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It appears that the seasonal correction often seen this time of year has begun in earnest and I expect the market to continue to fall into March, at least.
As I've stated before I expected the Dow to close the gap left open from July of 2008 and it has done that, to within about 3%. I do believe it is possible for the stock market to come roaring back after the seasonal low and head back up to and above 11,000 on the DJIA, but at this point it is looking less and less likely. The market is heading to new bear market lows (under 6500 on the Dow), IMO. It will be interesting to see how it will accomplish this as it attempts to correct past injustices. In other words, all those people who came to believe they were geniuses (Jim Cramer and Laszlo Birinyi Jr. come to mind, along with a few other people I know that you would not) because they made money in a decades-long secular bull market and now must give back what they gained, and then some.
The trend downward has the feeling of newness and is still being established. Given that the seasonal low is not expected until March or perhaps even April I would not be surprised to see a low of around 8,200 on the Dow before we see a pop back up of about 15% to perhaps 9,300 and taking perhaps two months. But that's all conjecture; let's let the market show us what's really in store.
At this time I am closely following the technical readings of Tim Wood as I feel that his brand of technical analysis will be most effective going forward.
From Watchdog: Bailouts created more risk in system by the Associated Press comes the following quote, "Officials from the Obama administration counter that massive federal intervention has helped the housing market stabilize and prevented more dire consequences.". Read the full article for greater context, but the key quotes are,
"The government's response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.
The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. "
"Barofsky renewed a call for Treasury to enact clearer walls so that such apparent conflicts are less likely. Treasury said it welcomed Barofsky's oversight but resisted the call to erect new barriers against conflicts of interest. The new rules "would be detrimental to the program," Treasury spokeswoman Meg Reilly said in a statement."
This is typical of what we hear from our leaders these days. They don't have a clue about history or the facts. They only care about "saving us", which is shorthand for buying votes and controlling our lives. IMO, our future looks very bleak until we fire all of these incompetents and start anew. It's also important to understand what is really going on here that is so dangerous and won't end until a real disaster happens and wakes up the American people: the very people who got us into this mess are asking for more and more power in order to save us. Does this make sense to you?
At this time President Obama has finally gotten religion on financial reform and is talking tough about cleaning up our banking system. It's about time. I felt that had John McCain taken a hard line stance on this issue it is the one thing that would have made him president.
But what is the response from Wall Street? It should come as no surprise that almost every comment on the subject at CNBC yesterday seemed to suggest that Barack Obama was a communist or was being unfair to banks. I got the distinct impression that these people really believe that the world will not exist without them. They are wrong, the world will be a better place without the greed-heads and speculators, at least most of them.
If President Obama is to save his presidency he must take on issues that are important to citizens such as banking reform, true healthcare reform, and corruption in government and throughout our society. So far this president has fallen in line with the corrupt old guard and is completely out-of-touch with the people. The question is: can he change?
While I have stated that I believe the stock market is close enough to closing the gap left open from July of 2008 I tend to believe that the current correction we are seeing is more of a consolidation that will serve the purpose of luring more people into the market once the rally resumes. I base this on the fact that many technical indicators from Lowry's and other sources suggest that the stock market rally is not yet out of steam. This appears to be a classic case of the market remaining irrational longer than we can stay solvent.
Yes, I'm as sure as can be that we will see great valuations in the not too distant future and I doubt we will get there all at once, but I wise man lets the stock market tell him what's going on and doesn't try to insist on what is going to happen.
Today I sold out of a short position (SDS and SRS) about mid-day. I had been building this over the past 2 weeks and it paid off well. I left a bit of the SDS as I want to take advantage of a further decline or I can use it to start building a new position as I still expect that 11,000 level to be the turning point in this bear market rally.
I'll keep an eye on the price of gold as I expect it to decline further and I will likely add to my position as it nears $1,000 an ounce.
According to this chart the P/E ratio of the DJIA is now at around 30 and that is after dropping many of the failing and bankrupt companies like GM, Citibank and AIG. The S&P 500's P/E ratio stands at around 80, according to Standard & Poor's data at http://www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS and the NASDAQ 100 P/E ratio is at 90 according to data found at http://www.bullandbearwise.com/NASDAQ100RealPE.asp.
As I looked at the NASDAQ 100 companies I could not find a single company that looked to be attractively valued, and we are supposed to be in a bear market. This tells me that we have much more to learn and much farther to fall. As Richard Russell likes to say, the time to buy is when great value abounds, P/E ratios should be well under 10, on average, and dividend yields may be high than P/E's.
Taking this data into account, the fact that a real economic recovery would force up interest rates and the likelhood we are at the tail end of a classic dead-cat-bounce, I predict that once the stock market averages close the gaps back to the levels prior to the crash of 2008/2009 we will see the continuation of the bear market decline.
One indicator that suggests to me we are not yet poised for a resumption of the bear market is the put-to-call ratio. Also, Lowry's suggests that this bull movement has legs and is likely to continue.
Yes, we might be close enough but there is much stimulus in the economy and the markets work at their own pace, so remember, patience is a virtue.
In this article by Mike Shedlock, otherwise known as "Mish", titled, Underwater, Securitized, and Screwed by the "Pass the Trash" Strategy we read how once again the power of greed is leading us to an end result that won't be pretty. The politicians, bankers and greedy people from all walks of life have yet to really get it but history has a way of dealing with such a situation. Stay tuned to the history channel, otherwise known as "real life".
In this article Mish points out how banks are unwilling to work with homeowners and also provides excellent data to show that the problems we are facing in the housing market are not simply sub-prime but were caused by lax lending standards in general.
I highly recommend "MISH'S Global Economic Trend Analysis ". I subscribe and really look forward to the daily email.
Laszlo Birinyi Jr. is one of the people I call a "Fool of Wall Street" because he takes what he has experienced during his life and refuses to believe that there are generational dynamics (20 year "turnings" with an approx. 80 year full cycle) that must be studied and taken into consideration. I see Laszlo Birinyi Jr. as one of the prime examples, along with Jim Cramer, of people who are playing into "the principle of maximum ruin". These types of people are unable to see the big picture and constantly shill the stock market. Here are some quotes and links to back up my assertion:
From Forbes...
01.17.08, 6:00 PM ET
"Want a good new idea for this year? Try American Express (nyse: AXP - news - people ) (43, AXP ), which like all financials has been beaten down by the subprime issue, even though the firm has zilch to do with housing. The card company took a further pasting in early January when it announced a hike in reserves for loan losses. Still, American Express has a high-end clientele that likely will keep spending no matter what happens to the economy."
American Express went no higher after this prediction and indeed was hurt as everyone was hurt by the economic downturn, which Mr. Birinyi did not see coming. AXP dropped from 43 at the time of the article to 10 in March of 2009.
03.27.08, 6:00 PM ET
"I think volatility is here to stay, a permanent change in the system. I've written in the past about how the advent of rapid-fire electronic trading has ratcheted up volatility ( see my Nov. 26, 2007 column). The computers that pick stocks are not being unplugged, and the hedge funds that use them are not going away."
This quote shows the inability of Mr. Birinyi to see that things happen in large cycles. He is clearly unable to see that once enough damage has been done to the economy, as in the 1930's, a period of conservative investing will once again take hold for many decades.
In the same article Mr. Birinyi is quoted as saying, "The basic economy is doing better than most reports, and pockets of the stock market are sensing that. We keep hearing that the consumer is under pressure. Meanwhile, stock in Wal-Mart (nyse: WMT - news - people ), where America shops, continues to hold firm in the $50 area. If we truly are mired in a recession, then why are Caterpillar (nyse: CAT - news - people ) (up 5% this year) and IBM (up 10%) doing so well?"
No need to comment on that, his own words clearly express his cluelessness. This man is the only one to wait longer than Jim Cramer in admitting there was a problem with the economy.
"Like many other advisers I was blindsided by the events of September..."
Actually, Laszlo, many of us saw this coming long before September of 2008. Many were pointing out the housing bubble years prior, it's just that some people chose to ignore them.
Jackie Ramos is a former employee of Bank of America. Her story exposes what is wrong with our society at this point in time: greedy people in massive bureaucracies justifying taking advantage of the young, the old and the ignorant to gain profit. Understand that Bank of America went after these people and knew that many of them should not have the credit they were given.
Watch the video of Jackie Ramos titled, "Why Bank Of America Fired Me"
Jackie Ramos herself is an example of what is right with out society: individuals who are unwilling to hurt other people even if it means losing a job.
Jackie Ramos, you are a good person; you are my hero.
The is a likely sign that we are at the top. In an article on CNBC, Jim Cramer is quoted as saying, "A New Bull Market Has Emerged".
Time to go short? You make the call.
In an interview on CNBC Laszlo Biryini made it clear that he is bullish on equities. I just wanted to get this on the record as Mr. Biryini also came out as very bullish in December of 2008 just before the stock market plunged to new bear market lows. What I want to know is this: does Laszlo Biryini ever call for corrections? My research indicates that he was bullish all the way down from the 2007 highs and IMO is just another Fool of Wall Street who makes money by shilling the market no matter what. But that's just my opinion.
I think this article titled, "Deere Reports Quarterly Net Loss, Revenue Falls", sums up where the economy is heading very well. I believe that after the shocks of 2008 we will continue to see the dmaage that was done exposed. It is typical that after a shock to the system like what we went through in 2008 that people feel relief as they see that the world has not come to an end, but as I said often in 2008, the world will not end but the world as we knew it has ended.
Notice this comment, "...anticipating a huge jump in pension costs next year", this, "...because of higher provision for credit losses..." and this, "...Deere warned first-quarter sales could be down 10 percent from 2009 levels." Down from 1st quarter 2009? That's just amazing considering that that period marked the low point of the economic collapse.
All one has to do is take a realistic looks at where profits are coming from these days to see that they are not sustainable. Firing employees and taking free money from the Federal Government isn't a road to long-term economic recovery. We are faced with the burden of a populace that expects to be supported by the government, aging baby boomers and consumers that are buried under more debt than they can possibly hope to deal with. The government "saved us" by taking on tons more debt and so now the future is certain: we either inflate our way out or default becaus ethere is no way we can hope to pay off the debt we have taken on.
Exciting times for the bulls...and for me. I see this as the perfect setup to lure even more into the trap while convincing the Cramers of the world that the secular bear market is over.
I was wrong intially about the rise out of the March 2009 low but in hindsight it all makes sense. Every crash is followed by a tremendous bounce and the bigger the crash the higher the bounce. Richard Russell points out that a 50% or larger bounce is to be expected and Richard Russell knows because he was around for the crash of '29, though just a wee boy at the time.
The question now is will we begin a decline into the expected November low or does the stock market close that gap now? I suggest that doing so later fits the MO of this market (like 1929-1932 but more spread out) and allows even more suckers to become true believers. The stock market is in a desctructive phase and it has just one tool at its disposal: GREED.
This is a very specific call. I am predicting that we see the stock market dip to a low in early to mid-November then begin to rise through most of December. The two questions are: 1) Will the DJIA close the gap by rising to at least 10,300 before dipping down to that November low or have we seen the top? 2) If the DJIA has not bettered 10,300 will it do so after rising out of the November low?
If 10,300 on the Dow is bettered within the next few weeks I believe that we will see the November low - probably just a 10% slide - and then after rising a bit, but unable to break out to new highs, the DJIA will begin a slow but consistent series of moves that will eventually take us to new lows within this bear market. Along the way it will give the bulls plenty of reason to buy the dips and only after breaking below 6,500 will they finally get the message.
I do not believe we have seen the lows of this bear market. I believe that we are following a course similar to 1929-1932 on the DJIA, only slower and possibly even deeper. I strongly believe that our future has been determined by our past actions of false wealth creation amid a positive demgraphic outlook and that now we have a negative demographic outlook and significant deleveraging to deal with.
Dow 1,200 within the next 3-5 years.
PS - I'll probably be wrong so please do not take my prediction as investing advice.
At this point I think we are perfectly setup to continue on with the stock market correction. Enough suckers have been enticed back into this market, though another couple of months to the upside would really bring in a lot more wealth to be destroyed.
I try to balance the two major means of predicting the market and those two have now come together in a way that is undeniable. On pure data it is easy to make a case for this market dropping to 25% of where it is now. Just a slight drop in earnings from the predicted $30-$40 (S&P) earnings would allow for a bottom of 100 on the S&P 500, given the historic pattern of P/E ratios bottoming around 6.
$10 x .6 = $60 on the S&P 500.
$20 x .6 = 120
$30 x .6 = 180
$40 x .6 = 240
On the other side of the coin is the psychology of investors and Americans in general. The psychology of the general public has obviously shifted from that of the last 3 decades towards frugality and caution while day traders and a small segment of the population still believe they can outwit the markets - there are no underlying reasons for stocks to be valued above historic norms but a small handful of greedy people have convinced themselves there are and have also convinced themselves that even though they lost over 50% in 2008 they are smart enough to keep that from happening again.
My guess is that the stock market will not crash and burn but will slowly turn south and continue to entice the greed-heads in with rallies of 20% and declines of 30%, slowly eating away at their wealth while playing on their egos.
All the elements are now in place. Everyone has been wrong at some point, including those who saw this calamity coming and so everyone has doubts. The VIX is low, though higher than historic norms; gold is up, just enough to make us wonder...; stocks are up 40-50%, though still 35% below the highs of 2007; the economy is recovering, though still very sluggish; Alt-A and Options ARMS are poised to wreak havoc on banks and homeowners; unemployment is still rising; the dollar is slowly losing its status as the world's reserve currency; the geniuses in the federal government believe they actually made things better and so will be unable to think outside that box; the demographic problem is slowly putting more pressure on the American economy; Americans will no longer allow their government to shovel money to their cronies in the private sector, thus putting the kibosh on any further bailouts; we have a HUGE public deficit that overshadows our future for decades to come; we have no policy to renew our industrial base and so drive the economy forward.
I could go on but my point is that this is where too many finally decide to stop fighting the trend and go with it...and get burned. Yes, the market might go to 11,000 and IMO, should, in order to close that gap left from a year ago, but the majority of the data and trends suggest this bear market is far from over.
There's an interesting story of a little guy fighting back against the system with the help of the judicial system at CNBC.
Recently the town of Medford, Oregon, where I live, purchased new, very expensive police cars that the police love to speed around in. I know because several times a day I see a police car speeding by my house; never in pursuit, just speeding...somewhere....
Now I'm a great believer in supporting law enforcement so I don't believe the cops are corrupt, at least no more so than the rest of us, but I have noticed a trend towards many more vagrants and drug abusers roaming the streets and taking over sections of my local park. Drug deals are carried out without a concern for anyone seeing, perhaps because the police are moving too fast to notice?
I'm a big picture guy and I see the big picture very clearly: we inflated our economy and all came to believe we were geniuses and deserved to have a bigger car, home, paycheck and along the way we created a monster, we created a society of people who are so enamored with our stuff that we no longer care that our kids are not safe and that we have lost all sense of perspective. We not only allow the ex-Goldman executives to outright steal from the treasury and give to their cronies but we also allow our kids to do whatever they wish, as long as we can drive a nice car and pretend we're a king inside of our huge McMansion.
We're now paying the piper and there is a big redistribution going on. Over time things will come back into balance and power will once again be distributed more evenly in this country. But I believe that will take decades and a lot of pain and suffering for those fools (most of us) who believe that people like Jim Cramer and Hank Paulson and Geroge W. Bush and Barack H. Obama give a rat's ass about any of us. Actually, we don't believe it, we want to believe it because we went along for the ride and if it's not true that means we might have to start working and saving and living within our means. The sooner we as individuals come to recognize reality the sooner we will once again gain power over our lives.
I'm a great believer in not telling the stock market what to do or when to do it. It is smarter to listen to the stock market and study its history and then come to a reasonable conclusion, based on facts, of where the stock market should be at any given time. It is also wise to always remember that the stock market is made up of people, people who are greedy and fearful and all too often do things that make little sense in the long term.
Given that, I believe that the stock market is doing what makes sense, it is having a big relief rally after the people that make it up have been made to believe that the worst of our financial problems have been solved. In truth that may be true. Our noble leaders have borrowed from the till (us) to keep the "too big to fail" financial companies in business and so things are allowed to go on pretty much as they used to. ...think about that for a second, though.
But there's a bit more to it than that, if one studies the movement of the stock market one finds that the market hates to leave gaps open, especially in secular bear markets. A study of the our current decline from the highs of 2007 or the decline from 1929 to 1932 clearly shows that the low of one leg down will match up with the high of the next. After the crash of 1929, for instance, the stock market climbed 50% to close that gap. Many stock analysts like to talk about 50 percent retracements and so on but what is really going on is that the stock market, for whatever reason, needs to decline in an orderly fashion and as history reports, it has plenty of time to do so, setting us up for maximum destruction of wealth along the way.
At this point almost everyone is expecting the stock market to take a breather. Bears are calling for the end of the bull rally while bulls are saying that we could see a 5, 10, or even 15 percent correction prior to the resumption of the ascent to ever higher levels in the stock market.
My prediction is that the stock market has had its breather and will push dramatically higher over the coming weeks, probably right through September and along the way the bulls will become absolutely giddy with joy as they rush in, as will anyone not too sure. Even many bears will finally acquiesce, fearful of missing the big rally and looking like fools. Another 10 percent move brings us to around 10,300 on the DJIA, a level which I believe will effectively close that gap I was talking about; at that point, given what I know about our economic future, valuation of stocks and my belief that we are in a secular bear market that has much farther to go based on historic patterns, I believe that we will see an incredible opportunity to sell the market short using ETF's such as SDS.
An alternate view is that the rally moves ahead much slower, with a seasonal decline but not to new lows, and then comes back to close the gap later this year or in the middle of 2010.
That's my view but keep in mind that the only times I have been succesful in predicting short term market moves was during the panic selling of 2008. Times like these are much harder to predict because the forces are less concentrated and the market is much more patient than most of us give it credit for.
I have seen very clearly for the past two years what was coming and what the cause was. As well, I have some very simple ideas that could have been implemented to help alleviate the financial crisis.
First of all the financial crisis is not anyone's fault it is our fault because most of us profited by it. We allowed oursleves to be bought off. Some allowed it because they liked the big screeen television they could afford on credit and some allowed it because they profited by being employed at a higher wage than normal and others allowed it because they were too busy playing video games or downloaded Internet pornography. Many came to believe they were investing geniuses who could beat the markets because they were so brilliant. BTW, if you were one of the many who didn't see the downturn coming in 2007 (or before) then you were just another follower of the trend and you deserve everything you got. Right now you are probably once again thinking you are a genius as the stock market rises once again but pay attention to how much you have lost since mid-2007 and be warned that there is much worse to come.
But I want to point out the difference between you and I and our noble leaders: when the extent of the problem became known in 2007 and 2008 and the decision was made to take action it was George W Bush, Barack Obama, Hank Paulson, Tim Geithner, Ben Bernanke, Chris Dodd and Barney Frank, among others, who made the decisions. The decision they made was to grab their shovels and start scooping money to their friends and supporters at the banks and other companies such as AIG and GM. What they should have done was to send our money to us and let us decide how to put it into the economy. After all, the only way it wouldn't have gotten back to a bank was if we stuffed it in our matresses.
Instead our noble leaders found all sorts of ways to pass our money on to failed institutions and we received no benefit. In fact, these same institutions often then went out of their way to cut our lines of credit or raise the fees they charge us after being bailed out with our money.
I could go on but this is what I and a small percentage of Americans have been saying for two years now so if you don't know the story you never will. The liars and shills and criminals have succeeded in propping up the system with more credit and have convinced many that things are now better and we will soon be growing our way out of this mess. I know better. Hopefully you do too and you are paying down debt and saving money and maybe even burying a bit of gold in your backyard because we have lived on excess for decades now and we will now pay the price, possibly for decades.
This is not over.
A fantastic article that gets to the heart of what went wrong and who is to blame.
"Neither can the state seem to resist the temptation to extend emergency credit to failing businesses. If their positions were sound, credit would be forthcoming from the private sector. If not, then they should go out of business, freeing up resources to be used by more capable stewards. Diverting resources from those who have successfully met consumer demands to those who have not serves only to weaken the economy and make recovery that much more difficult."
Woods looks into the cause of our current financial crisis and finds some obvious answers. Combine this with a study of history and an understanding of Generational Dynamics and you will have a pretty clear roadmap of how we got here and what the future holds.
I would add, however, that while the future holds a period of "penance" for our sins how we pay for them and how long it will take to pay for them is still up in the air. I would argue that the "The Greatest Generation" came about because of the hardships they faced, not in spite of them. The very story of the American Dream is of average people coming to America with nothing and creating empires along with jobs and wealth for many other people.
It is the will and desire to rise out of poverty that drives progress. By not allowing failure our government reduces the chances of success and wealth creation in the future. One only need look to Japan since 1990 to see what lies in our future.
This disturbing video of Rep. Alan Grayson grilling Federal Reserve Inspector General Elizabeth Coleman on where trillions of dollars went shows just how corrupt our nation has become. The real corruption, however, is that the vast majority of Americans don't have a clue about any of this and don't care, as long as they believe they will be taken care of by the government, either by being directly supported via assistance programs or by the government propping up the stock market.
I hate to say it but either things are going to get a lot worse and we will finally be forced to wake up or we are seeing the final days (decades) of our once great nation.
Birinyi Associates has a clear conflict of interest, they are a money management firm and yet they provide earnings data to the Wall Street Journal and ?
Back in January Birinyi Associates made it clear that they were bullish on the stock market and no doubt lost their backsides on that one. I looked into all of this because sometime in early 2009 I noticed that Bloomberg TV and The Wall Street Journal were reporting P/E ratios that were not accurate. To this day, despite the P/E of the Standard & Poors 500 being over 100, the Wall Street Journal is reporting it as 14...yes, 14! Guess who provides data to the Wall Street Journal? You guessed it, Birinyi Associates.
In this article, John J. Xenakis of Generational Dynamics exposes Birinyi Associates for the fraud they are. Laszlo Birinyi actually states, "There are technical measures you can use, but the problem is that people use technical measures for predicting things, instead of understanding things." What? Read that again...I supposed Mr. Birinyi sees EARNINGS as techinal measures that might be misused to predict something...perhaps something like falling stock prices?
It is clear to me that Birinyi Associates has a clear conflict of interest and should not be providing data to ANYONE. They are entitled to their opinion but why would anyone purchase data from a company that has a clear conflict of interest. The problem isn't so much that Birinyi Associates is corrupt, as I believe they are, it's that the Wall Street Journal and anyone using their bad data is corrupt or incompetent and their job is to provide information to the public.
Don't know what Quantitative Easing is? Karl Denninger explains it in simple terms and you won't like what you hear.
In this May 11, 2009 CNBC video interview with Maria Bartiromo, Meredith Whitney gives her opinions on the banks, consumer spending and how the government's actions are making it difficult if not impossible to know what the rules are.
Once again Meredith Whitney shows that she is a step ahead of most other Wall Street analysts as she prefers to speak the truth as she sees it rather than feeding us more of the same drivel spewed by the majority of stock market analysts. This woman is smart, honest and is one of the few Wall Street analysts I trust.
A must read article that I agree with almost 100%. In essence, we have weak leaders unwilling to admit our problems but perfectly willing to sacrifice our nation's future. The longer they throw money (debt) at the problem the longer the problem will last and the more likely we will never fully recover.
And did I mention that China's going to be really pissed when they find out they're only going to get pennies on the dollar on the money they've invested in us?
My problem is not so much with incompetent "Fools of Wall Street" like Matt McCall but that Fox News (where I discovered his incompetence) puts such people on when they have a track record of being wrong time after time. There are plenty of stock pickers who actually get things right about half the time; couldn't they use some of them now and again?
In my opinion, anyone who uses any of the major financial media without documenting the data they see is themselves a fool as I come across innaccurate financial information on all of these networks on a daily basis.
Quotes by Matt McCall:
Time To Wade Into Commodities - Oct 17, 2008
Just about everything Matt McCall says here is wrong but then why should this article be any different than the other ones? Matt is probably a nice guy who was taught to always think positively which is EXACTLY what you don't want in a financial advisor. The price of oil would drop by more than 50% in the coming months and would still be well below the level on Oct 17, 2008 when this article was written.
After stating that he owns both Oil ETF's and oil stocks he then makes this comment, "Obviously the global economic slowdown has weighed heavily on hard asset markets. We've seen a huge pullback, but I believe that has been fully priced in to commodities. We're in a bottoming process right now. But volatility remains, at least for the coming weeks if not coming months. So we're waiting for confirmation of a bottom. We've got to see some consolidation to confirm that the market can hold these lows and not fall further. It's hard to pick a bottom, though. For the individual investor, I think it's a good time now to start wading back into the market"
I'm really not sure what to make of what he said but I do know that oil continued its fall and fell by over 50% in the next few months. Why in the world would he tell people to wade into a market he himself doesn't seem to have a clue about?
Bullish on Stocks and Oil - May 17, 2008
"We are soaring to the end of the year. Keep throwing the bad news at me because all that that does is create the wall of worry that bull markets climb. People thought we were going to hit the bottom in the first quarter. They are going to doubt this rally all the way to new all-time highs. Nothing is going to stop this market right now!"
Matt McCall's Pick: Orbital Sciences (ORB)
Price at time of pick (May 16, 2008) was 26
Price on July 3, 2008 was 24
Price on Aug 15 2008 was 27.89 (highest stock price after Matt McCall's pick)
Price on Sept 17, 2008 was 22.85
Price on Oct 27, 2008 was 17.42
Price on Nov 20, 2008 was 15.36
Price on Dec 10, 2008 was 15.44
Price on April 6, 2008 (date of this article) is 12.90
Apparently Matt McCall is a Wall Street Rock Star, too bad he doesn't know how to say anything but "buy". Hey, isn't Jim Cramer a Wall Street Rock Star too?
This article was written by Matt McCall on October 9, 2007, just as the second worst bear market (so far) in modern history was getting rolling, yet Matt McCall doesn't appear to have a clue as he states, "...the handful of deals taking place should suggest the bottom of the credit crunch has been seen". I was out of the market, Matt, as were many people who were paying attention; what's your excuse?
KEYWORDS: fools of wall street, matt mccall, bullish, stocks, bad stock picks, bad investment advice, fool, fools,
Kenneth Fisher, Just Another Fool of Wall Street - The P/E Myth
Posted March 27, 2009 9:04am
Certain things just get me going and this is one of them. Read this line from the esteemed Kenneth L. Fisher, "There is no linkage of market P/Es to subsequent returns--no matter how you measure the ratio and no matter over how long (up to five years) you measure returns." WHAT!?! Read it again; you probably didn't even notice the "up to five years" line at first, did you. Read on and you'll see that he ignores many other possible uses for P/E ratios. As with any data source a wise investor will use it in context.
KEYWORDS: ken fisher, Kenneth L. Fisher, Kenneth L Fisher, pe ratio, p/e ratio, pe, price earnings ratio, fools of wall street
Tim Wood explains why he believes that in 2007 we finally exited a bull market that started in 1974. Here's an index of articles by Tim Woods.
KEYWORDS: tim wood, dow theory, bull market, 1974, 1982, 2007, 1929, 1932, the great depression, bear market
I am so grateful that for once I get to expose a great idea instead of a stupid one or a bad piece of data. In the above article John Mauldin comments on an idea suggested by Gary Shilling and Richard LeFrak in an op-ed in the Wall Street Journal. The idea is to give a green card to foreigners who will come to the US and buy a home. Read on for more details of a simple plan that would actually - GASP! - be effective.
KEYWORDS: housing, immigration, green card, buy a house get a green card, Wall Street Journal, Gary Shilling and Richard LeFrak, Gary Shilling, Richard LeFrak, John Mauldin, 2009, home buyers
An article from Slate about the real AIG scandal. The bonuses seem to just be the tip of the iceberg. Did Hank Paulson and Timothy Geithner rip us off?
Slate asks why counterparties such as Goldman Sachs were paid back in full with taxpayer bailout money.
KEYWORDS: aig, criminal conduct, hank paulson, scandal, 2008, scandals, wall street, goldman sachs, Timothy Geithner,
Matt Stiles makes a cinvincing argument why deflation is here to stay, at least for the time being, and hyperinflation is impossible.
KEYWORDS: Matt Stiles, inflation, hyperinflation, economy, economics, deflation, derivitaves, china, fiat currency, money supply, great depression, recession, 2009, gold, bankers
I feel kind of bad, picking on this guy, Vinny Catalano. He's someone who I'd never heard of before today and only found by searching for info on how to use a 50 day moving average. But....
Vinny proves himself just another fool of Wall Street who can't see the forest for the trees. I will soon prove to Vinny Catalano and anyone else who cares to listen why simple is better. I will be creating a program that allows you to enter any start and end day and figure your investing returns using a simple moving average. What Vinny and other deep thinkers on Wall Street don't get is how important it is to avoid calamities such as the crash of '29, '73, '87 or '08. Using a simple 50 day moving average for timing would not only have had you out prior to the crash of 1929 but would also have had you back in at 46 after the bottom in 1932 at 42 - and that's just amazing! At today's dirt-cheap brokerage fees this may be the perfect trading strategy for most investors.
Stay tuned as I add this feature and many more.
KEYWORDS: 50 day moving average, moving average, investing, fools, fools of wall street, investing ideas, s&p 500, djia, dow, dow industrials, Vinny Catalano
This is about a month old but I wanted to preserve it for posterity as it provides some excellent data that I have been trying to spread to those who will listen. What is sad is that most people would prefer not to listen, instead preferring to exist in a safe little bubble where the only thing between them and complete financial ruin are the lies of forward earnings estimates and operating earnings, a non-GAAP method for fabricating earnings.
KEYWORDS: s&p 500, s&p 500, earnings, gaap, reported earnings, operating earnings, 2009, p/e ratio, pe, pe ratio, Carl Swenlin
An essay by Martin Armstrong that reaches back into the financial history of America and the World to make the argument that America may be on the decline as China takes over as the world's superpower.
This is very thought-provoking stuff and well worth the read. One of the things I noticed is how such a strong argument is made for our total economic collapse without even a mention of the coming problem of our aging baby-boomer generation. Demographics alone will likely keep America from generating any type of sustained growth for the next 20 years. I find it hard to believe America will not find a way to reinvent ourselves but I do not find it hard to believe that the next two decades will be a difficult time for this country in so many ways.
KEYWORDS: martin armstrong, china, america, united states, economocs, global economics, history, superpower, superpowers, currency, currencies, demographics, demography, baby boomers
Excellent economic data that will help you determine if we are at a stock market bottom yet.
KEYWORDS: S&P 500, David I. Templeton, David Templeton, prediction, stock market, bottom, economic data, economy, investing
Sure, I watch CNBC, but like any sane person, I use it as a barometer for what the herd is thinking and doing. Jon Stewart makes fun of people who have mislead us and stolen from us; you hav eto watch this!
If you went along with it you are just as bad as they are for it was all pretty obvious to me that these people are polyanish idiots. The only questions is: who's the biggest idiot?
KEYWORDS: cnbc, jim cramer, jon stewart, lies, merrill lynch, bear sterns, dow, djia, stock market, the stock market, humor, jon stewart and cnbc, the daily show, funny, larry kudlow
As reported by the Associated Press the World Bank is predicting the global economy will shrink in 2009 for the first time since WWII.
KEYWORDS: world bank, recession, depression, 2009, the world bank, prediction, predictions, economy, global recession
I once again am getting that sickening feeling in the pit of my stomach. I get it when I see my country in a sickening death spiral as it drifts around and around, slowly making its way towards the drain, and there is nothing anyone can do.
The article referenced above is the type of thing that brings on such a feeling. Cold, hard facts are what always does it.
I just keep thinking that we made it through The Great Depression and this can't be any worse, right?
KEYWORDS: fdic, the great depression, depression, spiral, downward spiral
I love articles like this that shake up the self-dilusional world of Wall Street analysts. Larry Kudlow would hate this type of article because it is anti-american and anti-Wall Street; in other words, it exposes the truth about the lies we tell ourselves and each other.
What it is is the truth. It is honest and based on hard data and it offers critical thought, something all too rare on Wall Street these days.
The argument is that analysts are fooling themselves by comparing apples with oranges by using operating earnings instead of as reported earnings. As reported earnings are what you get if you research earnings from days gone by. Of course Wall Street analysts weren't happy with just playing games by excluding items from earnings but the even bigger lie that came to be accepted in the past several decades are forward earnings. Forward earnings are still in use by a few of the remaining scam artists who haven't yet been shamed into obscurity but they are quickly going the way of the horse and buggy.
KEYWORDS: wall street, investing, earnings, lies, operating earnings, as reported earnings, as reported, corporate earnings, s&p, s&p 500, s&p 500 earnings, comstock, 2008 earnings, 2009 earnings, 2008, 2009
"AIG, once the world's largest insurer, is expected to post a loss of nearly $60 billion on Monday, when it reports its results, CNBC reported citing unnamed sources close to the company.
The talks with the government include the possibility of additional funds for the insurer and trading debt for equity, a source familiar with the matter told Reuters."
If anyone still doesn't get what is going on and thinks that everything is hunky-dorry and the market will turn up in a few months this bit of information should give them food for thought.
Sixty Billion Dollars!!!
In a single quarter.
We're paying to keep this company alive when we should be hacking it up and selling it off as quickly as possible. Truth is, we probably are but nobody wants to buy.
KEYWORDS: aig, AIG, insurance, insurance company, aig insurance, bailout, government, government bailout, incompetence, incompetent, 60 billion, $60 billion
I find this interview interesting because this type of attitude is becoming more common...or is it that those with a more realistic view are finally being heard?
IMO, we are about a third of the way to where we need to be. There are still too many bulls-in-waiting out there calling market bottoms and then the market will have to pound, pound, pound those perma-bulls until they start writing books with titles like, "The Coming Stock Market Crash" or "How to Prosper in the Coming Depression". At that point I will know it's time to start building a heavy long position. Ahhh...some things are just so predictable. :-)
As I've said before: Dow 5,000 in 2009 and look for a bottom somewhere around 3,000 or even lower if the government can't get out of the banking business. Just keep in mind that predictions are subject to change along with conditions but never have I been so sure about a prediction.
Oh no! The economy is getting worse, according to NABE or National Association for Business Economics. According to NABE unemployment could reach 9% in 2009.
Anyone looking at the data and listening to objective analysts who know what they are talking about have known this for awhile.
KEYWORDS: nabe, National Association for Business Economics, economy, economy getting worse, unemployment, economists, 2009
Some more good, basic data on why the housing market is a far way from recovery.
KEYWORDS: housing, housing market, isi group, isi, investing, 2009, recovery, the housing recovery
Doug Kass is predicting the end of the bear market in stocks and the beginning of a new bull market beginning early in 2010. Hmmm....
My problem with Mr. Kass's theisis is its basis: He states, "My sense is that we don't have to wait (too much longer) for a resumption of a new bull market as policy is going to be aggressive and immediate.".
While Doug Klass has reportedly been a bear on the stock market for some time now it seems from his comments here that he doesn't understand the basis of the bear market. Government stimulus can't fix the problem because all government can do is shove the problem from the present to the future and from tax dodgers to taxpayers. This depression, or bear market, after all, came about because of the irresponsibility of a generation of people who didn't understand that debt eventually has to be paid back. It tooks decades to build to a crescendo and there is simply no way to avoid the hangover of our debt burden. Stimulus is simply more debt and will not solve the economic problems we have. You don't cure debt with more debt.
KEYWORDS: doug klass, debt, stimulus, bear market, bull market, prediction, predictions, economy, depression, 2009, 2010, bull market in 2010
The Fourth Turning refers to a generational change that ushers in a "crisis era" and is the turning, one of four, that breaks the cycle and ends one epoch and begins another. This is powerful stuff backed up by a great deal of research. It can make a dramatic difference in your investing.
If you wonder whether reading this article will worth your time just note that the crash of 1929 ushered in a fourth turning. Read it!
KEYWORDS: buy and hold, buy and hold investing, investing, investments, s&p, s&p 500, long term investing, investing strategies, investment advisors, nouriel roubini, peter schiff, incompetence, incompetent
This article is just another bit of polyanish advice we see too often in the investing world. Such advice is pprovided by people who are either incompetent, as is proven by their inability to predict the downturn starting in 2007, or are dishonest; take your pick.
Now buy and hold investing is the way to go for most investors since the typical investor would get clobbered by trading the stock market, or any other market except the supermarket, actively. But this article, authored by Yolaiki Gonzalez, Giovanny Moreano and Ariel Nelson is written by people who consider themselves expert investment advisors or analysts; that is why they are posting their opinion publicly.
What these incompetent boobs are suggesting is that you should simply buy stocks and hold them...period. That is because these same people don't have the conpetence to see a Mack truck when it's headed towards them. In the fall of 2007 it was obvious to most astute investors that trouble was breweing and some high profile people like Nouriel Roubini and Peter Schiiff, among others, were providing plenty of hard data as to what the problems was and how bad it would be. In this day of the Internet there is no excuse for a professional financial advisor to have kept their clients in stocks in 2008. NONE!
By doing a bit of buying into panic and shorting the market using the SDS ETF and oil using the DUG ETF (be careful of this one!), I was able to turn a 40% gain on my retirement portfolio by the end of 2008, starting in the fall of 2007. Now let's look at how that plays out compared to someone who bought and held during that time.
Assuming we started with $10,000 and you simply held a typical portfolio of stocks you would have lost some 40% from the fall of 2007 to the end of 2008. That $10,000 would now be worth $6,000.
My portfolio would be worth $14,000, over twice the buy and hold portfolio, and just staying out of the market and in cash would leave you at $10,000.
Even a simple mind can see that by simply investing that $10,000 back into the market at this point would forever leave you with 67% more than if you had bought and held. At this point I predict we will see at least another 50% drop in the stock market before it bottoms sometime in 2010 or later but no matter, that 67% would be locked in compared to the buy and hold investor.
Now compare my 40% gain using simple methods that anyone who stays on top of the market could have achieved. That puts me 233% above the buy-and-hold investor. That means I could miss out on the near 100% gain off the bottom in 1932 and still be way ahead of the buy-and-hold investor. Of course, it's likely we haven't yet seen the bottom since no market has reacted the way this one has and taken off strongly to the upside, at least not with earnings falling and an already high P/E ratio of over 20.
The bottom line is that the vast majority of investment advisers fail their clients because they are both dishonest and incompetent, in my opinion. It is their job to identify obvious weakness in the economy and help their clients avoid the pitfalls and yet probably only a tiny fraction of them did so this time around. The dishonesty comes in when they fail to even care about such corrections because it is not in their interest to care. You can't make much money when a client's cash is sitting idle. Simply by avoiding the occasional decline in the stock market most investor's portfolios would swell dramatically over their lifetimes yet the vast majority of investment advisors don't get this basic principle. I am not a trained, educated financial amalysts yet I get it and got it. That, IMO, makes them incompetent.
KEYWORDS: buy and hold, buy and hold investing, investing, investments, s&p, s&p 500, long term investing, investing strategies, investment advisors, nouriel roubini, peter schiff, incompetence, incompetent
Peter Schiff is one of the few who saw the financial calamity coming and now he explains why we're turning it into an all-out economic calamity with a full blown "economic collapse" on the horizon.
I hate to say it but it seems that we are indeed headed in that direction. Instead of allowing people and businesses to do what is needed by saving and paying off debt the federal government insists on keeping the money train moving with stimulus packages, TARP and anything else they can think of to save us. IMO what they need to do is keep the system from crashing but to allow it to mend itself, which means not trying to keep anyone and everyone from feeling the pain. Keep the big banks from going under in a panic but once they need our money we need to then allow them to be dismantled and sold in bankruptcy proceedings. There is no reason we can't make that an orderly process. Companies like General Motors need to go through bankruptcy as well, once they come begging to the taxpayer.
It is possible that we are not just going to create "zombie banks and companies" like Japan did but that we are going for zombie citizens also, as we insist on bailing out every last person who lost anything in the past few years, except for those who actually did things right or have made the needed adjustments to pay off their debt and balance their budget. To me this resembles full-out communism or perhaps worse, "Atlas Shrugged" come to life.
In this article, Peter Schiff makes a strong case against rebuilding the securitization market. Here is a quote:
"In the worldview of Geithner and like-minded economists, credit, rather than savings, is the central figure in the economic equation. Therefore, he sees anything that eases the process of lending to be an effective economic policy. With such a view in mind, the centerpiece of Geithner's plan is the commitment of up to $1 trillion to revive the collapsed market for securitized debt. In the lead up to the Crash of 2008, securitization more than anything else permitted Americans to borrow more than they had ever borrowed before."
In you, like me, believe we are in "The Great Unwind" then you will pretty much agree with most of what Peter Schiff says. Though he has missed the mark on some of his ideas on how to profit from the situation that does not diminish his accuracy on the underlying financial problems we face.
Read this article, it's worth your time.
KEYWORDS: peter schiff, the great unwind, geithner, tim geithner, timothy geithner, economic collapse, economy, american economy, economists, credit, debt, market collapse, securitization, securitization market
I'l let this article speak for itself as things unfold. I'm very busy and don't have time to comment on this "Fools of Wall Street" article right now but I wanted to mark this article as it helps expose a few, additional "Fools of Wall Street".
KEYWORDS: fools of wall street, recession, predictions, wall street, economy, 2008, 2009, depression
This CNBC video is the single best example of incompetence in the financial media as two of the best financial minds, men who predicted our current economic crisis, are disrespected by the market shills of CNBC. As Roubini and Taleb try to explain what is at the heart of our economic catastrophe these complete idiots are trying to turn them into "rock stars", hitting them up for tips to predict the stock market bottom. One idiot just keeps asking, "how is this actionable?". Everyone in the investing world knows, and these talking heads know, but refuse to aknowledge, these two men do not give investment advice, they deal with the macro economy and how we got into this problem and how we get out.
I've got news for you, CNBC talking heads, the bottom will be marked by people like you being fired and doing a job for which you are qualified: carnie.
KEYWORDS: cnbc, nouriel roubini, Nassim Taleb, incompetence, stock market, dr doom, fools of wall street, market shills, interview with Nouriel Roubini and Nassim Taleb
From data provided by Thomson Reuters, CNBC reports, "The blended earnings growth rate for the S&P 500 for Q4 2008, combining actual numbers for companies that have reported, and estimates for companies yet to report, fell to -40.6% from -35.2%...".
KEYWORDS: S&P 500, earnings, cnbc, Thomson Reuters, 2008 earnings, 2008, earnings estimates, stock market, wall street
According to a report from Moody's Economy.com, "More than three years since the market began correcting, inventories are flattening, prices are coming back down to earth, and sales are approaching stability,"
BALDERDASH!
While inventories are flattening and prices are coming back down to earth prices are actually accelerating downward. New home sales continue to get worse and the foreclosure problem is not even close to working itself out; what these incompetent boobs are doing is cherry-picking data to reach a conclusion they wish to reach. After all, Moody's is one of the companies that got us into this entire mess in the first place so we know they are both incompetent (I would actually love to go to court to prove this, so please sue me Moody's) and that they are willing to shill the market in order to make money.
Anyone who listens to a word Moody's has to say deserves what they get.
My favorite voice on this subject is Meredith Whitney who has been right much more often than not, unlike Moody's.
Jeffrey Saut was on Fast Money today and is once again bullish on the stock market. To see article after article of failed predictions by Jeffrey Saut go to
Seeking Alpha list of recent articles.
On June 17, 2008 Jeffrey Saut wrote, "...rendering a near-term price target into the 1320 – 1330 support zone. If that occurs, we would consider initiating ‘long’ trading positions like we did at the January/March trading ‘lows.’ It should also be noted that our proprietary oversold oscillator is close to rendering its first oversold ‘buy signal’ in years.”"
On December 4, 2007 Mr. Saut actually wrote these words, "First, it can be argued that the housing situation is fairly localized (Florida, California, Las Vegas, etc.) rather than a national problem. Second, as can be seen in the attendant chart, the housing sector only accounts for 4.5% of our $13 trillion economy and consequently won’t pull the economy into a recession ." WOW! I assume Jeffrey Saut is in the "nobody saw it coming" camp.
Another quote that will come back to bite Mr. Saut is this one from December 31, 2007, "Another favored name would be Motorola (MOT), which appears to be just too cheap selling at one times revenues and one times enterprise value to sales." At that time Motorola was at 16; in a few weeks it would drop to 10 and bottomed out at 3.15, never having come close to 16 to date. But anyone can be wrong about one stock....
According to Jeff Saut, "select technology names should remain a primary focus. One such name is Strong Buy-rated Avnet (AVT), which is being valued as if there is going to be a 35% reduction in earnings that we don’t think will happen." Earnings go down?...never gonna happen! Next thing you know you'll be telling me the world's coming to an end. In fact, AVT went straight from 33 to 30 and then actually got up to 37...before plunging to 12 by November. Wouldn't we have been better off in the broad market?
On March 4, 2008, Jeffrey Saut wrote these words, "That’s why we are betting that this government-sponsored economic stimulus package will be like all the others since 1948 and be successful and allow the U.S. to skirt a recession."
Once again Mr. Saut is insisting that reality reshape itself and play like it has in the past when he writes this, on December 23, 2008, "If the DJIA (8579.11) can likewise break out above its 50-DMA at 8702, the Dow’s November 4th reaction “high” becomes the next upside target. Bettering that high, with a like move from the D-J Transports, would register a Dow Theory “buy signal;” the first such signal that would come from “cheap” valuation levels in more than a decade."
Folks, this is where I lose all respect for the man. The historic average P/E for the S&P 500 is 14 and it has been right around 20 for the past year. That is not cheap. Book value should be 1 and it is significantly higher, all while earnings and the value of assets are dropping, yet we keep hearing that valuations are cheap.
In summary what I find amazing is that people pay fools like these to lose their money...not for long, I imagine.
An interesting article authored by Carmen M. Reinhart looking at the fiscal consequences of financial crises. This can be used to provide additional insight into what we are currently experiencing and what we may expect going forward. Note that this is not someone spouting their opinion but is based on historic evidence and facts. Here is an article of interest that led me to it.
As of January 30, 2009.
-35.2% from -28.1% the week before. The S&P 500 P/E ratio stands at 20. With such a dire outlook going forward (housing is not expected to rebound for perhaps 2-3 years) is 300-400 on the S&P 500 out of the question? 300 on the Standard & Poors 500 would leave a P/E of 7.5, given current earnings, yet earnings are declining rapidly. You do the math but I see serious stress building for another big fall in the stock market.
"Since October, the government has deposited $165 billion into the accounts of the nation's eight largest banks. Yet those same financial firms are now worth $418 billion less than they were four months ago..." read more...
Yes, I am guilty of being polyanish. On Friday I pulled out my long positions as it appears that there simply is no impetus for a bear market rally. I am holding onto my GLD as I feel that is a must in this economic environment. I am back in SDS and my strategy will be to buy in further on each 5% upward move in the S&P 500. This means not over-investing on each buy and only selling on a big move downward.
Keywords: polyana, fred voetsch, wall street, analyst, fools of wall street, predictions, sds, gold, gld, s&p 500
This quote by Robert Brusca of Fact and Opinion Economics caught my eye on CNBC's website today: "stocks often make their biggest gains when earnings reports are at their worst, the base has been laid for recovery, and when recovery comes, it will be very clear.". Now it is good that Mr. Brusca is upfront with his opinion but as history shows, Robert Brusca is just another polyana shilling for Wall Street and a little reasearch shows that Mr. Brusca has been wrong again and again. As is often the case, this man came to think of himself as a genius because he was able to ride on the coattails of the biggest bull market in history an dnow that it has ended he doesn't even has the good sense to change with the times.
On February 25 of 2008 Robert Brusca, as documented by Market Watch, had this opinion on housing: ...when it comes to the housing slump, Robert Brusca is wondering what all the hubbub is about. The chief economist at Fact and Opinion Economics says housing is not collapsing. And he tells John Wordock the 4.6% decline in home prices in the last year is not that bad given the rise in prices during the boom. Brusca also predicts we could see a recovery in the third quarter.
Yes, Robert Brusca is like so many Wall Street analysts who go along in their own little worlds, never paying a bit of attention to those little things called facts. Anyone with a brain and willing to use it knew that the housing slump was just getting going in early 2008 and that we were in for a long term change in the cycle based on years and years of rising prices brought about in large part by subprime and other bad lending practices, coupled with demographics that will keep the housing market and the economy as a whole stuck in a rut for the next two decades.
I suggest searching Google for "robert brusca 2008" to read some of the amazingly foolish things this man has said. That anyone would listen to someone who has been so wrong on a topic on which he is supposed to be expert is beyond me.
Keywords: polyana, robert brusca, wall street, analyst, fools of wall street, housing
Gold is performing and the upside potential here is far greater than the downside because of the uncertainty about the effects of all the stimulus on the economy. I am back in GLD to the tune of about 8% of my portfolio. I am late to the game on this as I kept telling myself that gold is a needed hedge in this environment and I have been out of gold for nearly a year. However the upside potential is great and the downside is limited so it is certainly not too late to get in. If gold breaks solidly through 1,000 an ounce, watch out!
This doesn't yet change my long-term view of the economy or the stock market but Wall Street has been looking for direction and this, along with the unexpected increase in home sales, could provide all the
impetus needed to send the market significantly higher. I certainly hope this is the first sign of a long-term bottom in the economy but I continue to believe that is not yet the case.
I sold my SDS (Ultrashort S&P 500) and held my QQQQ, which I had increased to 15% of my portfolio as the market dropped over the past few weeks. I now see the downside right here as limited with the possibilty of that long-awaited 40% rally a more likely possibility. One should always be aware of short-term pressures in the market that could cause a sudden move in either direction and I think a lot of things could be coming together to cause a rather significant rally over the next month or two. This had begun to look unlikely because of falling earnings but Leading Economic Indicators trump earnings every time.
Carter Worth is an analyst I respect but I think he's about to be proven wrong. The reason, I believe, is that he just doesn't get the major change we are experiencing.
In the video provided Carter Worth makes a point that I have believed for some time; that even the "safe" market leaders would eventually break down. Carter is quoted as saying, "History shows that when you get to the last gasp phase of a bad period, holdouts tend to give up the ghost,..." That may be true but it's not the whole story, IMO.
The bigger picture is that the entire stock market is being revalued and the process will take years and it will leave no stone, or stock, unturned in the process. For around a decade we have become used to P/E ratios of over 20 as the norm and that is not the norm going back over the history of the stock market. Historically the average P/E ratio is 14. History also tells us that every 17-20 years or so the market tends to shift into a new era that is different from the last; a bit similar to 35-40 years ago; but much more like 70-80 years ago. Go to Generational Dynamics for more info on this subject.
The current valuation of the Standard & Poors 500 is at 16, according to Bloomberg, as of last weekend. Considering that earnings are tumbling at an ever accelerating rate it is reasonable to conclude that the stock market will continue to tumble along with them. My expectation is for a period of a decade or more during which stocks will once again achieve a more realistic valuation. Perhaps a better way to value stocks is using earnings as a percent of book value. See the Valueline chart from 1920 to 2006 for a longe range perspective of how valuations tend to flucuate over time. I think it is important to not get too locked into any one metric and to look at our current situation in deciding what are the most and least telling of indicators. In periods of deflation P/E ratios may not be very indicative of true value while book value may be more helpful.
Note that book value per share has gone below a 1:1 ratio both during the 1930's and the 1970's. After secular bear markets the book value per share tends to hang close to that 1:1 ratio but slowly grows and grows, only to come crashing back to earth during economic slumps, such as the one we are experiencing currently. So what is the current book value per share for the Standard & Poors 500? That's hard data to come up with but last I came across it it was a little higher than 2.5. I'll try to get more current data in that soon.
Nouriel Roubini is the man to listen to if you want to know what's coming during this financial crisis. If anything he is a bit optimistic but he offers outstanding insight into what is really happening in our economy at this time. In this article on the end-of-the-year/beginning-of-the-year sucker's rally in the stock market Nouriel Roubini says, "Our research at RGE Monitor suggests that the US and global recession will continue at least all the way until Q4 of 2009..." This by no means suggests that Roubini thinks everything will turn hunky dorry soon after. He predicts at best a slow recovery and I personally think, given his past history, that he will likely turn more bearish as new data presents itself. Regardless, Nouriel Roubini is one of the few financial experts out there who we can count on to tell us the truth as best he can, without wrapping it in his preconceived notions.
KB Home reports a loss nearly double that of analyst's predictions, showing once again that stock market analysts have little grasp on reality. For over a year now the vast majority of pundits, analysts and so-called investing experts have underestimated the economic problems we face. The stock market has been overvalued for well over a decade and investors have come to accept that; debt and shady schemes to create wealth have become commonplace in our society and all levels of society have shared in this self-dellusional behaivor. We are now paying the price much as we did in the 1930's with massive deflation that will not end until things are back in balance. This could takes years or even decades; my best guess is years but the government may create a situation that holds back business by decades by interfering with the free market.
I reiterate my call to short the market or steer clear. I expect the Dow to sink to well below 5,000, likely this year, and I expect the market to eventually reach below the 3,000 level. My strategy is to use short ETF's such as Proshares SDS to short the market, keeping in mind that bear market rallies can be quite intense. It is best to be conservative with an eye on preserving capital. If unsure, do not gamble. Along the way I am slowly building a long position with an eye on being well positioned for the eventual market rebound.
The Real AIG Scandal
Posted March 20, 2009 1:28pm
Is Hyperinflation Impossible?
Posted March 18, 2009 10:41am
Vinny Catalano Proves Himself a Fool of Wall Street
Posted March 17, 2009 10:13pm
S&P 500 Earnings are Crashing!
Posted March 15, 2009 12:08am
Martin Armstrong - Is It Time to Turn Out the Lights?
Posted March 14, 2009 10:43pm
David I. Templeton Offers Valuable Data
Posted March 13, 2009 2:08pm
Jon Stewart Exposes CNBC Financial Network as Fools - DUH!
Posted March 9, 2009 10:38am
World Bank Says Global Economy to Shrink in 2009
Posted March 8, 2009 8:21pm
That Sickening Feeling
Posted March 6, 2009 8:16am
Earnings are Collapsing! - Reported Earnings vs Operating Earnings
Posted February 25, 2009 10:56pm
AIG to Post $60 Billion Loss
Posted February 23, 2009 1:05pm
Brace yourself: The recession is projected to worsen this year
Posted February 23, 2009 10:37am
The Housing Recovery and Why We're Not There Yet
Posted February 22, 2009 5:01am
Doug Kass Predicts Start of Next Bull Market
Posted February 20, 2009 8:13am
The Fourth Turning
Posted February 18, 2009 9:33am
A Case for Buy and Hold Investing
Posted February 16, 2009 8:26am
S&P heads to first quarter ever of negative earnings
Posted February 15, 2009 7:48pm
S&P Earnings Collapse in Q4 of 2008
Posted February 15, 2009 7:45pm
Peter Schiff on Geithner's False Assumption
Posted February 15, 2009 6:55pm
Fools of Wall Street
Posted February 13, 2009 11:07am
CNBC Incompetence: Interview with Nouriel Roubini and Nassim Taleb
Posted February 11, 2009 1:37am
S&P Earnings Down 40 Percent
Posted February 9, 2009 8:06am
The Housing Market is Bottoming...Really?
Posted February 5, 2009 7:32am
Fools of Wall Street - Jeffrey Saut
Posted February 3, 2009 11:58pm
The economic and fiscal consequences of financial crises
Posted February 2, 2009 10:54am
CNBC Earning from Thomson Reuters
Posted February 2, 2009 8:47am
Time Article - "Why Your Bank Is Broke"
Posted February 2, 2009 8:43am
Fools of Wall Street - Fred Voetsch of Acclaim Investing
Posted February 2, 2009 8:04am
Fools of Wall Street - Robert Brusca of Fact and Opinion Economics
Posted January 28, 2009 8:24am
Gold
Posted January 26, 2009 9:09am
Leading Economic Indicators Up - The Conference Board
Posted January 26, 2009 8:29am
Carter Worth - Chartology: Beware Safe Haven Stocks - CNBC
Posted January 22, 2009 10:23am
Nouriel Roubini Comments on the End of the Sucker's Rally - RGE Monitor
Posted January 14, 2009 10:23am
KB Home Reports Loss, Says Market Could Worsen - CNBC
Posted January 13, 2009 11:16am
Beazer quarterly home closings down 53.2 percent - CNBC
Posted January 13, 2009 10:23am