Given the market rampage, we regard it as imperative to point out that all investment involves risk as well as the potential for reward. Our methodology relies on following buying pressure, of which there has obviously been plenty this month. However, our methodology also recognizes that markets fluctuate. That means they can go down as well as up. It is true that there is no price so high, at least in the stock- market, that it cannot go still higher. Nevertheless, there are times when there is an excess of enthusiasm, when everyone and his dog want to throw money into the market. Yesterday, we received a call from someone we know who cannot afford to lose money. He wanted to put into stocks the proceeds of a maturing term deposit. At some point even the strongest bull market goes the other way. At some point, there is no one left at the end of the line to pay the new higher price just paid by the last buyer.

We don't believe that the overall market is suffering from 'Greater Fool
Theory'. That is the theory that says it doesn't matter what you buy or how much you pay so long as someone is behind you prepared to pay more. Yes, there are many stocks that look good, in principle, to buy now. Among them we include many petroleum stocks and foreign closed end funds. However, although we continue to hold high tech stocks, we believe that many of them have got ahead of reasonable pricing. We have long believed that a company like Nortel or Yahoo could grow into its stock price but it seems there may be a heck of a lot of growing to be done to justify the current price of some stocks.

From a technical standpoint, many individual stocks and the NASDAQ stock indexes are technically very overbought. It is worth noting that this condition does not apply universally. The S&P and the Dow, and now also the small-cap Russell 2000 stock index, have only just broken out above their previous highs. Still, the Dow has not been acting particularly well. It is during times like these, when the public has unbridled enthusiasm for stocks, that they will be buying from those who are happy to take profits on stocks bought at much lower levels. At some point, the cure for high prices is high prices. That means that there will be enough of a flood of new issues and profit-taking to cause supply to overtake demand.

We have another fear about this market. It is that once we pass through into the New Year, the Fed might raise interest rates right away. It is not cast in bronze that they have to wait until the February FOMC meeting. It is better to be sitting on the sidelines wishing you were in the market than it is to suffer the pain, or even the mortal wound, of having to live through a cataclysmic collapse. The current stock market is like playing soybeans in a drought. Every futures traders knows that at some point every party comes to an end. Parabolic advances like the current one in NASDAQ generally require, from whatever level, a decline of at least 50 percent from the eventual high, however high that eventual price might be.

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