Normalizing Earnings During Profit Freefalls
By Barry Ritholtz - May 18th, 2009, 7:07AM
I am becoming terribly enamored of the charts Ron Griess highlights each week form The Chart Store. Now that earnings season is all but over, Ron looks at a few charts that are revealing of the extent of the damage done to corporate profitability. It is, in a word, breathtaking:
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How Much Have Profits Fallen?
May 18th, 2009 at 7:20 am
I wonder what these charts look like if you take the S&P and exclude GE and financials (put another way, I wonder how badly AIG et al are skewing these numbers). If I have time today I’ll see if I can get someone to pull it together and post it.
May 18th, 2009 at 7:25 am
I wonder what my Batting Average would have been in High School if I excluded strike outs . . .
May 18th, 2009 at 7:36 am
And yet we’re hovering at mid-90’s index values, when earnings were 3-4 times more. Insane! Anyone else think a summer blood bath is coming? Final purge of the hopeful?
May 18th, 2009 at 7:39 am
Barry, more like… I wonder what your batting average would have been if you excluded the four games where you had the flu and could barely stand up but played anyway.
I think just excluding AIG will make a huge difference here. We’ll see.
May 18th, 2009 at 7:55 am
JfC:
It’s that kind of thinking that helped us get here…
Companies keep on smoothing their earnings quarter by quarter, waiting for eveybody else to report some weakness. Then they replace their CEO, and this entitles him (usually) to throw in everything but the kitchen sink in one quarter. And nobody really cares because… WOW! Imagine the % eps growth coming now that they’ve cleaned up their books and they are starting from a lower level.
Never mind the value destruction along the away.
May 18th, 2009 at 7:56 am
it is amazing looking at that bottom chart of real reported earnings, not only is it the biggest decline on the chart, look at the speed of the decline.
May 18th, 2009 at 8:00 am
WOW! Imagine the % eps growth coming now that they’ve cleaned up their books and they are starting from a lower level
—————–
And we didn’t really notice the lower starting level because by that time Greenspan had already lowered the interest rate to kickstart the economy, lifting the general PE multiple in the system.
May 18th, 2009 at 8:06 am
danm: I hear your point. But. We’re looking at a chart and saying “wow, we’re REALLY in trouble”. If the real issue is that a few companies lost a crazy enormous amount of money last year and the rest are muddling through, and that the crazy enormous losses significantly skew the results as a whole, is that consistent with what the chart is communicating at first glance?
May 18th, 2009 at 8:06 am
The problem with all this, and the steps that have been taken to remedy it are that they highjack the ones responsible for this economic miracle..the american taxpayer and investor. Tax monies have been redirected from sound investment to paying off unsound debt. The leveraged banks and mortgage holders have been found to be insolvent, and we’ve moved the debt from them to a now insolvent government. Much, much higher taxes are coming. It is a fait accompli. As you see debt being piled up day after day, and more and more types of businesses are added weekly, you may be sure that what you see as debt today, you will see across all strata of society as higher taxes in the near future. And of course, this will slow the American engine of wealth production.
I don’t care that what happened in the past was due to poor regulation, and poor choices. I do care that this pretty much seals the future. By not allowing failure, we’ve guaranteed a poorer outcome for all of us.
May 18th, 2009 at 8:11 am
Still agree with John from Concord, AIG etc are statistical outliers. They shouldn’t be included, in fact AIG should be bankrupt and not even on the list. Hence make a graph with and without the financial sector.
As for BR
“I wonder what my Batting Average would have been in High School if I excluded strike outs . . .”
I bet you had more strike outs than anything else. Hence statistically significant.
May 18th, 2009 at 8:11 am
Although I’m living a chart-free lifestyle, I’m still able to read ‘em. What do I see ? Answer: Blood On The Tape .
May 18th, 2009 at 8:21 am
“I don’t care that what happened in the past was due to poor regulation, and poor choices. I do care that this pretty much seals the future. By not allowing failure, we’ve guaranteed a poorer outcome for all of us.”–BnT, above..
Hellooo, That’s the Point.
I mean, Who really cares Who did What, and How, to Whom, Yesterday?
What matters is what we have(left) to deal with, Today, and what we’re going to do Today, to make Tomorrow better..
May 18th, 2009 at 8:39 am
Couple of ideas on the market as I didn’t have a chance to post much at the end of last week.
I still don’t think the May 8 highs will be it for this rally but the first larger pullback seems to certainly be underway at this time. Part of my thoughts on this have to do with time. It just doesn’t seem that this rally has been long enough as a countertrend rally given the fact that we just had a 17 month downturn, over 7,000 points on the DOW.
I think one of two things happen from here.
1. We retest the March Low and then from there prices bounce higher than the May 8 highs.
2. We have more of a zig-zag pattern and move to around 7900-8000 on the DOW, on our way to higher prices after. (AT, my idea here is that we have a double zig zag like EW pattern, do you think that could be probable?) In this example I’m still looking for my old price targets which were to press up against the 200 day MA’s, which I was looking for 965-1k on the SPX.
3. I shared on here about two weeks ago that for the last 4 months I’ve been watching put/call’s much closer as SB pushed me in that direction. There seems to be a trend happening there since the March lows and I think it is signaling lower prices in the very near term. At the time I first posted I said that p/c ratio was .64 and .66 on 3/18 and 4/13 respectively and that both times it happened the market went flat for about two weeks. This just happened again as on 5/6 we had a p/c of .67 at the close and since then we are flat/down. Now the problem this time is that in both instances above in March and April after the flat to down movement p/c went up as the flat/down movement happened, since May 6 however p/c ratio has actually continued to drop, this indicates we’ve got further to fall during this correction, as you’d prefer to see options traders doing the opposite to signal a short term bottom. This would be correct though that as the rally gets more and more tired and extended, more people commit money on the expectation of higher prices.
4. Last week I talked about decliners vs. advancers on the NYSE as a signal. Friday’s sell-off wasn’t nearly as intense as Wednesday’s so we could get that little head fake on the way to lower prices in the very near term. Maybe the head fake is today/early this week. I see futures are all green this morning. I still think we are going down hard before this bear is over but before I’d make that call that the downtrend was on again I’d want to see, among other things, a ratio like we saw back on March 2 where we had 16/1 down vs. up on the NYSE. We aren’t there now, we weren’t there on Wed. last week.
May 18th, 2009 at 8:44 am
S&P to 70 ish if earnings do not improve?
PE at bottoms – 10 to 15.
Oh, I’m reading the date axis – 19 “70″ ’s
Same answer – S&P = 70
May 18th, 2009 at 8:44 am
@ John from Concord, super_trooper — when you do this “throwing out the bad numbers” exercise, be sure to repeat that process with the historical data that you compare it to, so that you are not comparing a sanitized today to reality’s yesteryears. It’s going to be tough to pick out and exclude the worst 10% in past times, though.
While I am sure that such an exercise will be not worthwhile (due to the lack of any comparable historical framework to compare it against), it will still be interesting, as I expect it to show the rest of the economy is still declining, giving us a picture of the immensity of the change that is rolling across our economic landscape.
I predict that no upturn will be visible, even after taking out the biggest splashes in the ocean of red ink.
May 18th, 2009 at 8:44 am
You can’t bash the chart by saying that “AIG was a statistical outlier”
Wasn’t the way we got this much debt and over-leverage a statistical outlier? I only know of two other times in the last 100 years where we can draw comparisons to the debt/GDP we have right now and that was the GD and Japan in the late 80’s.
Saying we need to make a chart without AIG is like saying that we should just not count the last 20 years when trying to figure out where we are today. Just ignore that credit bubble, it was an outlier…. I’m not sure I understand that logic. What am I missing in the comments about taking AIG/others out of the analysis?
May 18th, 2009 at 8:47 am
Thanks MEH…after I posted this, I reviewed other web sites and once again Dr. Hussman is paying attention to the ballgame. His eye is very much on the ball this morning:
http://www.hussman.net/wmc/wmc090518.htm
“The bottom line is that the attempt to save bank bondholders from losses – to provide monetary compensation without economic production – is not sound economic policy but is instead a grand monetary experiment that has never been tried in the developed world except in Germany circa 1921. This policy can only have one of two effects: either it will crowd out over $1 trillion of gross domestic investment that would otherwise have occurred if the appropriate losses had been wiped off the ledger (instead of making bank bondholders whole), or it will result in a stunning and durable increase in the quantity of base money, which will ultimately be accompanied not by a year or two of 5-6% inflation, but most probably by a near-doubling of the U.S. price level over the next decade. As I’ve noted previously, the growth rate of government spending is better correlated with subsequent inflation than even growth in money supply itself, particularly at 4-year intervals. Regardless of near-term deflation pressures from a continued mortgage crisis, our present course is consistent with double digit inflation once any incipient recovery emerges.”
…for those of you who come here for ideas, just don’t forget that actions have consequences…and there will be very big consequences soon from this inability to let the system purge itself…there will be a point when the deflationary trends come to an end, and when they do we will be in very interesting times indeed…
May 18th, 2009 at 8:49 am
the banks are a systemic risk to the averages, take them out, GE and GM too since they were getting most of their profits from financial activities, many of them would be BK without the kindness of strangers, take them out on the basis that they are trulu bankrupt
May 18th, 2009 at 8:55 am
BnT and MEH – it is baked into the cake at this juncture.
The right on John Hussman was screaming a bit louder than normal in his anechoic chamber today.
May 18th, 2009 at 8:58 am
@constant
This whole idea of taking out the financials from analysis started with CNBC guests last summer when they attempted to argue why overall things were still fine and if people stopped paying attention only to the banks, they would easily see that. This was an attempt at finding a green shoot, it just wasn’t called that then. I agree that not much insight is going to be gained by pulling out the banks. Real earnings have declined across the board as credit deflation is already here. It has impacted ALL businesses, not just the banks.
May 18th, 2009 at 9:01 am
I think the markets will look very interesting over the next few months or longer.
To me, unless a stock’s price is exclusively based on dividends, the only thing that explains stock prices is the greater fool’s theory combined with the concept of too much money chasing too few assets.
For example, if a stock pays high enough dividends so that it looks like a bond, theoretically speaking, then prevailing market interest rates would explain its price. If the price can’t be explained using a theory of interest, then value is derived in another way.
EPS, anticipated future performance, and price earning ratios are commonly accepted pricing techniques Pick your favorite. Logically speaking, all are meaningless unless you can entice someone else to accept your approach. For example, if a company is bought out, then you won the lottery and your stocks are given actual value in the form of cash or you get another lottery ticket in the form of more shares issued by the buyer. Or, using the other extreme, a company fails. In this case you get nothing or maybe some liquidation dividend based on a fraction of remaining market value.
Thus, the only reliable way to make money with stocks is to buy low and sell high or profitably short it. Everything else is just something to talk about.
In order to profitably trade stocks, you need someone to take it off your hands at a better price than you paid. But the person who buys it will get nothing unless their stock is converted into a winning lottery ticket via good fortune, a liquidation dividend, or the proceeds from another greater fool.
The only way for a stock to increase in value otherwise is if the stock market agrees it is worth more. This may be because earnings have improved. Logically, this should make no difference in value unless each owner shares in the gain. Most don’t. Employees may get bonuses but stockholders get bupkis. Thus, improved EPS causing valuation gains is another facet of the greater fools theory. Another way for stocks to gain is asset inflation. In other words, too much money chasing too few stocks. Money has to flow somewhere, A shared fantasy about asset valuation is as good a place as any.
So why will stocks be interesting over the coming months? At some point, shared fantasies need to be adjusted. Either they get hyped even more because economic conditions support the fantasy. Or the economy doesn’t improve and people wake up and adjust their behavior. I suspect that the latter will come to pass. Possibly, substitute investment vehicles will appear that provide a more realistic store of value.Otherwise, a trash for cash transformation will occur, again. (aka: another bubble burst is likely)
I think this will cause the stock market to take on a repeating ‘W’ shape for a couple of years. Asset inflation and greater fools theory will alternate with bubble bursts.
May 18th, 2009 at 9:02 am
“…most probably by a near-doubling of the U.S. price level over the next decade…”
that is what People should be “Taking to the Bank”, and keeping in mind when reviewing things like “Insurance Policies”–at the Minimum.
~~
BnT, no problem, Hussman’s take has been a valuable service for those with ‘eyes to See’..
May 18th, 2009 at 9:09 am
I think this is the time to start focusing on the Free Cash Flow instead of the reported earnings.
May 18th, 2009 at 9:14 am
Also it seems that to fund its expanded operations the government is going to have to claim a much larger percentage of corporate income for itself – those tax revenues aren’t going to be coming from the consumer any time soon.
May 18th, 2009 at 9:15 am
I have posted on this several times recently…Barry makes a good point about exclusions. Also, companies abuse the “one-time” losses that seem to happen every quarter so that “operating” earnings have a large historical spread to “as reported” GAAP earnings. That being said, being a huge bear, I will bend over backwards to stress test the bearish case. I will advance my outlook to exclude 4Q 08, which was a massive -23.25 and likely won’t be that bad again. I’ll look at forward estimates ending 12/09, which total roughly $28 per share. That means the S&P trades at a forward multiple of roughly 31.
That may not sound that bad, but it is a dangerous bubble. Long term average of trailing as reported earnings is 15. The market only traded above 20 or so right before the GD and during the tech mania. In a depression-like environment, I would expect a bottom at no more than 10 times earnings. That would mean a fair value for the S&P is 280. And I was very generous to exclude the worst quarter and look at forward estimates…the long term average P/E on forward estimates is lower than 15 and has been single digits at bottoms.
May 18th, 2009 at 9:18 am
JfC:
I would not bother with the homework (netting out the losers that is) because if the others do have earnings, I’m convinced it will be short lived.
So yes, maybe the financials, now that they’ve taken huge cuts (not most of them anyway!) will be posting better results, but the non financials eps will probably suffer.
Revenues will be down
Fixed costs will be up because of lower unit sales
Input costs up (would not be surprised many firms are stuck with higher contracts than in the past)
Interest expense will be up due to soaring credit spreads
net net: earnings down and eps down even more thanks to new issues or conversion dilution.
May 18th, 2009 at 9:26 am
For those who would discard the financials, GE and GM – do you not think that earnings for commercial REIT’s, consumer discretionary, consumer staples, oil and gas – integrated or independent, oil service drillers, liesure and retail, just to name a few sectors, haven’t experienced a lasting readjustment? This is a deleveraging event and demand will sag across all sectors for some time to come. This is the “new normal.” You could try one of those trendy “pair” trades, long SPY and short financials/GE/GM, but I don’t think your long SPY position will be a money maker in the 3 year time period 2009 to 2011, either.
May 18th, 2009 at 9:48 am
Kobe Bryant went to my high school. As a result… the average starting salary for a graduate of my high school was quite high.
When you look at earnings ex-AIG, you would get a picture of how the rest are doing. I think this is useful if you are considering buying stocks other than AIG. If losing 80Billion in a quarter, or more, skews the numbers, then taking it out gives good information.
CNBC was talking about S&P ex-Financials and that is dumb is you are saying S&P500 is a buy based on taking a large part of it out.
If I wanted to know what my prospects were upon graduation, I think it would be appropriate to take out Kobe’s starting salary.
May 18th, 2009 at 9:52 am
cjcpa,
You went to Lower Merion? I know some people that went to school there.
May 18th, 2009 at 9:52 am
BAC: is now a “conviction buy” after being up what 250% since march?
http://www.marketwatch.com/story/bank-of-america-gains-keep-financials-in-the-green?siteid=yhoof2
Going to have to put that in the contrarian indicator category. I think goldman added AXP to it’s sell list around march 9 with a 7 dollar target. Nice timing there.
The link I like “a tad” more than the latest link (above) pertaining to Goldman’s calls is this one
http://www.bloomberg.com/apps/news?pid=20601087&sid=aBivITiDHG9g&refer=home
(lol)
May 18th, 2009 at 9:55 am
Let’s not even argue…even if you use OPERATING EARNINGS and exclude everything these companies call one-time losses and their analyst lapdogs nod in agreement, the S&P trades at a forward multiple of 20…still a dangerous bubble by that very accomodating analysis. Just hit the sell button while you still can.
May 18th, 2009 at 9:55 am
personally expecting the highs of 5/8 to remain the near term top, riding the sds from 56-58 atm. Admit I do expect to have to endure a lot of chop with any short term correction of the rally off 3/6-3/9 lows. Today
May 18th, 2009 at 10:03 am
A few items from the conference I was at the last few days that some of you might find interesting.
My company, like most, has a set of prop mutual funds. We launched an infrastructure and recovery fund recently (we also opened a tech fund in 2000, lol) the fund has had inflows, on average, of 75 million per week since Feb. 1.
At the conference the phrase: “we passed through the eye of the storm” was used over and over again, often times with a lot of hand gestures. There was a message that the worst was now behind us, though things were not going to be easy moving forward. Sort of that “new normal” idea.
My fav. quote from the conference came from an insurance VP. He said, and I quote, “never before, in the last 100 years, did you not get 50, 60, 70% capital gains after the market went down this much” If I told you what it was in reference to everyone here would laugh. I left that session immediately after he said that.
Nick Murray closed the conference down Saturday morning. His message was pretty simple:
“There are 80 million baby boomers out there, even if half of them lost all the money they had, you still have 40 million people to prospect to”
There was a general message that advisors that lost 30% last year for clients need to “get over it” and need to set that expectation for clients as that’s what is right for business. There was mention of Japan with a chart on Saturday for about 10 minutes but deflation is being given a 30% probability according to our CIO. This goes right along with what I said before, as more and more people hold out on deflation, the deeper it can go.
This conference is for the top 10% of producers at my company. In talking to many advisors there, they all think the bottom is in, that unemployment is about at the peak, and most important, all of them that I talked to believe the consumer will soon spend again. I never felt so out of place in my life. I have qualified for this conference for three years now and never before did I think I was so surrounded by idiots. One advisor that I spoke to at this last year asked me if I was still as bearish as I was last year, I answered yes, he said this time I would be wrong, nobody ever gets it right back to back years.
May 18th, 2009 at 10:04 am
Ben. yes.
Noticed your Phila post a few weeks ago. I changed my login… and have tried to stay away from posting. … ruining my day as I try to make $200 in the market.
Might as well put my trading log up.
April 29 purchases of QID and SRS were in the money for about a dollar, and my moved up stops got tripped, and I’m out for a profit.
My earlier purchases of SRS (early) and FAZ (early) are still under water. The decay is bothering me.
Here, I admire Karen. I bot small amounts of FAZ at 17, 10, doubled down at 8, and then… was too uncertain — lacked conviction to go again at 4/5. It appears that she got in at 4/5 and got out around 6. obviously a better outcome.
My thesis was that the stress tests would reveal that the banks need money, and the stocks would go down. Did not really happen. My other thought was that this was so obvious that it would be priced in by the time the results were announced. This also didn’t happen. I was only half right –banks need more money. But the important part, stock prices going down, not so much.
I am still watching a bit, but the salivating over the double n triple short trades has ended.
This is a ’sentiment’ call. one bear that has somewhat capitulated.
If anyone has questions about trademarks (Leftback) I can say that I’m good at that.
Also, to participate in reflation, we are going to buy a house. And finance the daylights out of it, care of FHA. Might as well shift the risk to the gov, and the taxpayer. It seems like the real winning trade.
I say that with some sadness.
May 18th, 2009 at 10:09 am
Normalized earnings is the correct way to value companies as long as you incorporate net debt (cash). If these losses are truly one-time then they should be evaluated based on their balance sheet impact, not their repeating income statement impact.
Of course, many companies play games with what constitutes one-time vs. rare-but-repeating and that needs to be taken into account. If you think these massive losses will occur regularly then they should be accounted for as a repeating accounting expense, like depreciation is.
May 18th, 2009 at 10:15 am
This was/is a credit bubble. One would expect the financials to have felt it more than other sectors, but the demand destruction will affect all sectors. To paraphrase Ron Griess, would you buy the SPY today knowing that December 2010 estimates for as reported earnings are currently $35.67, implying a P/E multiple of 25 times at Friday’s price? Forget selective exclusion of data, that is the pressing question.
May 18th, 2009 at 10:27 am
Cursive,
That’s what I’m saying above, when you have credit deflation and an economy that is 70-75% based on consumer spending, and that spending is contracting, along with credit, all earnings are going to take a beating.
Best of luck to anyone trying to predict earnings between now and 2010. One look at the expected earnings of the S&P over the last 2 years and how they have been revised reveals that they haven’t got a clue where they will be. Why should I assign any sort of multiple then based on a projection out to 2010. The market is trading on emotions right now, very little of what is going on has to do with earnings or the health of balance sheets outside of the financial sector.
May 18th, 2009 at 10:28 am
Some days SPX goes up, some days it goes down. It remains over-valued.
Every single day there is a massive amount of debt overhanging the US consumer. It never changes.
Some people live in “a million dollar home”, but that doesn’t mean they can sell it for $1M pictures of George Washington unless someone creates a great deal more of the latter.
In the long run, we are all dead. While we live, we trade.
May 18th, 2009 at 10:35 am
I mean…
If this is all true…If the SPX is 131x earnings, or 30x earnings, or 20x earnings (and ‘knowing’ that even 20x earnings are levels of the 2000 crash, and the GD), then couldn’t the case be made that these ’stockpickers’ that they troll out on CNBC are almost to the point of ‘criminally’ pumping up stocks at this point…
What’s the difference between Westbury, or Lufkin, or anyone telling you now that “stocks are cheap”, or Mozillo about 5 years ago selling you “cheap” financing, or the NAR saying that home prices would go up for at least the next decade?
They rounded up all these guys and made criminals out of them yey OBAMA himself was coming out last month and telling people that stocks were cheap, buy stocks!
Incredible…
May 18th, 2009 at 10:37 am
Our morning reality check. Mulch and weed (green shoots) killer may be selling at Lowe’s and HD though. I know. I recently bought both……
http://www.calculatedriskblog.com/2009/05/foreclosure-resales-slow-in-high-priced.html
Ho hum. Just another day in pretend land.
May 18th, 2009 at 10:49 am
Anyone long any equity or commodity is on borrowed time. Things could crash at anytime…credit needs to be reduced and assets of all types will be sold at a discount to pay off the debts…the dollar will actually be supported by all this in a counter-intuitive way, as the government cannot print enough money to avoid asset deflation due to liquidations.
THE END
May 18th, 2009 at 10:55 am
@Manny
The foreclosure resale page is EXACTLY what one would expect…
Back in ‘80-’82 (the housing mess BEFORE even the 1990 housing mess), I did property inspections for FHA (as well as ‘board-ups’ in the exact same area)…
The big difference back then was that interest rates were WAY HIGHER, but the result was the same…
Either people with cash (and actually a lot of ’syndicates’ pooled $$ together and bought up mostly on the low end)…They turned whole neighborhoods into rental areas…
Ultimate landlord-serfdom phenomenon…
One thing that happens is that as people start getting kicked out of their houses, they actually start living together (and sharing rent & expenses)…That is a phonomenon that is still YET TO COME (and certainly won’t be talked about by the NAB guys at 1PM)…
May 18th, 2009 at 10:56 am
I think it may be worthwhile to look at S&P profits ex financials to try to spot relative investment value, but the S&P includes financials so it is what it is. If you’re damned and determined to make a Happy Chart, then just take everything out that you don’t like and Be Happy, by all means. It’s a free country.
WRT the Kobe Bryant high school grad analogy, this chart takes into account the “graduating classes” of 2006-09, yes?
May 18th, 2009 at 11:02 am
@ Steve Barry,
I completely agree with what you say at 10:55. And I also agree with that outlook on the $.
May 18th, 2009 at 11:02 am
Jeremy Siegel has his doubts about this earnings calculation: Stocks are cheaper than they look.
May 18th, 2009 at 11:06 am
“these ’stockpickers’ that they troll out on CNBC are almost to the point of ‘criminally’ pumping up stocks”
That would indeed be the business model and raison d’etre of CNBC, old sport. Agreed with SB and ben22, the $ will be much stronger this summer and fall than people realize.
ben22: nobody ever gets it right two years in a row – except ben22 in 2008-09. You’ll end up as a legend.
May 18th, 2009 at 11:11 am
Apparently it’s ‘07 again. Companies pretend to have quality earnings (or at least “better than expected”) and we pretend to believe them……until we don’t anymore. It’s the new “Bigger Fool” economic model. It works until it doesn’t.
May 18th, 2009 at 11:14 am
Normalizing earnings in the midst of a global credit contraction that has not as yet been reversed seems a little optimistic and of dubious value.
May 18th, 2009 at 11:15 am
“ben22: nobody ever gets it right two years in a row – except ben22 in 2008-09. You’ll end up as a legend.”
ben22, lb is correct here, too..
SB,
you are, as well, and also, as always, a clear Ray of Light–visible through the Miasma.
~~
cvienne,
w/this: “Ultimate landlord-serfdom phenomenon…” you’ve noted the Endgame of the current Trend, if We allow it, to continue, unaltered.
~~
as an aside, peep may care to spy DRYS, b4 it hits 7 1/2..
May 18th, 2009 at 11:20 am
I can understand the desire to exclude significant outliers. They can skew the results. But then its easy to just cherry pick out the bad apples and leave in the positive outliers (if there are any). That is why mathematically a median is used instead of the mean in many cases (medium home price, etc.) This gets rid of the skew of outliers without the risk of cherry picking.
It would be interesting to see what median earnings are if such a statistic is easily available.
May 18th, 2009 at 11:20 am
Wesbury just said “the storm has passed”…little does he realize that was just an early feeder band.
May 18th, 2009 at 11:22 am
I’ve never bought SRS…but man that is a pretty rounded bottom on the chart…those tend to really do well.
May 18th, 2009 at 11:27 am
And S&P responds to Siegel here. I’m still curious about how concentrated the losses are. Maybe the S&P is way overvalued, but are there any brighter spots worth a look?
May 18th, 2009 at 11:29 am
Just the impact of doing away with the mark-to-market rule should render these charts nonsensical.
How can one make a meaningful comparison between a quarter when companies were required to value assets by what they would fetch on the open market, versus a quarter when assets were valued according to whatever story the company could make up and present with a straight face?
The fact that S&P is STILL projecting a (substantial) net loss for the year for the S&P 500, even without the burden of reality-based accounting, should tell people something about the bottomless nature of the hole we are in.
It’s gonna take a mighty rocket to even get us to where we can see the edge of the hole — luckily, the endless amounts of debt being poured into the economy might do the trick. The only question is, once we emerge from the hole, will there be anything left to emerge into, or will we be back at the sticks and stones stage of development, with everyday dollar transactions measured in millions or billions like yen?
I leave it to the philosophers to debate how many dollars can dance on the head of a pin.
May 18th, 2009 at 11:30 am
re: SB
Like many have commented, it seems that the game is rigged. I would be getting into the SRS, but I think some artificial support exists. Promises to back up bonds, or some other influence that I am not aware of .
When big mall owner goes bankrupt, and REITs surge… it just does not compute to me.
IMO, SRS should have been a buy the last two months, and should be a sell now, having reached its target… if the market was anticipating what I anticipate.
but I will try not to continue to post that this all does not make sense.
cjc
May 18th, 2009 at 11:31 am
Wesbury – fantastic contrarian indicator. A remarkably stupid intelligent man.
SB – as an expert on such famous Bottoms™ as the Leftback Low™, I find the rounded bottom of SRS appealing.
Bear in mind we may sit around all summer waiting for this CRE thing to blow up – but blow up it will.
May 18th, 2009 at 11:33 am
Meanwhile, Lawrence Yun and the NAR are at it again. Weren’t they saying these same things in ‘06/’07? Do they just play tape of NAR’s greatest hits over and over again when asked for their outlook?
http://www.realtor.org/press_room/news_releases/2009/05/buyers_return
May 18th, 2009 at 11:35 am
This part in particular jumped out at me, and confirms that it is indeed ‘06/’07 all over again. Insane.
Shaun Donovan, U.S. Secretary of the Department of Housing and Urban Development, announced that the Federal Housing Administration is going to permit its lenders to allow qualified home buyers to use the $8,000 tax credit as a downpayment.
May 18th, 2009 at 11:43 am
I was watching a lot of History & Discovery channel this weekend and there were all these “Armageddon” themes…
They were talking about 666 the mark of the beast…
That’s it! S&P hit 666 and everyone started believing it…It’s the ANTICHRIST!
May 18th, 2009 at 11:46 am
@Manny
So tell me how that works…You “use up” the $8,000 as a downpayment so then you can’t DEDUCT that later?
Then does that mean your TAX bill is higher (like your balloon on the ARM would be)?
May 18th, 2009 at 11:46 am
cjcpa
On every rally I can remember there was a large number of people saying that nothing made sense. India up 17%, Hong Kong way down and finishes up. Somebody with a lot of money thinks things make perfect sense. Unfortunately, people with cash and savers are the fall guys. It sucks, but that’s just what they want and they usually get it.
May 18th, 2009 at 11:50 am
@cvienne: I have no idea. It’s all funny money now, right? I just wish we’d get some clarity on our own situation now so that we can sell our home now to the greater fool before the excrement hits the fan again. I’m guessing next year’s selling season may not be so ripe.
May 18th, 2009 at 11:57 am
@ben22
Thanks for the peepshow. Much appreciated. When you think about it, that conference sounds as though it maybe more distasteful than porn. I don’t know what I would have done for two or three days listening to that claptrap. As MEH might say, they should save the Kool Aid 151 for after hours pursuits only. Furthermore, I am not so sanguine about your prospects for being a legend, as predicted by LB and seconded by MEH. If your colleagues are this out of touch with reality, it is obviously because they are rooting for the failed business model of buy-and-hold. You were probably a distasteful fly in their Kool Aid 151 this weekend and, if your forecast is correct (I agree with you, BTW), you will only morph into something along the lines of H1N1 in their eyes. Infamous and derided perhaps, but not legendary.
May 18th, 2009 at 12:12 pm
@ Left: You know very well the only “stock pickers” on CNBC are there to pump stocks they want to dump, or are just talking the book because its great marketing.
@ Steve Barry: Now the script has really flipped, I’m long QID too. And I appreciate a nice rounded bottom myself.
@B in TN: Thanks for posting, been awhile since I checked in on Hussman. Looks like he took a long walk over the weekend. Poignant and clear… but as he says: “too bad no one is listening.” They will, once Survivor and American Idol are over I suspect. (snark) The part debunking the myth of a “Mtn of cash on the sidelines” is awesome. Now… why couldnt I figure that out? Dude is smart!
May 18th, 2009 at 12:15 pm
“Infamous and derided perhaps, but not legendary.”
This assumes that the Tyranny of the Incompetent continues, and survives the Economic Singularity.
If brokers lose 80-90% of people’s retirement savings, they eventually destroy their own market.
By investing for a normal “lower rates recovery” during a Debt Deflation, they may do just that.
Eventually people look to the few advisors who were right all along, and the Old Guard walk the plank.
May 18th, 2009 at 12:16 pm
@lb, cursive, and MEH,
Thanks guys. Lucky for me, these sessions the past few days were only a few hours at a time so they typically ended right as I was about to puke and then I’d have the rest of my day to enjoy DC. Last year at the conference I felt out of place, which I accepted, I know retail FA’s are in general, going to be morons, this year though, I felt like I was from another planet.
I wish other people could have been there with me to hear some of this stuff. I’ve had client money sitting in cash and short term bonds for well over a year now and I sleep like a baby. The stuff I talk about on here is for my own accounts, I don’t take those sort of risks with clients money, for the most part, I work with pretty simple people, they need what they have.
After I explained to this same person that told me I would not be right two years in a row why I was still bearish he said that “there is nothing worse than when everyone is making money and your clients aren’t” and I do get that career risk. Grantham talks about it all the time.
My response back to him was this:
Me
“I really don’t think that any of my clients are thinking that way right now, less than 5% of them lost money last year, they know what happened to other people. Your clients on the other hand, if your clients are all down 30% then you now need to gain 60% to break even. How long is that going to take?”
other FA: so what, I think the market will be back at 14,000 in a couple of years.
Me
“Really!” “You have been here 10 years right?”
other FA: Yes
Me
“So, clients that you invested money for in 1999, do they have a negative return over that period, or have they in fact made money?”
other FA: Yes, I have a lot of clients that lost money over that period, maybe a few are up a little bit but more of them lost money.
me: If I go 10 years with a client, charging them a fee for asset management and they only lose, I will quit. I don’t deserve to be doing this if that happens. I will not go a decade getting paid for losing money for people.
other FA: You don’t understand the business then.
At that point I walked away. This is advisor has a book about three times the size of mine.
Anyway, the reason I share this for people is b/c it might help some of you understand how the market, while it seems nuts to anyone paying attention, can in fact push all the way up to 10k despite how wrong it would seem. These advisors collectively control many billions of dollars worth of capital. I can’t imagine these attitudes are much different at other firms either.
May 18th, 2009 at 12:20 pm
It’s all about the fees, baby…
May 18th, 2009 at 12:24 pm
@ Ben:
I feel your pain bro-
There isnt a place in the traditional FA game for guys like us. We are destined to trade our own accounts, go indy, or go hedge. My preference is to go small hedge some day. Just waiting for the first big speculator to come along. The days of the mutual fund FA are over. The paradigm has changed. An FA will need to understand global currency, fixed income, commodity markets, AND equity markets. Not to mention know how to short. For some reason… I doubt a quarter of us know how to do half this.
May 18th, 2009 at 12:33 pm
@ben22 12:16
“Anyway, the reason I share this for people is b/c it might help some of you understand how the market….”
The sharing is much appreciated and it does help to explain market behavior. I have been “early” a few too many times waiting to short the Inevitable Fall (TM), so this does help in giving me a different perspective. Congratulations to you for sparing your clients the stress of last year. I did the same for my mother’s accounts (which I control), but my brother did not heed my warnings. He is tight-lipped about his holdings and his amounts, but he did tell me he lost hundreds of thousands. Good luck to us all.
May 18th, 2009 at 12:35 pm
Steve Barry – Right on…
Have done much S&P 500 research and yes – the only conclusion is a lower S&P. At 900 by year end, the trailing GAAP earnings (excluding Q408 @ -23.45) would be around 31… Still expensive.
If one looks at the credit explosion from 1995 to 2007 and the subsequent rise in difference between GAAP and Operating earnings – it is clear that the last 2 bubbles were indeed fraudulent or misguided representations of earnings.
Historical from 1936 = 15.7 (GAAP, not Operating), but last 10 years average = 25. Highest trailing = 46.50 back in 2001, until Q4-08 when it hit 60.70, this quarter 122′ish, next 1697, then negative 316, and on to the 31 area…. Notice also that even the operating estimates have been creeping down week by week… (which insidiously makes the market more expensive).
The largest input into earnings is now Health Care @ 28%, followed by Consumer Staples @ 17.86, Tech@17.64, financials are only 3.59%… Q1 06 financials contributed 27.96% – but are now just a fragment of the glory securitization years…
May 18th, 2009 at 12:36 pm
Seth,
Thanks for that Siegel article link. I think Siegel’s case can still be made. Why? Well, using the S&P’s analogy of a single company with 500 divisions, why can’t that company shut down many of those poorly performing divisions and then come out really, really ahead?
A counterargument to that is: if “too many” of the S&P divisions must close and fire workers, will those fired workers still keep spending in a way to generate earnings for the profitable companies? And/or will the government decide to tax some of the really profitable divisions (e.g., Exxon) to help pay for other activities (e.g., alternative energy)?
May 18th, 2009 at 12:44 pm
“This is advisor has a book about three times the size of mine” – I bet it doesn’t stay that way. Wait for the next deluge, guys – and then take your clients and walk. Meanwhile get access to the client lists of the tools you work with so that you can help those people out with investing whatever they have left. Office space will be cheap….
Conformism is an incredibly strong force for some people. I see folks in NYC and CT and I KNOW they are down 40-60% of their net worth (even BEFORE the housing market collapses here), yet they act like everything is normal and they still have faith in the system, their broker – it’s the whole stuffed shirt, empty suit mentality. Eventually I will have their lunch, their house and their previously owned European automobile, simply because they are too trusting of their brokers and too stupid to think outside the box for themselves.
The next leg down might, or might not, cause a real panic among B&Hers and 401Kers. What do you think?
May 18th, 2009 at 12:46 pm
Anyone watching the Q’s?
Tag 34 and reverse to make the “lower high”?
I think I’ve learned a lesson in calling this “top”. From now on I’m going to focus less on the actual top, and start opening my shorts on the “lower high” not the actual high.
This strategy would apply to all the “toppy” charts here: SPY, QQQQ, XLF, USO, etc.
Thoughts?
May 18th, 2009 at 12:47 pm
@wunsacon:
Not sure I understand your point. If one of the 500 divisions is Toxic Co., that poisoned groundwater and operated a nuclear plant that “went Chernobyl,” then it might be worth noting the $100 bil liability generated by that destructive division.
May 18th, 2009 at 12:48 pm
If this keeps up…
‘Sell in may and go away”
Is going to be replaced by…
“Short in May and continue to pray”
May 18th, 2009 at 12:50 pm
“It may sound irrational to be worrying about inflation in the middle of a deflation crisis. These two curmudgeonly quotations come from China, signalling that solutions deemed obvious in one part of the world may look quite different from another with conflicting interests.
The first, from the People’s Bank of China this week, is a clear warning that savers there could become the victims of a western economic recovery tempted to inflate off the debts incurred in the current recession, including by currency devaluations. The second, from an article in the Financial Times by Andy Xie, a Shanghai-based economist, warns that US policy is pushing China towards developing an alternative financial system to protect itself from such an outcome.
Because of its reserve currency status the US can print money, in the spirit of its former treasury secretary John Connolly, who told his European counterparts in 1971 that “the dollar is our currency but your problem”. Ireland is currently suffering from a similar British attitude. Xei says Obama’s decision to redeem mainly those who caused the recession rather than its ordinary US household victims will reinforce the pressure for competitive devaluations. This makes a 1970s-style global stagflation the likely outcome. In that case China would be forced to float its currency and create a single, independent and market-based financial system. The dollar would then collapse.”
This is from: http://pensionpulse.blogspot.com/2009/05/w-recovery.html
More thoughts about what could be ahead when the deflationary trends are over..it certainly appears that the porridge this go round will either be too cold or too hot…and the added worry of how the government will “help” in getting around this crisis will certainly make it difficult to invest. Like Ben 22 has been doing for his clients, I am also in short term cash bets and sleep well at night. When the deflation looks like it is going to end, I will have to leave my gentle sleep and get back in their with Ben and Lb and all the rest…pass the Tums..
May 18th, 2009 at 12:53 pm
Siegel is just desperately trying to validate his “stocks for the long run” thesis, just like the majority of the industry that grew up in the great bull run of ‘82-’00. He’s just digging his hole deeper and making himself irrelevant. You can really smell the desperation coming off of him.
May 18th, 2009 at 1:04 pm
Where is the Mistress?
After some long deliberation this weekend… I decided to open some SCO today to short USO. Ahmadinejad be damned.
USO backtesting the broken uptrend that began on 3/2 here at approx 32.50 was just too tempting for me to not pounce on some SCO here. We’ll see how it goes.
I dont think I’ve had the opportunity to be short of so many things at once… XLF, QQQQ, USO… now all I need is to short some FXI and EEM and I’m a regular dougie kass.
May 18th, 2009 at 1:06 pm
I-Man: I am playing this level here as the lower high – looks like a fair bet for the charts in SPX and QQQQ, IYR, XLF and the 10-yr yield, but of course if we see 925-930 again we will have to tear it up and start over. The last battle may be waged up around 950 at the 200DMA, or it may be right here. We’ll just have to wait and see, so make a plan and take the emotions out of the trade, right?
May 18th, 2009 at 1:10 pm
Anyway, the reason I share this for people is b/c it might help some of you understand how the market, while it seems nuts to anyone paying attention, can in fact push all the way up to 10k despite how wrong it would seem
————-
I would not be surprised if it does one little bit. Because you had all those faux-bears who were conservative enough to stay liquid in the first round but impatient enough to finally dip their toes in the last few months.
But when the market drops again, you’re going to get one heck of a panic because it will have wiped out the 2 batches of investors.
May 18th, 2009 at 1:12 pm
I-Man, physically I am in San Francisco, and mentally, I am disenchanted with the posts here : ) and some were picking on me the other day.. I’m quite sensitive and my feelings are hurt easily.
So, as usual I disagree with “everyone.” I did short some gold at the end of last week but it’s not doing much and i have things to do… can’t babysit that much longer today.
May 18th, 2009 at 1:12 pm
So, is today a Desperation Rally or what? Who the hell is buying stocks? Just about everyone not on CNBC writes this rally is spent and it doesn’t reflect the economy. What’s holding it up? An SLP circle jerk?
On another topic, I’m thinking of using the $1500 furnace / central air energy credit and upgrading my HVAC, even though nat gas is in glut. Plus a lot of vendors are advertising deals that should continue for a while. I have until the end of 2010 to do it. Anybody have an opinion on this?
May 18th, 2009 at 1:16 pm
“But when the market drops again, you’re going to get one heck of a panic ”
I agree, once bitten, twice shy, should have been the watchword. I wonder how they will get them in the market for a third time? The next deep drop could produce a plunge as J Retail heads screaming for the exits – and could very well end in a Death of Equities moment.
May 18th, 2009 at 1:17 pm
Hobo:
We just put in a bad ass electric furnace/heat pump. Carrier unit. It is way cool… dont know what part of the country you are in, but in the PNW they work fantastically.
I am all electric in my house, no gas at all. But then again, electricity is cheap and plentiful here thanks to the hydroelectric power of the Columbia.
Throw in some thin film solar panels and we’re kickin it inna fine style.
May 18th, 2009 at 1:18 pm
“Who the hell is buying stocks?”
Banks buying banks, on the upgrade by analysts at banks.
May 18th, 2009 at 1:19 pm
I wonder how they will get them in the market for a third time?
————
When all their HY bonds get converted to equity
May 18th, 2009 at 1:23 pm
@danm: That’s extremely clever. LOL.
May 18th, 2009 at 1:25 pm
karen @ 1:12
“…and some were picking on me the other day.. “
Is it better to be looked over, or overlooked?
May 18th, 2009 at 1:30 pm
I just read that FASB has changed more rules. The new one offsets the recent mark to market change. Apparently, all off balance sheet debt is going to be used to calculate reserves and may no longer be ignored. So is there much crap still being hidden off balance sheet and is another little bank stock plunge on the menu?
May 18th, 2009 at 1:30 pm
oh, thank you, DL. what a boost to my frail ego.
well, i’ll let ya all know when i go short… but it’s not here.. this time, FAZ may well get into the 2s… SRS will probably break its previous low of 19.55. I am seeing nothing in that chart that says buy me now.
May 18th, 2009 at 1:33 pm
Japan AAA credit rating cut by Moodys
http://zerohedge.blogspot.com/2009/05/moodys-lowers-japan-aaa-foreign.html
Conveniently ignored by mainstream media.
May 18th, 2009 at 1:38 pm
Re the FASB change, was this a part of the stress tests?
May 18th, 2009 at 1:38 pm
At this point, the idea of FAZ getting to @ $2.00 in the near future is not shocking at all.
Nevertheless, if XLF were to make a quick run to $13.50 from here, it would be worth putting on a short-term short position.
May 18th, 2009 at 1:40 pm
I am in shock an awe of GS at 140, tho… look like it will see 150+..
May 18th, 2009 at 1:46 pm
Karen @1:40
Today seem like a re-test of 9dma, if it fails I doubt Financials will keep going up.
May 18th, 2009 at 1:47 pm
@karen: We are in shock and awe of your trading acumen on a daily basis.
As for your other charms, one can only imagine…
May 18th, 2009 at 1:51 pm
“How Much Have Profits Fallen?”
If they hadn’t cut costs (laid off people) profits would have fallen much further. However, any sword is two-sided. Less money to Americans who are mostly debt laden translates to a consumer who only buys what is necessary. That’s a vicious cycle.
May 18th, 2009 at 1:55 pm
@all,
I appreciate the comments, hope some of mine are a help as well. My client allocation is one of the reason’s I’m able to come here a lot during the day. Our ideal allocation and strategy is capital preservation right now, lots of cash. I don’t have discretionary control over any account so despite the fact that I’ve been bullish on here for a couple months, my clients have almost entirely remained out of the market. There isn’t much management or work to do when that’s your strategy. I don’t need to be there at the bottom anyway, I didn’t ride this all the way down. I’ll lose some clients as a result of this but I don’t care. I know it’s coming. As I’ve been saying, retail wants to buy the banks so they can double or triple assets in a few months.
@I-man,
I’ve come to the same exact conclusion. I’ve thought about hedge, or just going RIA and setting up my own shop.
@LB,
I think when this countertrend rally is over it will be a nightmare of a downturn and will cause the panic you asked about. This idea of “the storm has passed” on the way to higher ticks is going to set us up for it.
I predict that before this is over the desire to hold cash instead of equity will be at all time highs. This will be able to be seen in the Investors Allocation Survey, among other places. I noted here weeks ago that the allocation to equity never recovered since 2000, sure part of that could be due to the market being down and as a result the % in equity is lower in an account, however, I think there is more psychology at work here, the idea of “stocks for the long term” should be shredded before this is over.
I think valuations, the topic of this post, for stocks, will be far lower than even bad bear markets in the past. I think the next downturn will produce many violent rallies of 20%, much like we had seen from 10/07 through this March, drawing people/advisors/pensions and hedge funds back into the market each time. This would all be fitting for a Wave 3 down, which is what I think is coming next the more I study EW Theory.
People ask about the PPT during this downturn and my response is that they are powerless and the bags of credit they hold are too small. If they were really as strong as some think, or in control like some think, we would NOT have been down over 60% from the peaks. I just don’t think it would have gone that far. When the credit deflation truly takes hold it will happen fast, and I think we are right at the brink of that now. One look at the chart above, whether you want to include financials or not, shows that the profit decline happened like the flip of a switch. As I’ve been saying, as more and more people recognize that the deflation is here, it will be violent and quick. Anything the Fed, the Treasury, or the Adminstration can do from there will only be reactionary. They cannot get ahead of this, as they never understood it from the start. When I hear them say they have done enough, which I think they will before this countertrend rally is over, I’ll be going all in short in my own accounts, this should come when we have higher prices and when there are way more than just one Franklin on this board.
May 18th, 2009 at 2:03 pm
@ cjcpa
if kobe stopped paying his credit card bills and your class had to pay $100 million than you would care! it is crazy to drop aig or citi…they are the economy. they are all the jobs. if you want to take them out then take out their profits over the last ten years..then our economy never recovered from the 2000 crash……….
May 18th, 2009 at 2:04 pm
karen @ 1:12
See? It’s not all uniformly bad. (See leftback @ 1:47)
May 18th, 2009 at 2:10 pm
@ben22
“As I’ve been saying, retail wants to buy the banks so they can double or triple assets in a few months.”
Okay, I’ll bite. Define “retail” (what)?
May 18th, 2009 at 2:12 pm
GS says there is 10 trillion on the sidelines..
DL, LB, as we know, is full of **it. : )
May 18th, 2009 at 2:12 pm
A nice little graphic from our good friend, TPC, shows the rally in terms of companies bond ratings:
http://pragcap.com/the-garbage-rally
May 18th, 2009 at 2:17 pm
@ Pat: “retail” investors.
@ Ben:
Besides, the whole comp system is screwed up anyways… either you’re commission based and doomed by the discount guys, not to mention cockblocked by compliance eternally… even with discretion.
OR
You’re running the wrap model, always under pressure to pull in more assets, which burns you out and makes it impossible to be your best for anybody.
It all made sense to me when I read “The Supernova Advisor”… easily the best thing Merrill ever brought the world.
My goal is to recreate supernova within a small independent hedge fund… I’ve even thought about doing what Seykota does and only getting paid by performance. But it takes the right stuff and track record to get the kind of clients to do that and not go broke.
Its frustrating for people who actually are passionate about this and not just about buy and hold and fee’s baby fee’s.
May 18th, 2009 at 2:18 pm
ben22
Do you think the 200 MA keeps a lid on the SPX in this rally? Seems hard to believe we could get through it by much at this point.
May 18th, 2009 at 2:19 pm
OT: Clawback, I posted a reply to your question about section 1831 o and Bank Holding Companies on the weekend Sheila Baird thread.
May 18th, 2009 at 2:23 pm
@ I-Man
Thanks. But how would retail investors buying the banks double or triple assets in a few months? Don’t the banks still collectively hold additional undisclosed toxic waste? We know that the stress test was a sham.
May 18th, 2009 at 2:24 pm
Dear mistress of the candlesticks:
I love reading your market impressions. I only disagree with you about your sloppy music picks (and most people disagree with my music picks). The best music was made prior to the 20th century).
May 18th, 2009 at 2:26 pm
@ben22
nice posts. but this all too common mistake needs to be corrected:
“Your clients on the other hand, if your clients are all down 30% then you now need to gain 60% to break even.”
no, you only need to make 43% to break even. now if you were down 50%, then yes you would need to do 100% to get back.
May 18th, 2009 at 2:28 pm
anybody care to comment on whether they have shorted DIG or went long DUG
May 18th, 2009 at 2:30 pm
@ Pat:
It’s the “perception” that they will double or triple up on buying bank stocks here… classic late to the party panic buying.
Of course its a sham, but hope is a dangerous drug and it will make you do some dumbass things. I get the feeling that alot of retail investors are being deluded by the markets strong advance off the March low, and think the casino is back in business. Most of the mainstream media and jackasses like Cramer and the other dipshits at cnbc are leading them right into it too.
Sad really, because the little guys are thinking more about fantastic gains than unavoidable pain. I cant blame them really, after all they’ve been through the past year and a half. Its like a herd of blind sheep being led to the slaughter. It gets them everytime.
May 18th, 2009 at 2:30 pm
@Pat G.
When I say “retail” I’m just talking about your average investor, not trader, that tries to play in the market from time to time, when they think they have a leg up but in reality are about to get killed. They tend to have an advisor or a broker and when the market turns sharply up or down, despite the fact that they have no understanding of what is going on, they become experts. It was common during the internet bubble for good brokers to say that they could not talk any clients out of buying internet stocks. I can tell you that during the real estate bubble all my clients did the same. They all became real estate know it alls.
these people tend to have between 50k and 250k in investable assets, though the vast majority is typically in a 401k so they are mainly invested in mutual funds, this leads them to want to do more than just boring funds when a rally like this starts. As a result they end up having small taxable accounts with maybe 25-50k in it, and they try to speculate on things like C, because they think it is “cheap” b/c it traded for .97. Google, according to these people, is expensive, due to the handle it sports, so AAPL looks cheaper.
They did the same thing with internet stocks right at the peak, buying as much CSCO and the like they could get their hands on. These are the people that big money on WS is trying to take capital from.
Leftback sometimes refers to them as
InvesTools.
May 18th, 2009 at 2:35 pm
@bubba,
whoops. thanks for catching that. I did actually say 60% when I was talking to that advisor though so I was wrong. Sometimes when I get extremely frustrated with someone discussing the markets I overlook math in my attempt to make a point.
@ onlooker,
IMHO yes, that’s gonna be about the top, the 200 day ma, if we actually make it that far, that was my very top expectation. That said, I wouldn’t be overly suprised by some overchute. Maybe AT could shed some light on that though from a wave perspective. I’m a complete novice with it.
May 18th, 2009 at 2:35 pm
aperian, I agree.
most of the profits were false.
I think AIG should not be traded as a stock, as mentioned here. Should be in BK, and wound down.
anyway, that’s one reason to not look at it in the S&P b/c it shouldn’t be, or won’t be in the future.
Point is, the disingenuous rift is to talk about earnings ex-whatever. The idea is okay for a lucid investigation. Where there is a lot of backlash is — my opn– that the ex this ex that is pushed on TV as being representative of the whole, or a reason to buy stocks. To run this into the ground further… you could look at S&P ex-financial if you wanted to evaluate energy stocks and see what the companies that make and move things are doing. Making and moving requiring energy.
Karen,
I said nice things about you.
I’m going to shut myself off again.
If anyone can come up with a java applet like the Southwest Airlines DING, and can *ding* me when the cascade arrives… lemme know. I’ll be in pursuit of billable hours. (and lurking)
cjc
May 18th, 2009 at 2:36 pm
@ Karen,
How are you shorting gold? Is it the ETF or are you doing it some other way? I still think gold is in a downtrend on the way to 680, though my thoughts on this aren’t super strong so I’m not putting any money on the line with it.
May 18th, 2009 at 2:39 pm
matt, lol. thank you, i think.
leftback, you know i adore you, most of the time. i apologize for my sense of humor… sloppy at best.
cjc, yes, thank you.
all, wondering if tomorrow will be another turnaround tuesday… i’ll just watch if it is…
May 18th, 2009 at 2:40 pm
This thread (esp ben22@1:55) reminds me today of a quote from the depression era (paraphrased), “just when we thought is was over, it got really bad.”
This is my greatest concern. I hope I’m wrong.
May 18th, 2009 at 2:44 pm
ben22, dzz, but i may not even keep it another 15 minutes.. a very small gain.. i gotta get the bart to berkeley for a graduation ceremony..
May 18th, 2009 at 2:46 pm
Ben22 gets the poster of the day award. Thanks.
May 18th, 2009 at 2:49 pm
hopeImwrong Says:
“I hope I’m wrong.”
hmmm- how did I know you would say that . . .
May 18th, 2009 at 2:52 pm
@ ben22
Thanks. “I’m just talking about your average investor”. I’m glad then that I’m not an “InvesTools”.
“They tend to have an advisor or a broker”. Nothing personal but I see that as their first mistake. The Internet has a lot of sites where you can mine information then draw your own conclusion. Why should I rely on someone else’s opinion. Because they’re a professional? “though the vast majority is typically in a 401k so they are mainly invested in mutual funds,” Mistake number too. Few 401Ks allow you the kind of diversity you need. The highest proportion of assets in most mutual funds are held in companies’ stocks. Mistake number three. No diversity. Buying stocks and investing in them through 401Ks. As I have read, correct me if I’m wrong, when the retail investor is buying the institutional investor is selling to them. This normally indicates a top in the market?
May 18th, 2009 at 2:54 pm
@Pat G.
I think I might have confused you, they double or triple by buying C, at a dollar and then selling the stock for $3. Clearly stock prices don’t always reflect what’s going on underneath, otherwise the DOW would have never been 14k in 2007. Based on your follow up to I-man you might be answering your own question, the stock prices don’t make sense given the fundamentals when it comes to the banks. Or, you could be like WB and add to some WFC here.
I heard Whitney Tilson was buying the banks with the idea that Wells Fargo, for example, would lose billions for quarters to come, but that they might just make a little more each quarter than they lose, in which case, the stock was a good buy back in March.
Just remember two things.
1. Retail isn’t thinking like that when they buy a bank, they are trying to do what I describe above
and
2. When Whitney Tilson or WB buys something, they have different reasons for doing so than you or me. This is another common retail investor mistake. You have no idea how many people told me that WB bought stock in GE and GS last year, only for me to have to explain to them that this was not what he did.
May 18th, 2009 at 2:55 pm
What a show…
May 18th, 2009 at 2:57 pm
Hope: You’re not wrong.
ben22: InvesTools™ were also our “favorite people” in HS, they are now middle management, or car dealers, or insurance salesmen, or contractors – they tend to be quite loud on most subjects, along with their wives, who are often realtors who own nail salons. They are pillars of the Service Economy and the Greatness that is America.
May 18th, 2009 at 3:00 pm
@Pat,
I don’t take that personal at all, when you say getting a broker or advisor is a mistake. You’ll never see me disagree with people on here when they bash brokers or FA’s, I know most of them suck so I say nothing.
and yes, retail typically buys at exactly the wrong time. Maybe not always at the top, but close to it. I’d dare say they never ever buy at the bottom. Retail makes the mistake of thinking the goal is to buy lowest and sell highest, instead of just trying to buy low and sell high. I’m sure I-man and others here have had that experience of trying to get a client to take gains off the table and they just won’t do it. This is why fast money appeals to them so much. This is how trying to flip houses becomes so popular despite all your instincts telling you something might be wrong. Average people can’t ignore that emotion of quick money. They typically have it all spent before they even get it.
May 18th, 2009 at 3:05 pm
@ben22
Thanks again. Now I get it, you’re talking about active traders.
May 18th, 2009 at 3:05 pm
It’s so weird how the bubble-ishness is not wrung out of this market yet. Fundamentally broken companies with broken business models are attracting buyer’s of their stocks. People amaze me. I’m in shock. Will it ever end? My head is spinning.
I think I’ll take up smoking. Don’t interpret this as talking my book (I do own MO and RAI).
May 18th, 2009 at 3:12 pm
I-Man called it – quite the show-
Hopeimwrong-
the big difference between the GD and now is the QE/reflation play- not sure how that plays out myself because that was not done during the GD ( or as Milton Friedman called it- the Great Contraction)- maybe it will prolong the agony before a later sell off- that is the big unknown- that- and how long people can keep fooling themselves- especially the “so called” experts
May 18th, 2009 at 3:12 pm
@Hope: Bear markets often create little mini-bubbles of hope, but they end only when there is utter wretchedness and total despair, with every dime having been wrung out of InvesTools by the sorcerers of Wall Street, until finally the Members of Trading Nation turn as one to Brian the Broker and exclaim angrily: “I will never ever buy a stock again, for the rest of my life”. Over at the NYSE, a bell rings, and a new Bull market is born.
May 18th, 2009 at 3:15 pm
I suspect that “total despair” (over stocks) is many years in the future, however.
May 18th, 2009 at 3:19 pm
@LB –
I wish there was a reliable measure of when “I will never ever buy a stock again” happens.
Seems like it already happened to some boomers. Others seem very concerned about catching the next move up. Others are still “buy and holders.” I can’t get a read on where we are anymore.
Seems like at 666 on S&P, there weren’t many sellers left to find (seller exhaustion).
I’m kind of looking for single digit index p/e ratios to signal a final bottom, but everyone says it ain’t going to happen due to QE or low interest rates, or what ever. Secular bears end a single digit P/Es in my world.
Just hope it doesn’t take too long.
May 18th, 2009 at 3:21 pm
@ dead hobo 1:12
Do you know if you have three phase power servcive or not? Three phase power is more efficient, but power companies don’t run it in new subdivisions. If you have three phase, you are already benefitting from a lighter demand, regardless of the unit efficiency. I can’t explain it other than that I used to work at a utility company and all of the distribution guys there, as well as HVAC guys I talked to, said that the efficiency of a new 13 or 14 SEER A/C was roughly compatible to an old unit on three phase. Unfortuantely, I have been told that nobody manufactures a 13 or higher SEER model that is compatible with three phase service. Finally, I expect fuel costs to fall becuase of our economic funk, but Obama’s cap and trade could cause substantial cost increases for coal fired plants. So, any new federal regulation will affect your local utility provider depending on the type of fuel mix that they use. Now, if you live in a state like Missouri, where rates are fixed and there is no variable fuel cost adjustment each month, you may only have to worry about rising fuel only to the extent that your state’s public service commission would approve new rates. Hope that helps.
May 18th, 2009 at 3:23 pm
@LB 2:57,
That should be the poster of the day right there. lol. I just have a great picture of exactly what you are talking about in my mind.
May 18th, 2009 at 3:24 pm
I agree with single digit P/Es, eventually. 666 was a quiet capitulation – not a Lifetime of Despair.
Yes, this will be a long long Bear, because there are so many Smart Bulls and Hopeful B&Hers.
May 18th, 2009 at 3:34 pm
@hope
Just remember when you hear some boomers are still trying to catch the next wave that the baby boomers are a pretty wide spread of ages and lots of them have a while to go before they stop working, therefore an advisor can drill buy and hold into them as they are still “long term investors” or they tell it to themself. This is what I was getting at when I questioned the FA that had lost money for clients over 10 years. If retirement was 20 years away, and they needed X to retire, they spend a decade losing and a decade clawing it back, only to find at the end of 20 years they didn’t have enough because they have what they started with, and the “long term investment horizon” wasn’t long enough. If we get inflation after the credit deflation is over, it is going to hurt these people badly.
On another note:
Not trying to pat myself on the back or anything …. maybe a little, but my #4 from 8:39 am above is looking right on today. Friday’s signal was pretty clear to me. Some of these simple indicators seem to really be working well. So I’m going to stick with my short term down call, today being the head fake.
Also, I mentioned setting up for a trade in DSX last week which I did in fact act on. I just sold. A quick 10%.
May 18th, 2009 at 3:34 pm
Might also be a long bear due to gov’t interference. I still think Japan is instructive of what a modern stock market can do over the long term. I think there is a decent chance this is the US (with 2000 being the real peak).
I showed an InvesTool (TM) at work the Japan Nikki performance over the last 25 years. He has been buying GM, F, C, etc, and usually losing money. Always trying to catch the bottom. Anyway, he had no idea a modern market (GD need not apply) could be so poor over the long run. How many people are there out there without a clue?
May 18th, 2009 at 3:40 pm
@ben22
On your #4, you are looking for something like a 16 to 1 up day to define a blowoff top?
May 18th, 2009 at 3:41 pm
Bloomberg: BAC rallies as C raises rating from “Steaming Pile of Horse Manure” to “Tepid Pile of Dog-Doo”.
“How many people are there out there without a clue?” How many co-workers do you have???
The brainwashing about buy and hold has been really extensive, even now people think they are onto Fast Money.
ben: I am playing this as yet another short covering, Johnny Retail-assisted head fake. Regional CEOs were sitting in on Squawk this morning and they sure looked insolvent to me, like they were all using Preparation H.
May 18th, 2009 at 3:47 pm
@LB
You have just provided me with the best reason I can think of to watch quack, I mean squawk. Read the body language of the CEOs! Leave it on mute! Excellent.
May 18th, 2009 at 3:49 pm
There is an actual pay to use service called Investools – not sure if it is marketed to the same “tools” leftback is referring to- but it’s out there-
watch that trademark infringement-
subsribservhttp://www.investools.com/tradingTools/toolbox.swim
May 18th, 2009 at 3:52 pm
Three of them were obviously lying (esp. the Zions guy) and the other one just wanted to f*** Becky Quick.
May 18th, 2009 at 3:57 pm
Impressive rally…
Not much volume…
May 18th, 2009 at 3:58 pm
hopeImwrong Says:
“he had no idea a modern market (GD need not apply) could be so poor over the long run.”
A Nikki future for the S&P – I agree could be highly likely- 20 years of going nowhere- but I think that would be a result of the USG slopping up the markets for years into the future
May 18th, 2009 at 3:59 pm
JPM about ‘half’ the volume of the big Friday 7 days ago
May 18th, 2009 at 4:03 pm
The volume is tiny, not many believers. 90% up day too. Wait until the funds pile in. Whoa nelly!
ps-when I feel like this there is a 90% that a right good thrashing is not far off.
May 18th, 2009 at 4:03 pm
@ hope,
no, what I was saying was that I’d flip my stance back to bearish before we hit my targets if we had a day where decliners were beating advancers 16/1, like we saw back in early March. That would be a signal, among others I’d be looking for, that this countertrend rally is over and the larger trend, which I believe to still be down/bear market is starting again.
So far, on the big sell-off days since the 3/6 bottom we haven’t had anything like that. Last wed came close as it was 10/1 but in looking at Friday’s numbers the selling wasn’t that aggressive.
16/1 advancers during this countertrend rally wouldn’t actually surprise me all that much. I also stated many times on here the last few weeks that as we got to a top of this rally you’d see the same type of euphoria that you saw at the very top back in October 2007. It is the idea of “we made it, we got through something so terrible but we made it, the party is back on” The political landscape should help push this along, BO is very popular, he will get a lot of credit.
I mean, hell, it’s not like this is some magic prediction, we are getting close right now! We haven’t retraced much at all of this move down since 07 and already the AAII survey has bulls damn near where they were October 2007. People are so high off these green shoots they don’t even notice that.
Oh, also, don’t bother with that person at work, that’s exactly who I’m talking about when I discuss retail. If that was the reaction to the Nik then they deserve to lose, I’m sorry to say that but I mean it. It’s not like the NAS bubble was that long ago and the chart looks more than just a little like one of the Nik since 1989.
Here is how JG describes your co-workers reaction to this crisis, and why, in the fullness of time, it will all happen again, probably when none of us are here anymore.
In the short term we will learn a little about the crisis
In the medium term we will learn a lot about the crisis
and
In the long term, we will learn nothing.
Instead our “leadership” on this issue, all GD authorities BTW, they seem to think that the simple solution is doing basically the opposite of what we did then. If it were that easy we’d already be out of the woods.
May 18th, 2009 at 4:03 pm
Unbelievable. The subject of this thread was to generate discussion of an overvalued market, Obama is discussing the government takeover of the sector contributing the largest component of earnings to the aggregate S&P 500 and the S&P 500 is up 3% today. Yeah, it’s not a casino. This feels like 1997 all over again, but maybe 1987 is hiding under the hood….
May 18th, 2009 at 4:09 pm
Another 3% up day, of the type that are so common in bear markets, yet hardly ever occur in a bull market.
Let me analyze today. India had a big rally. Oil rallied. C upgraded BAC. Then there was a short squeeze. Cramericans will be excited, and we may even hear Larry K on Goldilocks. InvestTools™ everywhere will rejoice!
Sell hope, buy despair.
May 18th, 2009 at 4:11 pm
@ben
I shared your story with my wife over lunch and she began laughing and said it reminded her of the movie, “Idiocracy.” The character played by Luke Wilson keeps trying to explain why there’s a life-threatening draught, but everybody’s too stupid to listen. If you have not seen the movie, it is worth a few laughs.
Word Press ate my other post, but it’s unbelieveable that we have the data in the charts above, Obama is threatening a government takeover of the sector that is contributing the most to aggregate S&P 500 earnings and the market is up 3% today. And how is this not a casino? This feels like 1997, but me thinks 1987 is lurking nearby….
May 18th, 2009 at 4:11 pm
@ben22: It’s not about “learning” anything at this point. It’s about recouping some losses from the prior 1.5 years. That’s really what this rally is about. Folks drinking the kool aide and pretending that if the 401k statements are looking better (numbers on a few pages), than all IS well. Nevermind the storms that still lurk ahead. Our markets are a complete joke at this point and reflect nothing about the true value of the underlying companies they’re supposed to represent and wider economy. I know, I know, they probably never have but now that point is truly being hammered home. As long as things come in “better than expected”, all is well.
May 18th, 2009 at 4:14 pm
Test. Word Press is eating my posts again.
May 18th, 2009 at 4:16 pm
LB- how could you be so sloppy?
Sell hope, buy despair™
May 18th, 2009 at 4:18 pm
@Ben
I shared your story with my wife over lunch and she started laughing and said it reminded her of “Idiocracy.” In the movie, the character played by Luke Wilson tries to explain the reason behind the life-threatening draught, but nobody will listen. If you haven’t seen it, it’s worth a couple of laughs.
LB captured my other thoughts that Word Press ate, but I’d also just add that it is a tad ironic that our President has targeted the sector that is providing the single largest component of earnings to the S&P 500. This BS rally feels like 1997, but it’s got 1987 in the headlights.
May 18th, 2009 at 4:19 pm
@leftback:
> Another 3% up day, of the type that are so common in bear markets, yet hardly ever occur in a bull market.
Not to mention pathetic volume… If I’m looking at it correctly, today was the lowest volume on the Nasdaq in over a month.
HCF
May 18th, 2009 at 4:20 pm
@Cursive:
> life-threatening draught
Typo? Makes me think beer…
Mmmmm…. Beer….
HCF
May 18th, 2009 at 4:25 pm
I just perused the Yahoo headlines. This one: “Stocks Jump on Renewed Optimism on Housing, Banks”.
Did I miss something or does Lowe’s earnings foretell the housing bottom? I’m seriously suppossed to believe this? Lowe’s? I mean, really, Lowe’s! Lowe’s = housing? This BS is further evidence that copybook writers will attach ANY causation to any market movement. That’s the humanist/charitable explanation. The cynic/conspriacy theorist would call out the PPT and Bilderbergers.
May 18th, 2009 at 4:28 pm
HCF
LOL. Thank’s I needed the laugh after almost going into a hyper-convulsive fit over the Lowe’s bit. Freudian slip. We’ve had an unseasonal cold snap here and I could go for some Guiness on tap or a bottle of Chimay Bleu.
May 18th, 2009 at 4:28 pm
HCF-
Dogfish 90 Minute Ale is pretty life threatening- definitely gets you hammered
May 18th, 2009 at 4:31 pm
Why exactly are homebuilders confident again? Isn’t there close to a year or more supply of empty homes on the market? Who exactly is building new homes in this market?
May 18th, 2009 at 4:39 pm
On vacation tomorrow all week visiting my family in MA. Back next Tuesday. The last time I left was late Feb/early March and the market really took a dive.
Time for a reprisal? Either way, I need a break. Good luck everyone. Will check in from time to time from my parents’ house.
May 18th, 2009 at 4:40 pm
mannwich-
could be that they are happy that they made it this far- also its highest since last Sep/Oct- so it’s relative
May 18th, 2009 at 4:40 pm
“As the stock market rallied in recent months, company insiders have been selling, a sign that investors should exit, too, TrimTabs Investment Research said Monday. ”
http://www.marketwatch.com/story/as-stock-market-rallies-insiders-sell-trimtabs
May 18th, 2009 at 4:41 pm
@ahab: Yep, “better than expected”. Bizarre.
May 18th, 2009 at 4:43 pm
@rww: That’s been the story for weeks though. It hasn’t mattered. Insiders are happily selling to the rubes. This will continue until the last and greatest fool is exhausted, just like the housing market and stock market circa ‘07.
May 18th, 2009 at 4:43 pm
@mannwich,
That’s the problem, the whole point of my post is that this won’t be about learning anything in the end, the average person won’t want to know how we got here, just that we eventually got out, and as a result, it will all repeat at some point in the future.
Not sure what it means but when I was in DC I noticed tons of condo’s being built. Huge complexes right by the Nationals stadium and also close to the hotel I stayed at they had built almost a mini town and were working on a large condo complex while I was there. it was a couple miles outside of downtown. Are you really that surprised homebuilders are confident again, these are the same people that never thought it would end, why is it a surprise that they now seen green shoots.
May 18th, 2009 at 4:44 pm
A very very good Jeremy Grantham:
http://www.gmo.com/websitecontent/JGLetter_1Q09.pdf
May 18th, 2009 at 4:44 pm
@ Mannwich 4:31
Precisely. OK, so let’s say O’Reilly Auto Parts, Auto Zone or Pep Boys were going great guns. What would be the takeaway? That the economy is rip-roaring? No, these are contra-indicators. If auto parts sees a surge or is better-than-expected, it implies that people are trying to maintain their lower-cost current vehicle than to buy a higher-cost new vehicle. So, we would expect to see Lowe’s survive this crises because now homeowners have to paint and mend things. I, know, I’m having a Howard Beale moment.
May 18th, 2009 at 4:47 pm
Mannwich
They’re not (HBs) really confident, of course. The reading is still pathetically low, and it’s questionable if it’s a meaningful stat at all, IMO. I’m sure you’ve probably seen the post over at CR.
Really though, can someone tell me why this kind of industry sentiment reading is useful? If anything it should be used as a contrarian indicator. But even that is hard to do given the extreme conditions we’ve got right now. Once again, a lot of those contrarian indicators are being rendered much less useful in this downturn. They’re producing a lot of head fakes on the way down, IMO. Kinda like ‘29-’32 undoubtedly.
Grasping at straws and desperate to see something glimmer in the gloom. It’s understandable to a point why people do this. The problem is that we’ll use any positive to excuse a complete lack of action to actually take difficult and unpopular actions to really fix things. Oops, slipped into a rant again!
May 18th, 2009 at 4:47 pm
@ Mannwich 4:39
On a lighter note (and thanks again, HCF) try to squeeze in a visit to the Sam Adams brewery and see if they still have the triple bock. They don’t let it out for retail anymore and I can’t even get the double bock out here in BFE.
May 18th, 2009 at 4:49 pm
@ben22: Based on many of my conversations with people recently, I agree, and I find it a bit depressiong. However, my neighbor across the street who works for Wells agrees with me and thinks the worst still lies ahead. Her husband is in the importing/exporting business and his business is very slow too. I also talked to a mechanical engineer (he works for a defense contractor) yesterday who basically agreed with me, so I do think there are more and more people out there who are coming around to the point of view that the worst is likely still ahead and clearly not behind us, although many are fine with this charade as long as they personally can see better numbers on their investment statements. I find this mass delusion to be a bit bizarre.
FYI – I’ve spied even more condo buildings (and several commercial RE buildings) just being completed here. Some have “For Sale” signs on them already and are only about half built. All up the highway this weekend, there were “For Lease” and “For Sale” signs outside just about every building that I saw. Every one.
May 18th, 2009 at 4:50 pm
@Cursive: I may check that out. I used to love going to the Harpoon Fests as well in my younger days in Beantown when I lived there. Hitting a few Sox games, a bachelor party, wedding and high school reunion all in the same week. I hope this old body (and liver) can hold up OK.
May 18th, 2009 at 4:51 pm
@ben22 4:43
Well, if I were in construction and I had one place to build, I think it would be DC area. Honestly, does government EVER really downsize?
May 18th, 2009 at 4:52 pm
Sentiment:
Has anyone read the Jim Cramer interview in the latest TIME magazine? I never watch his show, so I’m not sure what he is saying but the answers in the interview struck me as odd. That fool will also be screaming about a new bull market when the top of this countertrend rally is at hand. No doubt in my mind he will give the all clear at that time. After all, he’s only trying to make people money.
May 18th, 2009 at 4:55 pm
@ben22: I haven’t read it but I heard that in the interview, an apparently emboldened Cramer fires a vague threat at Jon Stewart. Is that right?
May 18th, 2009 at 4:55 pm
@mannwich,
It agree it is depressing. I find people here and there that agree with what we are saying, but most of them are on this board. Then again, in late 2007 most of the people that got this right were on this board as well.
May 18th, 2009 at 4:57 pm
Speaking of contra-indicators:
“Rochdale Securities analyst Richard Bove noted the potential for “explosive earnings growth and unusually strong stock price performance” for banks as the economy recovers.”
Does Dick Bove have all of his belongings in a PODS unit so that he can just have it delivered to his new residency? Or is he just tele-commuting? Anyway, this puts me in a FAZ state of mind.
May 18th, 2009 at 4:57 pm
Mannwich,
He says that Jon Stewart will eventually pay for what he did to him. I think those were the exact words. As if JS did anything wrong to him. He did what most of us here only wish we were able to do in front of millions with that douche.
He also says that real estate is the best opp right now.
Now, who wants to buy some real estate????? lol.
May 18th, 2009 at 4:58 pm
Homebuilder confidence index is completely meaningless. In other news, Lawrence Yun at the NAR has looked down his pants with a magnifying glass and reveals that “certain things in housing are starting to grow”.
@Cursive: BFE? Brilliant, haven’t heard that for ages. That one was big with my friends from NE Ohio.
@Manny: CRE also coming on line in CT just in time for the recession to start biting locally.
May 18th, 2009 at 5:00 pm
@benn22 @ 10:03 a.m.
“we passed through the eye of the storm”
believe it’s been Mike in NOLA or MEH who have previously observed ere that the storm wall on the backside of the eye is often worse than the front side of the ‘cane.
@ leftback at 11:06 am
“the $ will be much stronger this summer and fall than people realize…”
Any ideas on when/how my daughter should convert savings and summer earnings to lbs. for her spending money for her ‘10 winter-spring quarters at University College County Cork in Ireland?
@ cjcpa at 11:30 am
Unfortunately, this is where I was…
” SRS should have been a buy the last two months, and should be a sell now, having reached its target… if the market was anticipating what I anticipate.”
May 18th, 2009 at 5:02 pm
leftback @ 4:44
I think this was mentioned on 5/10/09 at 11:45 AM
http://www.ritholtz.com/blog/2009/05/jeremy-granthams-the-last-hurrah-and-seven-lean-years/
May 18th, 2009 at 5:02 pm
LOL Left… you’re on fire today man.
May 18th, 2009 at 5:02 pm
I was just thinking what political influence can buy in America.
Ask yourself this question.
Why wasn’t Enron bailed out?
It wasn’t because republican’s don’t bail out corporations.
Too big to fail, you say?
Who fed the Gov’t the “to big to fail” excuse? It wasn’t the FDIC, right?
May 18th, 2009 at 5:09 pm
Paulson, H was the author of “Too Big to Fail”, along with Blankfein, L. at the AIG bailout meeting.
DL: Thanks, I missed that post. Seven lean years = 5 more years of the Bear !!
batmando: I think the Irish are on the Euro, these days, they had to “punt” their old currency on joining the EU.
Besides, if she’s a good looking lass in Ireland, one smile = one free pint of Guinness. Universal exchange rate.
May 18th, 2009 at 5:09 pm
the great unknown is- how long the USG will slop up the markets with QE and reflation plays- years? Can they put a floor under all assets denying the market the abilty to clear efficiently- for months/years?Are we looking at a Nikki stlye future becuase of USG involvement or will the markets deflate regardless?
The GD was called the Great Contraction by Friedman because of the contraction of the money supply- it appears the USG is trying what all theorists had put forth as a solution for deflation- QE-
so how will it play out?
May 18th, 2009 at 5:10 pm
They cannot support all assets, all of the time. They will have to alternate supporting equities and Treasuries.
Or instead of actually doing so, simply jawbone the markets to suggest that they will do so.
May 18th, 2009 at 5:21 pm
by jawboning maybe they can keep the markets from deflating more- stagnant decade or more of economic growth ahead- all the while singing the “The Sun will Come out Tomorrow”
May 18th, 2009 at 5:27 pm
This makes so much sense that I am convinced that for the time being it is wrong:
http://seekingalpha.com/article/138143-a-lose-lose-situation-for-long-term-u-s-treasuries
May 18th, 2009 at 5:37 pm
The reason that guys like Leuthold, Shiller, etc. (and Ben Graham for that matter) use(d) normalized earnings is/was two sided…to keep you from being too pessimistic at/near market bottoms (PEs on the Dow went infinite near the bottom in the 30s…) and to keep you from being too optimistic when earnings are above trend at/near market peaks (and PEs look artificially low). And guys like Leuthold have tested market timing results that way, which are good from what I have seen of some of Leuthold’s studies. You want to remove the earnings cycle as best you can. (Operating earnings are used for that reason as well, although the argument against using operating earnings holds more water…)
The question that we are trying to answer is forward looking not looking backward. So, analogies like “what my Batting Average would have been in High School if I excluded strike outs” or Tiger not having to take a penalty stroke for hitting one in the water don’t apply as well. If we are trying to assess Tiger as a golfer, we don’t extrapolate a horrible round. A better assessment would be to look at how Tiger has done on average.
May 18th, 2009 at 5:41 pm
mdod-
well said
May 18th, 2009 at 7:40 pm
mdod
Yes, but the problem with using some kind of normalized earnings (like PE10) at this point is that earnings over the last 10-20 years (especially the last 6 or so) have been pumped up and skewed by the increasing use of leverage in all parts of business. So how do we account for the shift to a much less leveraged world (and the transition to that; i.e. debt deflation) and figure out what earnings will be and how to value the market now?
Or as Dr. Hussman says: “the Market Climate for stocks remained characterized by mixed valuations – modestly overvalued on the basis of most fundamental measures except those that assume a sustained return to the record profit margins of 2007, and slightly undervalued if one assumes that a return to those profit margins is a given.”
This extreme uncertainty is undoubtedly contributing to the current market volatility. Nobody has a real clue how to value things now or what the future holds, so we chase up and down.