market are unwinding. That's why it is no coincidence that widening credit market spreads, the drought in junk bond financing, the death of the IPO market, lower returns on bank assets, and a slowdown in the telecom arms race are all events more or less coincident with a sinking Nasdaq. Yet, Wall Street strategists say the market is cheap. And it must be awfully tempting for investors to see their former tech favorites selling for what appear to be bargain prices. But before blindly buying the dip, investors should at least consider that the worst might not yet be over. To assist with that exercise, the following bearish points are presented: 1. Stocks remain expensive despite recent setbacks. The top 20 stocks in the Nasdaq 100 sell for 20 times sales. It wasn't that long ago that 20 times earnings was a more appropriate valuation for "growth" stocks. The S&P 500 ( SPX: news, msgs), an index chock full of financials and other non-tech companies still boasts a multiple of 25 and measly dividend yield of around 1%. While dividends have mattered little to investors lately, even in the 1990s, dividends and their reinvestment accounted for about 13% of the index's total return. 2. Everyone knows that stocks do well over the "long term." Less widely known is that returns from stocks come in bunches. We like to call these long periods of superior performance "Super Bull" markets. Unfortunately, Super Bear markets, or long periods of poor performance, typically follow the Super Bulls. 3. It can take years to recoup an investment made at a Super Bull market peak. Last century's long dry spells included the periods 1906-1921, 1929-1954 and 1966-1981. 4. It is possible to pay too much even for "safe" stocks. Investors in the 1972 Nifty-Fifty mania watched the stock prices of their favorite companies dive even as they reported earnings increases. Yet, is the outlook for today's favorites as favorable as that of McDonald's or Merck circa 1972? 5. This is hardly the first "new era" for stock market investors. Business magazines reflected similar claims in 1929 and 1965. In fact, widespread belief in a "new era" is a theme common to manias throughout history. 6. In recent years stocks have delivered returns well above their long-term average. These returns have in part been driven by ever-increasing price-earnings multiples. The market's P/E increased from about 6 to 30 over this bull market cycle. What are the chances for a similar multiple expansion from today's levels? 7. Investors can't count on idle cash to drive stocks higher. In the mid-1960s, bulls argued that mutual fund inflows would drive stocks indefinitely. Bulls also justified the overvalued 1989 Japanese market by noting that certain government entities had the newfound ability to allocate resources to stocks. Today, the Japanese market stands 60% below its peak of ten years ago. 8. Because corporate profits have been overstated by creative accounting, the prospects for earnings are particularly suspect going forward. In addition, stock options, which for years have benefited corporate cash flow are starting to work against companies. For example, as employees exercise fewer stock options, companies will lose tax benefits. This windfall greatly reduced tax payments for much of corporate America in the 1990s. 9. Deteriorating fundamentals in the tech sector can no longer be ignored. Weakness in cellular handsets, PCs, and a dramatic slowdown in the telecom build-out all bode ill for the extreme valuations in the high tech area. 10. The end of a mania typically results in investors giving back much of their gains. If we are correct in calling the stock market of late a true "mania" (as opposed to a cyclical bull market), the downside from here could be much greater than most investors expect. Be careful out there. ------------------------------------------------------------------------ David Tice is CFA and CPA and the portfolio manager of the Prudent Bear Fund. He also is President of David W. Tice & Associates, Inc., the publisher of "Behind the Numbers." ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, All My Relations. Omnia Bona Bonis, Adieu, Adios, Aloha. Amen. Roads End <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance—not soap-boxing—please! 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