Stocks are technically weak but private equity funds keep buying them at any cost – the frenzy feeds itself
Sam Adelton
May 18, 2007

The stock market is, technically, very weak. With recession at the horizon, real estate is collapsing, and mortgage is hard to get, the market is in serious trouble. But it can be very dangerous to go short in the market. Private equity funds and hedge funds keep buying the stock market at any cost. They are flushed with money. The rising market has created the crazy frenzy to buy and hold, to show better performance. The money market yields are so low that money keeps flowing into the stock market in spite of worst fundamentals in the next one to two years.

Technical weakness does not always translate into a collapse. The reason if the investors are crazy and have a lot of money to blow, the market can go up for a while. I pointed this out about the real estate market too. Two years ago no one could have dared say real estate will collapse.

Classic blow-ups take decades to settle. Markets suffer badly for a very long term. Look at Nikkei. It blew up in a bubble in the late eighties well above forty thousand. After the collapse in Nikkei, it traced back well below ten thousand. Today, after twenty years it still stands well below sixty percent of the previous top.

The same will happen to the overall stock market. The tech heavy Nasdaq is experiencing the same syndrome after the dot com debacle – the bubble that collapsed in the year 2000.

Stocks are technically weak but private equity funds keep buying them at any cost – the frenzy feeds itself
Sam Adelton
Private equity funds and hedge funds keep buying the stock market at any cost. They are flushed with money. The rising market has created the crazy frenzy to buy and hold to show better performance.
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