Markets: Today versus March 9 Lows
Rosie via Abelson:
“DAVE ROSENBERG IS AMONG the vanishing breed of die-hards (we confess, in case you haven’t guessed, to being another) who still cling to the notion that stocks’ explosive rise since March is perhaps the mother of all bear-market rallies, but nonetheless still a bear-market rally. The essence of his skepticism — which we happily second — is simply that the economy, contrary to Wall Street’s jubilant insistence, has yet to turn the corner.
He wonders, moreover, whether the March 6 lows in the stock market were the real McCoy. Although, in contrast to us, Dave persists in keeping an open mind, he’s doubtful that they were. On March 6, he recounts, the market was trading at two times book, with a 13 times multiple on forward earnings and a P/E of 18 on trailing earnings, and a 3% dividend yield. Pretty rich valuations by all three measures of earnings, but pretty skimpy on yield, to rate as a true market low.
And today, after a 45% rise, the metrics, to dip into the Street cliché, are positively mind-boggling. The dividend yield on the S&P 500, Dave notes, is a meager 2¾%, and payouts so far this year have lagged some 32% behind last year’s not-exactly-torrid pace.
In a like astounding vein, he observes, the trailing P/E on operating earnings (adjusted, he explains, “to take out everything that is bad”) is now at 24 times, while — and if you have a queasy stomach you can skip this number — on trailing reported earnings, the multiple is a mere 760-plus!
“Something tells us,” Dave sighs, “that the marginal buyer of equities today at that price may well be the same person who was loading up on real estate during the summer of ’06.”
Fascinating stuff . . .
>
Source:
The Great Beer Bash
ALAN ABELSON
Barron’s, August 3, 2009
http://online.barrons.com/article/SB124908131652898105.html
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August 1st, 2009 at 12:18 pm
Scary stuff. I guess the computers don’t look at numbers like that. Maybe there is no other place for the money to go and traders are getting desperate. One big fish in the pool to the downside could start a panic.
Great analogy about real estate. Westside of Los Angeles real estate is still on the roller coaster down and picking up speed.
http://www.westsideremeltdown.blogspot.com
August 1st, 2009 at 12:24 pm
I’m very much in Rosie’s camp with his perceptions…
I admit to “missing” the March 6 lows for one simple reason…
I knew we were getting close, but I was waiting for a “capitulation” or “cathartic” moment (such as the averages losing 5% in two straight days and dropping, say, to 600 or 580 or so, then bouncing right back on heavy volume…
Such a move happened in October (Oct 6th)…I was waiting to see those type characteristics…
Ironically, where the market stands now…The higher it goes, the MORE LIKELY we are to take out the 666 lows (not the other way around)…
and then there are the findamentals…oh those pesky fundamentals…
August 1st, 2009 at 12:43 pm
Well, as has often been spoken here, there’s no correspondence between reality and the market.
Welcome to the biggest casino on earth.
Fundamentals? HFT doesn’t care about fundamentals. To folks like GS, fundmentals are irrelevant. Bonuses are however quite relevant. Well yeah, they’ll do the stock analyst rosy groupspeak to draw the suckers in and then they’ll front run them while they pick them clean.
Great game. It’s that pesky little fractal turning point that has not shown up on the radar screen yet. And won’t. Kind of like the asteroid lurking out there in the dark.
OT: This is quite fascinating. While there are no unbiased healthcare commentators, when they quote from the House bill, that’s not biased. That’s real.
http://fredthompsonshow.com/premiumstream?dispid=320&headerDest=L3BnL2pzcC9tZWRpYS9mbGFzaHdlbGNvbWUuanNwP3BpZD03MzUxJnBsYXlsaXN0PXRydWUmY2hhcnR0eXBlPWNoYXJ0JmNoYXJ0SUQ9MzIwJnBsYXlsaXN0U2l6ZT01
August 1st, 2009 at 12:46 pm
This feels a lot like the bear market bounce in 1930. If you look at Doug Short’s “four big bears” chart and shift the current market bump to the left, it’s a bit of deja vu (http://www.dshort.com). As I recall, the 1929 crash took out the little investors but it was the bear market rally and cliff-drop in 1930 that took out the big guys.
Another interesting blog that tracks the 1930′s WSJ headlines day-for-day mapped to 2009 can be found at http://newsfrom1930.blogspot.com. It is eery how little folks back then could see what was coming. Lot’s of discussions of the 1930′s era equivalent of “green shoots”.
August 1st, 2009 at 12:49 pm
“Something tells us,” Dave sighs, “that the marginal buyer of equities today at that price may well be the same person who was loading up on real estate during the summer of ‘06.”
Let’s hope the MARGINAL BUYER is not buying ON MARGIN at this point…
August 1st, 2009 at 12:59 pm
I hope he’s right. I have 100 SDS [wooo!! big time!!] looking awfully forlorn. I’m buying another 100 monday.
August 1st, 2009 at 1:06 pm
There’s no correspondence between reality and the market. So say most posting here.
Fundamentals? HFT doesn’t care about fundamentals. To folks like GS, fundmentals are irrelevant. Bonuses are however quite relevant. Well yeah, they’ll do the stock analyst rosy groupspeak to draw the suckers in and then they’ll front run them while they pick them clean.
Great game. It’s that pesky little fractal turning point that has not shown up on the radar screen yet. And won’t. Kind of like the asteroid lurking out there in the dark.
OT: This is quite fascinating. Can’t say what it’s about because wordpress would eat it. But it’s a must hear. Biased or not, the House bill is being quoted.
http://fredthompsonshow.com/premiumstream?dispid=320&headerDest=L3BnL2pzcC9tZWRpYS9mbGFzaHdlbGNvbWUuanNwP3BpZD03MzUxJnBsYXlsaXN0PXRydWUmY2hhcnR0eXBlPWNoYXJ0JmNoYXJ0SUQ9MzIwJnBsYXlsaXN0U2l6ZT01
August 1st, 2009 at 1:09 pm
Barry:
Your statement: “Although, in contrast to us, Dave persists in keeping an open mind” is ambiguous as to what you think March was: the ulitmate or an intermediate low.
So, do you think there will be a lower low?
August 1st, 2009 at 1:10 pm
Barry,
Sorry, about misreading the ambiguity as being yours. Am in a rush. But I still would like to know whether you think the March low will hold.
August 1st, 2009 at 1:15 pm
I was taking a peek at a 3 yr weekly chart of SPX last night over a pint of IPA, and it dawned on me that the MACD histogram during the March lows was almost perfectly flat… not something I would expect to see at a multi year low… or is it?
Contrast it with the November lows, and its quite a glaring difference. Things definitely “Felt” darker and more ominous in March, but the MACD does not reflect this.
To me, thats an important distinction.
On the same chart look at where we are now… the MACD peaked in May, and here we are significantly higher… in price, but nothing but downward sloping bars on the histogram.
I’m the first to admit that the MACD has flaws… but such glaring divergences should not be ignored.
August 1st, 2009 at 1:15 pm
cvienne
Don’t be surprised if those margins buyers aren’t out there. If they lap up the kool aid of those like Brian Wesbury et al they see this as a can’t lose once in a lifetime opportunity.
I actually some some discussion in an internet forum (early-retirement.org) back in the beginning of the year about taking out HELOC money and buying as this just had to be a great time to buy. I’m sure that if anybody did that they got the crap scared out of them with the Feb-March dive and have sobered up. I haven’t lurked there for a long time now so I don’t know if that’s still being discussed.
But I wouldn’t doubt that others just might figure that the extreme bottom is in so there can’t be much downside from here. After all, that’s the “consensus” out there, now isn’t it?
August 1st, 2009 at 1:20 pm
Mike
That’s a bit of typically self-deprecating humor on the part of Abelson. He’s saying (joking) that he’s unambiguously close minded about his opinion that there are new lows to come, the way I read him.
August 1st, 2009 at 1:22 pm
alfred e
Fred Thompson, no thanks. He should stick to acting, IMO.
August 1st, 2009 at 1:23 pm
@ CV:
This ones for you:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1926808
(These are Ron and Maurice’s public charts, not mine)
Check out the 5th chart down, “60 minute S&P 500 Large Cap Index ($SPX)”… your triangle is on there loud and clear.
I see it now, as part of the overall broadening formation we got going on.
Chart 2 (Daily SPX with annotations) is pretty much my playbook for this week, fwiw.
August 1st, 2009 at 1:25 pm
I checked out the dshort.com page and found this link…
http://www.calculatedriskblog.com/2009/07/late-night-financial-advice.html
Pretty hilarious :-)
August 1st, 2009 at 1:28 pm
Indeed I think that the notion that valuations at the March bottoms are fitting of any kind of enduring bottom is ridiculous and those who make the case are just desperate. Who knows when it will come, but once again the market will grind us down to get to the kinds of true value that will launch another secular bull, or even a more long lived cyclical bull. This one has a very shaky base.
August 1st, 2009 at 1:28 pm
@onlooker: agree. Just some scary stuff to hear. But there is some truth to it.
August 1st, 2009 at 1:40 pm
@I-Man
Re: Ron and Maurice’s public charts
See I’m not out of my mind!…Or maybe I A as the case may be…
The reason I was able to make such a quick read on that formation was because I’d seen it in a stage of development a few days earlier…I even pointed it out on TB in a post which I referred to as Andy T’s “slide 9″ (so I give credit to Andy for putting me on that path)…
FYI – if you read further into yesterdays thread…It ended up to be the thread that wouldn’t die…I actually “changed” my new vector for that pattern…
So instead of Monday at 1:30 being a possible crescendo, it might be Tuesday 11:00AM…Unless, of course some other macro game changer interrupts the pattern…Anyway, my thoughts are there for you to see…
August 1st, 2009 at 1:43 pm
“Something tells us,” Dave sighs, “that the marginal buyer of equities today at that price may well be the same person who was loading up on real estate during the summer of ‘06.”
__________
That’s pretty much what I commented here, yesterday. Dude must read TBP.
When this bubble pops, the only thing left to break our fall will be the wholesale printing and distribution of fiat dollars.
August 1st, 2009 at 2:52 pm
This feels a lot like the bear market bounce in 1930. If you look at Doug Short’s “four big bears” chart and shift the current market bump to the left, it’s a bit of deja vu (http://www.dshort.com). As I recall, the 1929 crash took out the little investors but it was the bear market rally and cliff-drop in 1930 that took out the big guys.
I’ve stated it before, but I’ll reiterate that I think the 1929-1932 comparison is the wrong one both in terms of the market and overall trajectory of the economy. I think the more applicable comparison is the 1937-1942 time frame. If that is the case, then the Mar 666 low was indeed a major low except it will be retested in the years ahead, and LTBH returns will still suck for 5-10 years.
This makes sense to me in the context of the private sector/consumer deleveraging taking many years to work through, yet government policy/stimulus etc. preventing the sort of complete breakdown in GDP and spending that was seen from 30-32.
This outcome would frustrate the hell out of BOTH “buy and hold” longs AND shorts who are expecting 1300-1500 or 400-600 sometime in the next 3-5 years. Maybe just a giant trading range between 600-1200 for many, many, many years.
August 1st, 2009 at 3:45 pm
seems like we had this discussion two days ago….
“Wes Schott Says:
July 30th, 2009 at 4:10 pm
isn’t the Ned Davis Research conclusion obvious – just turn off your CNBC
…this is not the start of a secular bull, it is a cyclical bull rally in a secular bear market that started around 9 years ago
…stocks were never that cheap, perhaps fair valued at best
….people were scared at the 666 bottom, but most did not capitulate”
2 cents
August 1st, 2009 at 4:15 pm
Agreed Mike. It’s ridiculous hopeful optimism that this market is analogous to the ’32-’33 market. That’s just blind B.S.
August 1st, 2009 at 4:17 pm
Yes indeed Wes, but I think we’ll be covering this ground for a while due to the perma bull cheerleading that just wants to suck the unwitting masses into the grinder again and fleece them. They have to be answered, ad nauseum if necessary.
Besides, it’s what we do! :)
August 1st, 2009 at 4:33 pm
OT…i know, and i am part of we, too :-)
August 1st, 2009 at 4:43 pm
While I have utmost respect for Rosie’s analysis, I don’t want him managing my assets based on his predictions of where the market is going. Too often, the intermediate-term market trend is disconnected from its fundamental underpinnings. Like many excellent macro-analysts, he is right but too early to make money!
While I have doubted this rally is more than a bear market rally for its duration, the Thrust / Trend Model timing system has kept my model portfolio in a neutral or net-long allocation since mid to late March. As for picking the right stocks to outpeform, now that’s a different story. ;>)
To be consistently profitable, a successful investor needs a system that enables profits even when their predictions are wrong (too early)
August 1st, 2009 at 5:47 pm
@WaveCatcher
So let me get this straight…Despite horrible fundamentals…If each and every American simply got on board this “Thrust/Trend” model of yours, we’d all be sitting pretty…
At that point, profits would magically appear, growth would return, and jobs would be once again plentiful…
You ought to take your Thrust/Trend model to Capitol Hill…
August 1st, 2009 at 6:21 pm
@WaveCatcher
I should apologize by saying I didn’t mean to come off snarky like that…Well, maybe I did…
But the point is this…
It is abundantly clear that there are deep structural problems with the world economy…I simply don’t think that inflating an equity asset bubble is going to help that scenario…
- At worse it will exacerbate the structural problems in the end
- At best it will mask the problems for awhile longer, THEN, cause pain when everyone realizes we haven’t solved anything
So while nobody rejects your right to profit using any model you wish…MY wish is that everyone would cease to figure out REASONS to blow another bubble, and get to finding out where we REALLY are (as painful as that may be)…
From those ashes, we can mostly build a competent society…
August 1st, 2009 at 7:11 pm
Of course, it all depends on whether or not one believes in the economic stimulus approach. Barry and you other bears clearly don’t.
Not tangentially, I was registered as a Republican for 44 years. But I had to switch to Democrat when the Republicans suddenly reversed their positions 100% so that every word they now say is a lie (including the pronouns).
(1) Now they say they want “smaller and more limited government.” But when they were in power, they cheered as loudly as possible for the proposition that Bush could arrest any person anywhere at any time, throw her in jail without a trial, and fiendishly torture her for the rest of her life. That’s as unlimited as governmental power can get. That’s Joseph Stalin. That’s Mao tse Dung. That’s Pot Pol. That’s infinitely worse than Hitler.
(2)Republicans now say they love the Constitution. But see no 1. The Constitution in at least two places says no PERSON (nota been: the word the Founders used is “person,” not “citizen”) can be jailed without a trial. Anyone supporting Guantanamo now or ever wipes her ass with the Constitution daily.
(3) I could go on, but to the point of economics. Under Reagan and George II, the Republicans chanted in chorus “Deficits don’t matter!” “Deficits don’t matter!” “Deficits don’t matter!” “Deficits don’t matter!”
They called it “Supply side economics.”
The day Obama took the oath of the office, they suddenly all switched to being Herbert Hoover deficit Hawks. (Again, that’s a Stalinist-era example of everyone following the Party Line, word for word. )
Let’s take a deeper look at the Great Depression. During the 1930s, the Polish economists kept insisting that the Polish government balance it’s budget. Whenever revenues fell, they raised taxes and cut spending. Eventually, they got to the point where on average every family was starving to death on an income of twenty-five cents a week. Finally, Marshall Pilsudski overthrew the government Adan shot the economists, and the economy began to improve.
Meanwhile, Hitler got Germany out of the Depression by the end of the ’30s by building the autobahns on credit.
I suppose the point I am making is that I don’t know whom to believe. Is there anywhere a non-partisan honest economist? I.e., one who has been consistent in advocating policies based on the data, and not on policies, and who has done so since Reagan took office. Or, if a more recently-minted Ph.D., at least one that has been consistent since George II took office.
August 1st, 2009 at 7:42 pm
@Jan
This thread was devoid of political-speak until you brought it up…
Do you really want to go there?
August 1st, 2009 at 8:59 pm
People, there are new lows to come. We are at the eve of Archduke Franz Ferdinand’s assassination. OK, maybe a little much but just because you enjoyed a wonderful day today, do not think that it cannot change in a hurry. Please don’t fall for the old, ” things are different this time around.” Put another way…don’t let Obama, Giethner, and Bernanke blow too much smoke up your ass. We are in the EYE OF THE HURRICANE.
August 1st, 2009 at 9:39 pm
@Justin
Agreed here. Constantnormal replied to me in an earlier post today that he agrees too, but he sounded a little despondent at the insanity of the equity markets. I’m down about 12% over the last 5 months of a liquidity-fueled rally, but I am confident that I’ll be smiling at Christmas. Sadly, I don’t think this will be a happy Christmas for many, as our economy and joblessness will not improve. Stay the course, bears, stay the course.
August 1st, 2009 at 9:47 pm
@Justin-
you adopting a “cv” style? – EYE OF THE HURRICANE
i think it is as well
just joshin’ justin on the stylistic thing
sincerely,
Diogenes
August 2nd, 2009 at 12:45 am
Jan Rogozinski, great comment…
August 2nd, 2009 at 4:29 am
I am conflicted between thoughts of value and price. Clearly, on the value front, the price of stocks are high right now due to sluggish economic activity but with all that printed cash ambling down from on high at some point price (not value) will be affected. Will they be affected enough to overcome the deflation we have been seeing? Or will that cash be laser targeted enough to cause an effect in stocks moreso than the rest of the economy? I’m still waiting to get stopped out of mega safe corp. INTC that has no business running up 50% in six months. Their price does not reflect their value right now but will sales go up due to a cash flood in the near future justifying their price? If so it will be only in selected areas if you ask me which makes the trade (or trading in general) risky.
I’ll probably get stopped out this week. It has been sitting there grazing and just waiting for the bear to pounce since last earnings. I figure since China and India are still buying gold by the ton I can trade into a heavier position in that and if the flood of money does continue to enter the market many will convert it into the hard and shiny money
I see volatility ramping up heading into the fall as the bulls make their first attempt to take back full control of the market from the bears since the recovery bounce. I think the bears will slap them down pretty easy the first time as the first big bad (or series of big bad) news surprise(s) will cause an easy spooking. That flood of money is about to either run its course gobbled up by the machine or create some winners (as apple is proving). Another fact is that Obama has spent a lot of his political capital.
The fall should be more optimistic than the last couple but winter is going to be anybody’s guess as employment benefits start to wind down and boomers have to start taking permanent lower paying jobs that pay less than they were earning a year ago. This will weigh on the economy and build the anger which will feed into the economic mood of everybody. Of course, the media will have more equivalent YOY comparisons that will be a lot easier to spin but look out if even those disappoint to the downside.
On the optimistic side look at consumer credit and consumer savings and possibly prices. Those are the only green shoots I will be looking for. As long as those continue to be constructive then we might be able to amble forward. This bull wont be sprinting for a while yet and clearly the cockiness of past quick recoveries is all but gone
August 2nd, 2009 at 5:55 am
P.S. Gold appears to have found a benefactor. Either a (relative to the market) small coterie of people or few elephant investors that won’t let it be shamed and kicked down again until it is allowed to do its thing of catching on with the public as one of the last bubbles of the string of bubbles we have seen. For that reason I think gold and silver are very safe plays right now even if return is not that great for a while. Are they safe havens that can’t lose your money? I wouldn’t say that but I would call them safer than much of the investment scene out there. Probably safer than 50% to 75% of the investments right now for preserving capital. Above 75% I’d put the basic staples but I don’t think you’ll have the same potential you’d see in gold
August 2nd, 2009 at 10:36 am
I have a lot of respect for Rosenberg. The analysis he provides is spot on…for the American markets.
But what about the rest of the world? Jon Markman has interesting data about that:
http://articles.moneycentral.msn.com/Investing/SuperModels/the-recovery-puzzles-missing-piece.aspx?page=2
“U.S. companies are getting a huge boost from their international operations. Most North Americans don’t pay enough attention to this data, but a quick synopsis from ISI Group analysts from the past week can shed some light.
The improvements, in many cases due to government stimulus, make your eyes bug out: Global vehicle sales are up 21% in the past seven months; steel production is up 15%; China’s electricity production is up 14%; Korean GDP is up 9.7%; Japanese exports are up 20%; and Taiwan export orders are up 45% and industrial production is up 50% in the past five months. It’s not just Asia, either: French consumer spending is up 3.4% in the past four months; Canadian retail sales are up 2.5% in the past five months; the Brazilian unemployment rate has fallen to 7.9% from 8.6%; and the Mexican unemployment rate has fallen to 5.7% from 6.2%.”
First time I read such good data in a long time. Jon concludes:
“These countries’ companies are buying more Caterpillar (CAT, news, msgs) and Cisco equipment, organizing their sales databases with Oracle (ORCL, news, msgs) software and charging purchases on MasterCard (MA, news, msgs).
Last summer, I wrote a column headlined “Warning: Worldwide wipeout ahead.” Now the opposite seems likely, as the U.S. has an opportunity to follow the rest of the world out of recession.”
August 2nd, 2009 at 10:44 am
I was a persistent skeptic on the market rally, constantly looking for reason not to commit any capital at all to the market and indeed had very little in it. I started buying stocks around July 12th when I noted that COY, a junk bond fund, was breaking out after a long sideways consolidation. Junk bonds were a leading indicator in 2007, in fact they were the single indicator that got me incredibly bearish and skeptical even as the market rallied to a false breakout high in Nov, 2007. So, I have to sit up and take notice that junk bonds are leading the way higher, and some of the best charts in the market now are Eurpoean banks. I find it very hard for global markets to sell off in the face of strong financial charts, as they were what led us lower in 2007 and now it’s the mirror image.
I do also believe that this is a huge rally in the scope of a secular bear market. But, I don’t think we are close to the end of this rally and fully expect that the secular bear market won’t rear it’s head until perhaps a year from now. Goldman Sachs just raised their SP500 earnings estimates for 2010 to $75 eps from $58 in 2009. That justifies a 15-16 p/e ratio on 2010 earnings and that opens the door to 1050-1100. And, while the overall p/e ratio for the market may be high I find many stocks with extremely reasonable p/e ratios. IBM for one. Why does IBM sell at 11x 2010 estimates? A 30% discount to the SP500 multiple is completely unjustified. I can find many stocks selling at what I consider to be very reasonable valuations. I just refuse to buy the ones I think are bubble valuations like AMZN.
August 2nd, 2009 at 10:47 am
Here is a terrificarticle from Seeking Alpha on 7/21 that also gave me a great deal of confidence that this rally could have legs. It corroborated my feelings about the junk bond breakout, but also showed the strength in a lot of ancillary markets that serve as a proxy for global risk taking.
http://seekingalpha.com/article/150073-bulls-push-through-bears-lines-of-defense?source=email
August 3rd, 2009 at 1:10 am
Barry:
I quote from you’re pages…. “The market can be wrong a lot longer than you can stay solvent…” Or something to that effect….
Having said that, I must say that I agree with everything that was stated in the post…… However on a dollar weighted basis, the rally in equities, off of the March lows, is not that impressive, I preferred being short Treasuries and still believe that there is opportunity in that position. Worst case scenario, they stay unchanged as the dollar collapses. Best case scenario they tank and dollar tanks. Too much psycho babble in equities, too sentiment and impulse driven, too synthetic at the moment. Earnings don’t make sense, prices don’t make sense, Fed and Treasury don’t make sense.
Best regards,
Econolicious
August 3rd, 2009 at 9:34 am
[...] Fundamental Some thoughts from a bear: http://www.ritholtz.com/blog/2009/08/markets-today-versus-march-9-lows/ Monday morning thoughts from TraderFeed: [...]
August 3rd, 2009 at 10:18 pm
@ toddie.g
I wouldn’t go around quoting GS analysts. They were the ones hyping $200 oil last summer (while probably shorting oil) and all the analysts have been horribly wrong on earnings projections for the SP 500. Of course, with GS, they may be hyping the stock market so they can short it at the same time.