Let Your Stomach Do the Thinking

What is the sensible contrarian to do? A tough question, to be sure. Unfortunately, there is no intellectualizing the contrarian point of view, since it's an instinct that comes right from the gut. Real contrarians do not try to second-guess other investors; they simply buy stocks when the very thought of doing so literally churns their stomachs. And they dump them just when ding-a-lings like Harry Dent are turning topics such as "Dow 35000" into best-sellers. You've heard before that the big money is made by those who summon the courage to buy when blood is running in the streets? Well, we're not there yet, not by a longshot. Not only is blood not running in the streets, but two-thirds of CNBC's guests seem pretty sure that four days of concerted selling on Wall Street has brought share prices down to irresistible levels. I think not, even while conceding that, yes, the whole world may be right about one thing: U.S. stocks are hugely oversold, and the wickedest of bear rallies could start just about any day.

Indeed, I look at stocks that I've hated the whole way down -- former world-beaters like Cisco, Intel, Microsoft and even Amazon -- and it's difficult to think there is no value in them at current prices. That's assuming they survive, of course -- which most of them will. So with tech stocks beaten down so hard that the odds have finally turned against anyone who would deign to short them, why should we not look for them to lead the charge higher, and soon? And so we shall, but on a selective basis and at such inflection points as can help us avoid getting crushed by the proverbial falling piano. There will always be opportunity risk in being out of the market. But at the moment, I think there is about zero risk of missing the start of a new bull.

Let's Not Forget Japan

Meanwhile, whatever the oversold indicators may be saying, come Thursday morning, there will be the real world to consider. I am of course alluding to Japan, whose latest crisis is forcing Wall Street to think not only globally, but perhaps prayerfully. Come April 1, Japanese bank are to begin the new fiscal year with a change in accounting rules requiring them to mark their investment portfolios to market. While this drastic and painful adjustment has been anticipated for quite a while, few could have expected it to arrive at a time when the Nikkei stock index was making 16-year lows, and fewer still may have foreseen that Japan's actuarial moment of truth would come when U.S. stocks, too, were falling out of bed. Taken together, these tectonic worries could easily overshadow anything the Fed chooses to do by way of easing. In fact, the consensus has come to expect Mr. Greenspan to leapfrog an expected easing of 50 basis points by a generous margin. Two successive cuts of 75 basis points over the next month is what Wall Street is ostentatiously wishing for, and it is tempting to anticipate that Mr. Greenspan will oblige. While we should not want to be terribly short the market if the central banks does The Street's bidding, die-hard shareholders risk a massacre if the hoped-for 150-basis-point cut lays as big an egg as the last 100 basis points. All in all, and judging from the way the Dow Industrials close on Wednesday -- below 10,000 for the first time in a year -- any aggressive buying may still be premature.