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In December of 1999Palms & Company advised to convert all long position stock portfolios to 100% cash and to investment in SELECTED SHORT POSITION PORTFOLIOS. When this strategy was employed by an investment fund, it produced an 87% 12 month gain in 2002. Palms & Company has continued to offer similar advice throughout the past three years and enumerated strategies for selection of short positions for portfolios of $50 million and greater in size. We predict a lower market in 2003.
Prediction December 2002: The Dow Jones will fall back 1700 to 7200 during 2003
My December Dow Jones Decline Predictions have been accurate. In Dec I forcast a decline in the Dow Jones Industrial Average of 1700 points to 7200 during 2003 . Today Feb 25th as of 11:30 New York time the Down Jones industrial Average has lost 1140 of those 1700 points and dropped from 8900 in Dec 2002 to 7760 today. On March 6th Dow Jones closed at 7623.99
March 10, 2003
Today March 10th the Dow Jones dropped 171.85 points, breaking below 7600 for the first time since December to 7568.18 The DJ has now lost 1332 points, in the past 70 days, of the 1700 point loss I predicted in December that would occur in 2003. So everything is proceeding as expected.
During this period the Average multiples of earnings at which companies were acquired was a P:E of 12. Warren Buffet made his acquisition of Garan, Inc for $271.9 million at a P:E of 5.9. The P:E average of the DJ is still well above these levels P:E levels for acquisitions of entire companies. My advice is to keep shorting the over priced issues during the second quarter
Today is the third anniversary of the NASDAQ reaching an all time high above 5000. It closed today at 1278.37 a decline of 75% in 36 months Today is also the third anniversary (+ 90days) of my recommendation to convert all long position stock portfolios to 100% cash and short the market. In 2002 my advice resulted in a profit of 80% on invested capital for one such portfolio.
Forthe past 12 months Mr.
Buffet's Birkshire Hathaway fund is up 11% and the market is down 22%
We believe that when basic principles of valuation are employed, that major overvaluation still exists. Would you buy a company for 40 times its annual earnings?
The Price earnings ratio is still around 44 compared to historical average of 12 for past 50 years
The 2003 declines in stock prices will continue to reflect a correction in overvaluations resulting from the replacement of valid analytical criteria such as price/earnings ratio's with irrelevant criteria such as the comparison of Wall Street estimates of earnings with actual earnings.
Compared to 1929 the stock market of 1999-2003 has TRANSFERRED more wealth than any other economic activity in history. People still do not realize that profits are made in up and down markets by those who know the direction of the market. They still do not notice that 99% of all "News'" addresses the question and issues of "owning" stock rather than "owing" stock, and buying (going long).
The abuse of irrelevant measuring criteria or manipulation of such criteria is as misleading as calling a lottery with a $113 million net lump sum prize, a $360 million lottery, and only a government agency is permitted such misrepresentation of the facts.
A good example of this is the regular and continuing removal of stocks from the Dow Jones industrial Average and substitution of new stocks for those which have not recovered. This manipulation of stock indexes results in hiding the fact that the index never recovered from the losses of the companies, which comprise the index, but in effect have been obliterated by the substitution of solvent companies for those that have failed. The DOW index invested in during the 1920's bull market never recovered from the 1932 crash. instead 50% of the stocks comprising the average were replaced. These companies went bankrupt and never recovered. In the period from 1995 to 2002 the same thing has been happening with the 30 companies which comprise the index, which have been replaced by companies such as Hewlett Packard, Intel and Microsoft. Gone are such former household names as Chevron, Goodyear Minnesota Mining & Manufacturing (MMM scotch Tape), Sears, Texaco Westinghouse Electric, Woolworth.
Personal bankruptcies reach 391,873 in the period July-Sept 2002. In the past 12 month they numbered 1,550,000. Americans, in the aggregate, owe $8,000,000,000,000 (trillion) in personal debt. ($32,000 each man woman & child). War, if it comes with Iraq will cost between $100,000,000,000 and $400,000,000,000. American taxpayers will have to make good the money lost by Enron in South America and Africa totaling $2.5 billion which the U.S. government guaranteed through the Overseas private Investment Corporation. There is increased distrust by the American people, of its government officials. The change of ownership of the country through transfer to the wealthy and the disenfranchisement of the middle class is ongoing., accompanied by the illusion that the market always comes back and that oneshould invest for the long haul. Instead one should manage invest daily for signs of over valuation and sell overpriced stocks one doesn't own to those gullible and irrational enough to believe the media.
In the 1990's dishonest corporate presidents looted hundred of billions of dollars from the retirement funds of millions of Americans replacing this cash with what have become worthless stock certificates. Every week, the weekly pay-checks of tens of millions of American are tapped together with their employer's contributions, for hundreds of billions of dollars in cash which are then exchanged for "stock certificates". Who needs a money manager that doesn't pick stocks? So to keep their jobs, money managers pick stocks to buy This over-supply of cash increases stock prices above what they are worth. Informed people sell the shares , they don't own then buy them back when prices fall. It's an oversimplification but that is what's happening. Most pension funds aren't allowed to do the same either by law or according to their charter rules.
Other pension funds loaned
billions to companies by buying their bonds, upon which these companies are now
defaulting at record rates.
This has had, and is going to continue to have a significant effect upon the size of the pensions that American workers were expecting to get and the timing of when they will be receiving them. The effect upon consumer spending was noticeable in the recent reduced holiday sales. It will continue to effect both investment and consumer spending and perpetuation of unemployment due to postponed retirement. Underfunded pension benefits are also threatening State governments and necessitating a rise in taxes. Corporations have been borrowing from their pension funds and investing the money in the stock market in an effort to make up for lower profits, and thereby maintain their overvalued stock prices.
Since you can't sell real estate you don't own like you can stocks, you can't make money from the coming decline in real estate prices which are also overvalued. For that reason sales and leaseback of all your personal real estate real is good strategy. If your real estate can be sold for a price that would result in a mortgage payment of more than the average one week salary in the community, sell it and rent it or something like it, that can be rented.
Our advice or portfolio management is available to accredited and institutional investors
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