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January 2, 2004 - Until the Conversion of the...

Andrew Marvell's poem "To His Coy Mistress" was published in 1681.  In the poem, the author suggests that if there were time enough, his mistress could wait "until the conversion of the Jews." In our case, we are referring to the conversion of the bears.  And the past year has shown them converting hand over fist.  Of course, when all the bears are converted into bulls there will be no one left to convert, and then the bulls will be converted into bears.

So far, the insiders are not converted, those that are selling are out-stripping the buyers by a wide margin.  In October, Thomson said they were selling $59 for every $1 they were buying.  This might well translate into reluctance by managers to make large investments in stock and equipment.  Certainly, a mediocre Christmas was no big help.  Big insider selling came 6 months before the 1987 debacle, but can be as much as two years ahead of a downside correction.

Which suggests what looks like a sucker's rally might well continue through the election, which is certainly the administration's desire.  We might even see a close above the old Dow high, but Value Line is, with its 40% increase prediction in the next 3-5 years (a very negative prediction for them), telling us that we will only be getting closer and closer to the ceiling.

Meanwhile, pity the poor retiree, getting 1-4% on his money.  Pity the poor overseas investor who owns U.S. bonds.  He's getting 4% on his money, and if he's a European owning U.S. bonds, he has done worse than make only 4%, he has lost some of his principal, maybe 10% or more, because of the declining dollar.  Which suggests to us that at some point, foreign investors will be unwilling to buy our bonds for such a lousy return.  George Soros in the fall on CNBC said he was selling the dollar and buying foreign currencies, and recently, Warren Buffett in an article he wrote for Fortune, conceded he was doing this same thing for the first time in his investment life.

The mutual funds have not made it easy to buy Euros thus far, so many are using gold as an international currency.  It is breaking through resistance on a regular basis, and with the dollar in decline, we think it will continue all year long.

We would warn those who are considering buying into what appears to be a cyclical bull market, that they might be the one left holding the bag.