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Not sure if any of you on the board have seen this article before (link to source is provided at the end) -

Mark's Market Commentary on January 4, 2002

Every guy has made the mistake of going back to old girlfriends, thinking that things are going to be the same. High expectations are assumed. Like uncomplicated sex, in unusual positions, at random moments throughout the day. The kind of antics experienced when you first meet. But there is always a heavy price to pay for recycling, and it almost always leads to disappointment.

Recycling old girlfriends almost never works. Especially the supermodels. Odds are always much better identifying new prospects, from areas you haven't even considered yet. But the supermodel ex-girlfriends are the hardest to shake, because the typically have the sexiest characteristics which are too hard not to pass up a second time.

During this rally, investors have been going back to their old girlfriends, hoping to relive and recycle the extraordinary lust experienced in 1999 and 2000. Semiconductor stocks, the fastest movers with the shortest skirts, the sexiest stories, and the highest heels, are the current favorites today. Even though we just completed the biggest overbuilding boom in semiconductor history which will take years to work off, investors still think they can recycle back to this sector for immediate gratification.

Why is that? Because investors, like men, are lazy and prefer familiarity. The semi's with the demi bras worked great the last time, so they are easily chased for a second time. Everyone is familiar with the names, the habits, and the potential for outsized moves. Right now, a huge bet is being placed on this sector experiencing a massive and immediate recovery to huge growth rates, large profit margins, and an unending demand for silicon.

Investors are going to be very disappointed. The guys always assume that since they scored big the first time, that automatically entitles them to a free pass the second time around. An uncluttered path, without the rituals of courtship and "base building".

Unfortunately, the guys fail to acknowledge that when you abandoned them the first time, huge "overhang" or baggage remained, which is likely to stop the advance from reaching prior highs. And when the advance falls short and disappoints, then a crash is inevitable.

After all, how many of you guys who went back to the ex-supermodel girlfriend a second time? What happened when you were stopped cold, when you thought you were inches from the goal line?? You dropped her like a scalded potato and never looked back. Disappointment set in, and you finally realized that you should have channeled all that time and energy into a new girl. Someone without prior baggage and problems.

So I am predicting a massive collapse in the semiconductor stocks, especially those with high operating leverage, like the equipment makers (AMAT, KLAC, NVLS) and the big fabs like Micron (MU). After all, these companies are losing money now, and living off the inheritance from the last boom. As Lance Lewis put it, these companies are giant savings accounts with a money losing chip business on the side.

The multiples in this sector are enormous. And gigantic growth rates better materialize soon, or otherwise, we are going to witness a price compression of spectacular proportions. AMAT already announced layoffs. NVLS provided a poor outlook last month. MU is just trying to survive by combining with Hynix, since neither company alone has the revenue or margins to support their huge overhead.

But for now, the memories of the expensive lingerie, the expertly applied makeup, the provocative dress, surrounded by the aroma of fancy perfume have investors dizzy in a dream state. They won't stop bidding these stocks up until they are just shy of the prior highs. When it appears they are inches from making a top, and nobody has their finger on the sell button, that is time they will get crushed.

Now for the market action.

Today was basically a continuation of the sucker's rally. In every other major bear market, there was always a sucker's rally that lasted longer than it was supposed to, and broke through major trend lines to suck in the last remaining doubters and send the shorts to the sidelines for good. Given that the market makers are much more skilled now, and the Fed Pump is always standing by, my prediction is that this thing is going to torture the investors even longer.

So the best thing to do is to sit and wait. Too many people are counting on another terrorist attack, a major debt default, or an unexpected bankruptcy to send the market immediately into a tailspin. But that isn't going to happen. Da Boyz are going to milk this thing dry, and they will stretch this distribution phase as long as they can. For now, all the 401(k) money is pouring in this week, giving the 27-year old fund managers plenty of greenbacks to throw at the big movers.

Speaking of the fund managers, they must be ecstatic. The Nasdaq is up 8% for the year, and we are only 3 trading days into the new year. After back to back yearly losses, and living through constant fear of losing their girlfriends to the wealthy plastic surgeons, now they have a chance to come up with some decent numbers in 2002. And that new summer home in the Hamptons in time for the summer is in view.

But near the end of today, the most reliable sell signal for the bears came in:

Abbey "Planet of the Apes" Joseph Cohen formally announced that a major January rally was forthcoming:

"Goldman Sachs' chief investment strategist Abby Joseph Cohen said in a note to clients Friday that conditions are ripe for a "notable January rally." She believes three categories in particular will benefit from this occurrence: small- and mid-cap stocks; last year's underperforming securities; and economy-sensitive companies. Cohen projects 2002 operating earnings to grow by 10 to 12 percent, mostly concentrated in the second half of the year. "We believe the fundamental backdrop will improve during the course of 2002. Hence, we like economic sensitivity and under-researched areas such as small- and mid-cap stocks and corporate bonds," Cohen wrote in a research note. She recommends that investors hold an overweight position in energy, financial services, industrials and information technology. She feels investors should be underweight consumer staples, healthcare, telecom services and utilities."

Unfortunately, the 27-year old fund manager will lack patience, and will not wait before buying that summer home. More than likely, by sometime in February, the market will have already made a top, and will be in that slow downward consolidation. Of course, all the chart watchers will be assuming that is a huge bull flag, and the VIX will plummet down to 15, providing investors assurance that the next huge leg up is imminent. That poor fund manager will buy his summer house at the exact top of the real estate market.

The rest of the year, the financial markets along with the real estate markets will start rolling off a cliff as the Credit Bubble starts to unravel. Then that poor fund manager will watch his dreams slide away in a slow moving mudslide that accelerates into a cascading brown waterfall. Where it will end, nobody knows. But everyone will look back at January/February 2002 and wonder: How did investors ignore the extraordinary amount of complacency in just 4 months after the 911 event? How did homeowners realistically believe that their houses would go up indefinitely, irrespective of layoffs and rising interest rates? Who were the idiots predicting that "second half 2002 recovery" after the biggest consumer spending binge in history?

Hope you enjoyed looking back at January/February 2002! Still too early to guage the "second half 2002 recovery" though!!
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