Sometimes you hear something that totally shifts your thinking, and it just happened to me tonight. I had to share since it runs a bit counter to my short-term thinking, but re-affirms my longer term thinking....

Just listened to Douglas Jimerson Prez of Natoinal Investment Advisors on NBR. He forecasted that this current rally will continue into Christmas. He sounded convincing only because he is an overall bear with most of his monies in money market funds for the entire year, and he had a perfect record this year in calling the market action. He then forecasted the NASDAQ and DOW will make new LOWS next year because the economy is so poor and we are still working off the bubble burst. Thus, he called this a trader's rally and not a long-term opportunity.

His logic made sense to me and had me realize that I did not appropriately adjust my short-term thinking to account for the psychological changes in the market after Sept 11th. I am combining his logic with my own re-interpretation of what is going on:

The market was very complacent coming into September. We still had not gotten the capitulation a lot of people were waiting for as a buy signal. The disaster shook out what is called the "weaker hands": those people who wanted to sell but had been too complacent before to sell. We did not get capitulation but we did create an excellent short-term buying opportunity (remember, history shows that after disasters markets over-react and sell-off, but then recover over a certain period of time). It also let off the steam that would have fueled any October crash. This is what I may have missed. With this fuel gone, there is more room for optimism to run than I could have thought, not just for October, but for the rest of the year. There is currently little catalyst to douse the belief that the economy will rebound strongly next year. Most importantly, the market has new fuel to run on with all the stimulus being stuffed into the economy. If no crash comes next week, we are very unlikely to crash anytime before the year is over.

So, we indeed now have a new set-up for another sell-off, but it may not happen in any big way this year. Things are very uncertain of course, but it continues to seem clear to me that the economy remains fundamentally weak, and there is little reason to think any rebound next year will be robust. And certainly not robust enough to justify some of the prices we are seeing again in the markets. Thus, once again, stocks are getting ahead of themselves, but the markets may not realize just how far ahead they are getting until next year. Why? Because everyone is trying to overlook current weakness and bet on the future. Ironically, this is a future very few corporate executives have been willing to forecast for their own companies. So, only the brave dare make long-term bets without any idea what corporate profits will look like! Right now, it is anyone's guess.

In the meantime, just be very careful and wary whatever you decide to do....!