The Dow is at 10,600, the SPX is at 1150. The Russell 2000 has regained 2/3rds of its price drop.
Inquiring minds want to know: The start of something real, or a mere chep money, government induced binge?
Is the move ending or beginning? What and why do you think?
~~~
What say ye?
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof. —John Kenneth Galbraith
Retail Sales in Jan rose .4% headline m/o/m, .7% ex auto's, .6% ex auto's and gasoline and .7% at the core. The headline figure was less than expected while the rest were slightly better. But, with respect to non headline sales, because Dec figures were revised lower, taking the two months together were about in line with forecasts overall. Sales rose in electronics, building materials, food/beverages, clothing, sporting goods, dept stores and restaurant/bars and fell interestingly for online retailers, health/personal care, furniture and motor vehicle/parts. Bottom line, headline sales were below expectations due to the greater than expected fall m/o/m...
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March 11th, 2010 at 8:28 pm
The SP500 has been in a trading range now for months. A higher high can not be ruled out but I stand by my previous assertion on this topic that the higher we go the deeper the correction will be when it finally comes. The biggest risk factor IMOP is the property bubble in China. So yes this mere cheap money globally. A lot of it in China. We are much nearer the end of the rally than the beginning.
March 11th, 2010 at 8:31 pm
Obaaammyyy gimmmeeee cheeeese is the reason this market keeps goin up!
March 11th, 2010 at 8:35 pm
Among the first lessons I learned is never to be short a dull market, and despite these incremental gains, this market has been absolutely somnambulant. Would not be short here, but fully expect to be humbled and embarrassed yet again.
March 11th, 2010 at 8:35 pm
its going to take some kind of negitive surprise to change the market sentiment. its not going to stop just because of some line on a chart.
we should see some kind of pullback soon because we are up 10 days in a row. that does not happen often. that pullback will be a buy.
March 11th, 2010 at 8:39 pm
As a retail investor who sat out the entire crash and sadly the rebound (just could not get over the disconnect between the underlying economy and market, hope I live long enough to profit off the next one), I am still 85% “stable funds” and my 15% trading cash is leaning short. I am thinking a small 5% decline (1120 or 1111) which reverses and powers to the 1230 resistance on the S&P; only to crash back down to 950.
March 11th, 2010 at 8:40 pm
“Is the move ending or beginning? What and why do you think?”
YOU tell US…….I had no idea they would pull some of these reflation tricks. none. Had no idea that further massive DEBT was STILL an option.
The run up has been like watching another, prettier balloon being blown up to replace the last spectacular POP…it goes beyond a prudent size, beyond an impressive size, it gets to an anxiety producing size, you begin to instinctively back away….
Is it real? Up to and including the Kaboom yeah, it’s awfully real…..let’s do it again.
March 11th, 2010 at 8:45 pm
With Euro sovereign debt problematic, US real estate foreclosures still running apace (per RealtyTrac), and unemployment moribund, energy costs climbing, but with the same guys still running Wall Street, there’s no way but up.
March 11th, 2010 at 8:56 pm
Combination of Stimulous.. (and word is out in Media that the Major Portion of Stimulous bill was saved for Election 2010….so that’s going to hit out there this year. Obama/Geithner/Summers/Bernanke’s plan (so it seems) was to Save the Banks…thwart Re-regulation for as long as it took to get the Banks/Investment Whores like “GS” to get the economy juiced and THEN to put in the “Shovel Ready Projects” to kick up employment for the “Mid-Term Elections.”
Lots of Stimulous, a compliant (left over from Bush II) Financial and Mainstream Media where if Obama brought in all the Bush/Clinton folks he’d have coverage to get the economy “juiced” for 2010 while Democrats fight amongst themselves over who rules the party…the Left or the Right which leans Republican.
The fights are going on…at this point it seems the DLC (Rightward Republican Leaning Dems) might pull out a win…which means Wall Street will be very happy that “The Game is On Once Again!)
Problems: #1: “Public Option for Health Care Reform gets a vote and passes….allowing buy ins for 55 and older into Medicare.” (Not so much a problem for Big Pharma or the HC Stocks…but something down the road they might have problems with). Media might bring down the market on news of “Public Option Passing.” (probably unlikely)
Problem #2: Senate decides to get tough on Wall St. with more Regulation/Re-regulation than was counted on. That would depend on whether Chris Dodd decides to go out of office as a Democrat or he’s already got a job on Wall St. or in the Obama Administration and that’s why he has resigned from his Senate Seat. Where Dodd has landed a job will probably depend on how much Regulation/Re-regulation he is going to “ram through the Senate…without Republican votes.” (He declared today he’s going for broke without the Republicans)
The “Green Shoots” have been banished from “CNBC SPEAK”….so instead Kudlow & Co. Rave and they bring in their Upbeat Forcasters…on and on.
Savvy Investors and those who got Burned in their 401-K’s and IRA’s are not as easy a “MARKS” as they were before the implosion. Even those of us in very safe value funds were burned and we are barely back to where we were before the crash even with this big market run up. We don’t trust anybody…and those of us who are older have pulled funds out and gone into Treasuries or Bonds. We know that there are folks waiting to get our money…but some of us have paid off our mortgage and didn’t run up credit and we will wait them out. That’s the older boomers who were PRUDENT. This may be a very small segment of the population…but those who have the “CASH” will be much pursued in the coming years….one would think.
So…do we go higher or lower. WHO THE HELL CAN PICK? It’s so bizarre waiting for Regulation/No Regulation/Health Care Reform/No Health Care Reform. It’s all in flux.
SAFE….Safe… But, if you pressed me I’d say the Bulls and Traders are hoping for UP and the Bears and Traders are figuring this whole thing is going to IMPLODE sooner rather than later.
SAFETY…..Is where I think your Retail Folks might be … and the Managers must be hearing that from those who still have cash parked making almost no return. Things are just too uncertain. If you have cash…you can wait…
March 11th, 2010 at 9:02 pm
I am largely with Invictus – trend remains positive, at least for now. But, the intermediate term is stretched and momentum remains strong suggesting that skepticism has been overcome by optimism, which should be reason for concern about the continued health of the rally. The small caps have been leading the way and the large caps need to catch up a bit. Until the Dow closes a day above the January high, and then trades up from there, how much higher remains questionable. If the Dow continues then the S&P could see something in the 1270 -1320 range.
One pattern that has emerged during the rally has been a pullback to trend support (that next higher low) as we head into earnings season, and then resuming the uptrend from there as earnings reports come out. Sometime in the next week or two the start of a pullback within the intermediate term should be expected. How far that goes, how that affects sentiment, earnings reports versus expectations and the ever present bond market will determine what follows. The key for any pullback will be weekly trend support, which currently is in the range of 1055-1069 for the S&P 500, but still running up.
March 11th, 2010 at 9:04 pm
vaughn Says:
March 11th, 2010 at 8:40 pm
“Is the move ending or beginning? What and why do you think?”
YOU tell US…….I had no idea they would pull some of these reflation tricks. none. Had no idea that further massive DEBT was STILL an option.
The run up has been like watching another, prettier balloon being blown up to replace the last spectacular POP…it goes beyond a prudent size, beyond an impressive size, it gets to an anxiety producing size, you begin to instinctively back away….
Is it real? Up to and including the Kaboom yeah, it’s awfully real…..let’s do it again.
———
Well said…and much shorter than my Screed. “Let’s Do It Again” is the Worry! Couldn’t agree with you more…”The Prettier Baloon.”
March 11th, 2010 at 9:08 pm
Forget swans, I am waiting for a black penguin event in the markets.
http://green.yahoo.com/blog/guest_bloggers/24/all-black-penguin-discovered.html
March 11th, 2010 at 9:13 pm
This is how things are going to play out tomorrow. Barry- take out your notepad and start jotting down the following freebies because the next time I write my pearls of wisdom on this site you and your readers will be a lot richer for heeding my advice. We are going to have a gap up which will be sold aggressively. I plan to sell all my C that I bought earlier this week at 3.60 pre market at 4.22.
I will than load up on the twm and sds and add to those into the close as the market tanks and word
gets out that this rally has reached resistance and needs a ‘rest’. Next week as the S+P spirals towards 1100
the ‘rest’ will be reclassified as a double top and as AAPL peaks around 127 near the release of the IPAD the nasdaq will come under severe pressure. Throw in talk of muni defaults, pension underfunding and riots in Greece will unnerve this market and give it a real excuse to retest the 1050 by the end of March.
So Barry – pull up your boot straps and be careful to not make any fat fingered mistakes because it is
almost lunch time and the only thing on the menu is a shit sandwhich and everyone must take a bite.
March 11th, 2010 at 9:16 pm
When in doubt higher. The bear case is well known.
March 11th, 2010 at 9:25 pm
The problem with unprecedented amounts of money, at unprecedented near-zero rates, is that there is no historical framework to allow estimation of just how buoyant the market really is.
No way to tell.
We might see a sell-off on any given day, or no sell-off for quite some time … but I do think that this buoyant monetary environment will keep any sell-off on the mild side … unless a Black Swan spooks the herd.
Then all bets are off. But Black Swans, by definition, come when they are least expected. Wouldn’t be a surprise otherwise.
March 11th, 2010 at 9:27 pm
One more thing….
No WAY in demographic hell we can grow our way out of this DEBT that TPTB have taken on.
I have to think that default is foreseen down the road to 3rd world status.
Picture a fat man cliff-diving, puffing up his cheeks on the way down to slow his descent.
Waiting down below with forks and knives? Fat cat cannibals.
March 11th, 2010 at 9:34 pm
Addendum (got distracted by kids as I was typing the previous post) keep one eye on China (use FXI) . If it continues in its downward trend from the 11/06/09 high it could be foretelling of next US market move.
March 11th, 2010 at 9:44 pm
Shanghai has become a useful leading indicator, for entirely reasonable reasons. The index is now “Only” up 45% from its lows, compared to 70-110% for other markets.
Expect China to raise short rates within the next few weeks. That will, IMHO, trigger a global correction and will create interesting buying opportunities again.
March 11th, 2010 at 9:57 pm
I see just a teeny-weeny bit of opportunity for an upside trend, but a whole lot of downside risk. I”m not sure what specific event will cause the rest of this credit bubble to “deflate” (or when this might happen), but there are many possible pins out there that have the potential to very suddenly “pop” this recovery. And not just stocks, but bonds and (I suspect) commodities will all come ‘tumbling down.
Please remain in your seats with your seat belt on. Once the vehicle comes to a complete stop, you may run like hell for the door….good luck with that one.
March 11th, 2010 at 10:06 pm
Gather round the stimulus fire and warm your hands. Whats for dinner? Cooked books and and new GM in every pot.
Is the market going up or down? Remind me now, is down up or is up down in this rabbit hole? Im through the looking glass . Can anyone make a list what aint broke?
March 11th, 2010 at 10:20 pm
You much more learned gentlemen are perhaps too cognizant of the all too real risks and not as mindful of the animal spirits aspect of markets to tend much further toward extremes than is warranted. In the absence of a black swan (which, as “ConstantNormal” pointed out, are exceedingly rare) we will trend higher for an excruciatingly long and nerve-wracking period in which every last johnny-come-lately dips his toe back into the markets to avoid missing the ‘rally” and the smarter money avoids selling too soon.
The sell-off, when it belatedly & finally does come, will definitively separate the men from the boys in terms of risk mitigation and somewhat re-establish the value of professional asset allocation theory.
Or, we might all be dead by then. One of the two, take your pick.
N
March 11th, 2010 at 10:46 pm
SPX will reach 1275 by February 2011.
As for the next few weeks, the SPX can grind higher, but corrections on the order of 2-3% will begin soon.
The next 7%+ correction is at least a few weeks away.
March 11th, 2010 at 10:57 pm
So:
- earnings drive stock prices
- Lehman/AIG failures caused economic and credit crisis which drove precipitious drop in EPS
- EPS on SPX bottomed in Q4 2008 at $0/q, and Q1 2009 at $10/q
- these numbers overstated the problem (and associated PEs) as singular bank “mtm” losses hid many good values on companies that have never had a losing q (MSFT, PG, AAPL, MCD, PFE, etc)
Overall, this made the recovery trade easy.
- since Q1 2009, EPS have beat for 4 straight Qs
- in early 2009 EPS estimate for SPX were for $40-45/shr. Final numbers were $58-59/shr, almost 40% higher. this drove the recovery.
- current estimates are for $80/shr for 2010 and $100/shr for 2011.
- both these numbers remain more likely to get beat, guidance is conservative, underlying economy is in recovery yet this is not priced-in do to investor wariness and fear.
Given long-term average PE of 16.5x and low interest rates and recovery part of the cycle. It seems natural that there is still some reasonable upside to todays market. Generally, 1400 YE 2010 and 1600+ YE 2011 are not at all ambitious or “over-shot” targets. Of course, there is event risk — rates, deflation, meteors, GPR. But in the absence of a crisis event and with stronger recovery or some positive economic spike (fusion, genomics, solar, fuel-cels, Chinese middle class starts consuming, etc) those targets can get blown through.
Business cycle, fed, steep curve, M&A deal flow, all suggests were at year 1 of a natural 3-to-5 year growth period.
Q1 will grow trailing 12-m (TTM) EPS from $10 in 2009 to $18 in 2010. Or about $8/shr on TTM. Given a 18x multiple… this pushes stocks 100-150 points higher and TTM eps to 66, fair stocks to 1250+.
It seems natural that we move from a 10-yr period of flat to negative returns, back to a “buy-on-dips” market. No one wants to believe thats what it is… 5-15-25-yrs from year it will culminate in another stock bubble.
March 11th, 2010 at 11:05 pm
“I see just a teeny-weeny bit of opportunity for an upside trend, but a whole lot of downside risk.”
I basically agree with this. If the market has rallied this far given all the headwinds, it’s really hard to see what could smack it back down in any enduring fashion (i.e. a new bear trend) in the short term. Whats been especially remarkable about the past two weeks isn’t just how far and straight we’ve rallied, but that there’s been essentially no intraday selling of the indices whatsoever. We see small gaps down, intraday pullbacks of a few points (sometimes) and saw some profit taking off the extreme highs, but nothing in the way of active, initiated selling. The bears really are dead.
At the same time I think the risk of a 1987-style crash outta nowhere is extremely high by historical standards (though still quite unlikely in an absolute sense), and the upside is relatively limited, at least for the rest of the year. I’m also just not convinced that buying the market at these PEs is a good play for the longer term. Best trading strategy right now is probably to buy dips with a tight stop (for trading, not investment), and maybe pair that with some long volatility positions – either long VIX and plan to average down, or buy some deep OTM puts. But whatever you do, don’t short the market…. lol.
March 11th, 2010 at 11:08 pm
We’re just getting started.
March 11th, 2010 at 11:14 pm
I say higher with the odd frightening interlude, 15 to 20% up over the next few months. Just too many people calling for a big sell off and lets hope they are risking their money with big short positions. Will be fun to watch the averages soar as they try and cover.
March 11th, 2010 at 11:23 pm
@budhabar
Large market cycles tend to be about 18 years not 10? This would suggest hibernation until 2018 might be a good idea?
March 11th, 2010 at 11:27 pm
Props to NolansDad for being so specific!
>> or a mere cheap money, government induced binge?
A cheap money, government-induced binge? Yes. “Mere”? No. It’s been a binge of epic proportions.
Not just TARP. All the CASH given in exchange for trash (via the Fed’s alphabet soup programs and F*cky/Fraudy) had to go somewhere.
>> Is the move ending or beginning?
In this capricious system, rogue waves can take us anywhere. Sorry, once again, my response is “I don’t know”.
March 11th, 2010 at 11:29 pm
I received a donation request from the DNC. I wrote “you lost me”, gave “$0″, and scribbled in “…on behalf of all renters and other financial conservatives you’re screwing over”.
March 11th, 2010 at 11:31 pm
Sorry, that last post was off-topic and might hijack the thread. Please remove.
March 11th, 2010 at 11:43 pm
I see the market moving up over the next few months but when the market start to look at revenue growth instead of Greece then the market will continue to move higher because revenue has fallen over the last two years and it will look like revenue is growing because we are slowing moving away from the bottom.
The market is on pins and needles and it is running sideways. If someone was to light a firecracker behind the market’s back and when it popped the market would drive for cover. After all the market is coming off a twenty year drunk and has found out that it can’t function on its own. Pour Mr. Market just doesn’t know what to do and how to be operate. Uncle Sam step in too help Mr. Market. You see Uncle Sam is the strongest and most powerful uncle in the world. But Mr. Market has taken that aid from Uncle Sam and invested it in China and China grew and grew but now China knows that it’s growth is not in it’s best interest. China has said we need to slow down and is now taking the steps to do so. And as China starts to contract so will Mr. Market.
March 11th, 2010 at 11:46 pm
Denial has been giving way to acceptance, begrudgingly. Average folks log onto their retirement accounts or open their statements and psychologically they feel they can come out of their foxholes. This has been evident to me since about December. Transient though it may be, for now people feel the coast is clear. Except for a few cohorts.
One in particular: Those that bought the dips on the way down from Oct 07 and who were finally “converted” at or near the bottom to the bearish case (thus disbelieving the rally since then or shorting it). They have really gotten the sharp stick in the eye up to this point. The market has run over them in both directions.
Will we see 800 or 700 on the S&P again? Perhaps, however what if it is in 2012 or 2014?
March 11th, 2010 at 11:52 pm
In a predator prey model (roughly) if the prey population is pressed too hard then the predator population crashes until the prey population recovers. Rinse, repeat.
When demand for oil by real economy industries presses up against the maximum oil production then the price increases that result cause damage to the real economy oil consumers until demand is reduced. Prices come down as demand – from a now smaller industrial economy – is reduced.
This is what I believe happened with the run up to $147 oil, the recession, and the decline in oil prices. If the recovery overshoots sustainable demand for oil we will fall back into recession. Rinse, repeat.
Bernanke can create money to throw from helicopters but, he can’t create oil to buy with that money. He’s stuck with an oil supply driven contraction of the real economy – deflation – and so are we.
March 11th, 2010 at 11:54 pm
We’re going to V our way right out of this. Before you know it , it’ll all just be some bad dream.
Our crisis was one of confidence. TARP was completely overblown. Everybody got a little antsy.
What you saw was basically a crying out from the Financial institutions that they were not comfortable with the sort of risk exposure they had on their books, and what millions of americans did contrary to what people who want to make money off the short side, was they recapitalized the banks right in the face of great economic uncertainty.
Sure there’s going to be somewhat of a disconnect going forward between clients and their former financial partners.
But the entire “TARP” issue , although it makes for great headlines and takes up a lot of media space, from a financial standpoint it’s basically a non issue.
March 11th, 2010 at 11:59 pm
As soon as Larry Kudlow has ‘Goldilocks’ skipping across his screen – SELL!
March 12th, 2010 at 12:08 am
I don’t know any technical metric, except cognos’s fantasied ones, based on which the stock market isn’t overpriced. Fundamentals don’t look so good either. Economic data, which had been fueled by unprecedented stimulus all over the world, which prevented an even greater economic collapse, have deteriorated again recently, although the information isn’t sufficient yet to draw a conclusion with high certainty yet. That is, it’s similar to last year about this time, but reversed. Now we start to see anti-green shoots. If private credit continues to contract and and it’s not further counteracted by expanding government credit there is a good chance that the economy falls back into the recession, particularly if wages and salaries growth stagnates (they continued to decrease in Q4 2009, despite 5.9% GDP growth). Housing data as leading indicator of the economy have already started to go in this direction.
Therefore, the stock market is going to continue to rally. There is much room to the upside.
rc
March 12th, 2010 at 12:12 am
fantasized.
March 12th, 2010 at 12:47 am
From the other thread, which might have been Barry’s motivation to open this Open Thread.
http://www.ritholtz.com/blog/2010/03/aaii-asset-allocation-survey/
There, following scenario was outlined by Kevin Lane with FusionIQ as being likely:
“What may be a likely scenario is as follows: the market continues to move up and investors, even the non believers, become triggered to chase stocks, putting their last bit of buying power into the market.”
Now, I wonder. Does this “likely” scenario include Barry and FusionIQ? Or is this supposed to be valid, except for Barry and FusionIQ? If latter, the statement invalidates itself. If former, then don’t expect to find the right exit point, when the rally is over, based on Barry’s analysis.
rc
March 12th, 2010 at 1:15 am
Watch “petrodollar” oil price moves. Over the last 2 years, the SP500 rally seems to somewhat be following the oil price rally. The SP500 is out-of-phase with oil (about 4-6 weeks later).
If there is a big rally in oil price, watch for SP500 rally. Conversely, if there is a fall in the oil price …
March 12th, 2010 at 1:18 am
constantnormal is spot on: Expect the unexpected. What is unexpected? (1) Negative effects from continuing–not reducing–”easy money.” The Lost Decade will turn out not to be just something that didn’t work out for Japanese QE. Our leaders flatter themselves when they think that they know what they are doing. (2) Geopolitical expectations do not include reversal of the current US triumphalism in re Iraq, Afghanistan, and Colombia. Nor is Iran supposed to be able to counter US/Israeli coercion. Nor is China expected to display simultaneous political and economic incompetence. –Expect a reversal somewhere here, and expect the price of oil to be involved.
March 12th, 2010 at 1:23 am
In the short term – no one knows.
In the longer term – down, down, down.
March 12th, 2010 at 1:36 am
I was just wondering the last couple days:
Will GS and GOOG be co-rulers of the world or will they finally duke it out once they have vanquished all others? I’m guessing that, due to their very natures, they will end up duking it out though they might start out as co-rulers
I’m not sure if that is meant to be funny
BTW I’m not saying they don’t rule now. Hold your gangland executions. I’m looking at the time when they finally admit it and have their little emperor crowns made up with the ceremony and all
March 12th, 2010 at 5:13 am
Keep an eye on Janet Yellin’s skirts. Yet another AIPAC-induced appointment by Rahm Emmanuel.
If they lengthen, expect a sideways move, boring. If she decides to cut off a few inches look for a move to 11,000 ++by year end and concomitant parallel moves in the commodities markets, which would signal higher inflation.
Whatever the move, the once in a generation or even lifetime move since March of last year will not be repeated.
March 12th, 2010 at 6:39 am
a review of differing realities
a. cognos has been spot on, now some stuff he says i don’t understand and some of numbers i disagree with on a logical, growth in sales leads to growth in earnings, and there’s that pesky cost thing, yet, if fund managers believe it and must stay invested, well, they have facts to give to superiors to support staying and being long and not selling
his camp bought the bottom and right no there is no reason too sell anything you bought, none at all, one would assume most bought for 3-5 years with a target so sooner the better for them
b. masses, it’s senseless and reminiscent of nazz bubble, u think second time around u will be smarter, people around u are pinched, majority of states are screwed, massively in the red borrowing to pay unemployment they were suppose to have saved, i guess illinois, cally and jersey and new york are start realities………………government subsidized everything all the time…………which doesn’t seem correct…..
u have freinds going on past 1 yr unemployed from high paying jobs who can’t even get interviews……..so essentially your trust is pretty nill, and it grows in not trusting yourself as u see more things that don’t make sense
c. from the grandstands the tape is a powerfull one, m and a action is good and no stupid buys all fairly priced and strategic……….you go hmmmm, okay, they can get money and think it’s good
d. in brainstorming u go where will sales come from and u think cap investment put off for 2 years, that’s fairly logical, yet, for every pro like this u get a con like lehman disclosures, not that u don’t believe it happened, that u can’t believe the incompetence from government
e. what u would like too see is commodities go down pretty good and the numbers would be okay, and then u get a correction to 1050, and u can justify some buys, yet, that doesn’t look like it will happen, lol
f. and u try and understand, it makes me think of early music software in the 90′s that sucked, that now is perfected, and u think hmmmmmmmmmm, have they finally gotten the algo’s so perfected to play symponies with the markets such that it’s someone like a recording studio where all they do is move levels up and down always having control of how loud the drums will be, bass, amount of reverb etc…….and u think, yup, that is one it FEELS like to me
g. or is this an inflation boom tape that hasnt’t been seen in 30 years
in conclusion u scratch ur head and say who the hell knows, it is obviously not me, so u tread water, and thankfull u haven’t been drowned and wiat for a boat u trust……….lions and tigers and bears, are now somali pirates, the government is here to help u and come on board and le’ts party like it’s 1999…..all while getting that gut feeling of i’m the pricess and the pea, oh me oh my
from the grandstands it’s a wonderfull show, that’s foh suh
March 12th, 2010 at 7:46 am
The easy money has been made on this rally. We’ll likely continue to melt up due to algorithmic trading programs pushing us higher on low volume and rosy investor psychology. Once the reality that there is no recovery sets in and growth etc is revised downwards you’ll see everyone move to the exits. The speed of the move could be expedited by a number of things: sovereign defaults, Iran war etc.
March 12th, 2010 at 9:51 am
market will drift higher as the key economic indicators move in similar fashion, but what will cut the legs out from this market is the continued pressure the consumer is under. pay close attention to private debt trends. the consumer is not going to go on a deficit fueled binge like the government just did. they don’t have an Uncle Fed playing tricks or lenders who will even give them the cash based on their balance sheets. i predict we start to see exhaustion as we get closer to late summer. the fatigue of green shoot and getting off the mat talk with set in and we’ll see a healthy correction down. the consumer drives 70% of the economy. the government can’t put enough cash directly into their hands fast enough to stop the millstone around the neck of the consumer from sinking him. traders do your thing but long term investors you might want to sit on the sidelines for a bit.
March 12th, 2010 at 9:55 am
My own IRA, as small as it may be, is still only 35% in equities, and I’m 34 years old. I work in the industry still, and just don’t feel comfortable when I hear the sunshine getting pumped into the room. I wonder how comfortable people are with me, sometimes, when I talk markets with them. I try not to pump sunshine, but I don’t want to leave them with a feeling that all is lost. I want clients and others to believe they can invest and preserve their equity, and maybe even eek out a little gain, but I am quick to point out that buy and hold simply is not a one-size fits all proposition, as we’ve been coached by the retirement industry.
I am a skeptic. I will likely never be more than 60% equities in my remaining lifetime. I have missed a lot of this rally because I don’t believe in it, and I can’t be sure when it’s going to come crumbling down again. If I were a better trader, I would have BOUGHT, BOUGHT, BOUGHT in March 09. However, getting one’s pink slip in early May, the spouse receiving theirs 3 months later, and having a newborn makes one a bit more conservative. Anyone care to agree or disagree?
March 12th, 2010 at 10:48 am
Personally, I lean towards the latter…and here’s why:
- Government $$: I think it’s under-reported, but the Government money has had a bigger impact on asset prices (perhaps the idea was to recreate a wealth effect!) than the real economy. Most obviously, the FED’s purchase of $1.25trn MBS — they buy it from banks/asset mgmt cos/hedge funds/etc who then go out and buy different assets with the money; i.e. the money keeps circling around (multiplying?) within asset markets, with only corollary impacts in the real economy. Hence, the various divergences between the way Wall Street views the recovery and everywhere else. As the supply of new money (FED buying) stops, it becomes increasingly harder to maintain these divergences. Simply put, I don’t think this expansion of the monetary base results in inflation, unless a genuine wealth effect can be created (and with equities still down from 07, and housing down, I don’t think that’s happening), and so we merely get higher asset prices until they correct.
- CRE: Yes, everyone knows about, but everyone knew about RRE in 2007…and that didn’t stop the banks blowing themselves up.
- RRE: The second wave is coming (Option Arm Recasts, starting now…) and Prime defaults will be higher than historical (due to lower DTI standards introduced in 2003).
- Sovereign Risk: Greece is the tip of the iceberg…
- China: I think it’s a bubble…inflation is the thing that causes them their issues. With China being both the major and marginal buyer of commodities, I don’t see the risk-reward in being long commodities now. e.g. copper: look at any long-term chart of copper prices and copper inventories, and you see a negative correlation that’s reasonably stable. Now look at the last 6month…yet every analyst i read thinks copper prices stay the same/go-up in the future? They may do, but there seems to be no consideration of what would happen if they don’t.
With regards to China, floating the yuan is the sign for me that it’s close to blowing-up (since if I were them, it would be my last resort — an attempt to transfer risk from Chinese holders to foreigners). Listening to calls this E-season, China’s also the source of every mining/machinery/etc company’s positive future projections.
- Trade/Protectionism: Go back to the Great Depression, and look what happened to Global Trade (the Kindleberger spiral shows it’s really well!). There are signs already of increased protectionism, as unemployment continues..there’ll be more…after all everyone wants to fall
- Valuation: Equities have been systematically overpriced (on a PE10 basis), imho, for the last 10-15years! They’re expensive now, they will be more expensive even if S&P500 generates $75 this year and the S&P is flat…and given how back-end loaded estimates are, at what point does it become “Show Me” on earnings.
- Risk Aversion/Same Trade: Anecdotal, so feel free to ignore, but from speaking with people everyone seems to have the same trade on – L Risk, S Risk Aversion. Think of all the S Treasury Trades you hear about and Long Commodities (to take the 2 flavors de jour)…that’s the same trade, just expressed differently. Imho, there are too many people who have something similar in their book and think that they are hedged.
To take another example; the Wisconsin Board of Investments approved leveraging their investments in order to make their 8% targets. Now! When corporate bonds, junk bonds, equities, commodities, etc have all rallied! That smacks of reaching for yield, and ignoring the downside…
Take a look at the Harvard Endowment Allocation; it’s exceptionally overweight risk assets.
- Deleveraging: Bank’s aren’t lending, but it’s as much because there’s limited demand! Sadly, I think it’s a secular thing…the choice is take the bullet now (and declare our banks insolvent) or spread it out over 10-20years (and do a Japan).
I’m not saying that the S&P will trade down to <650 (though I think it's within the realms of realistic possibility), more that there's substantial risk that's not priced into this market…
March 12th, 2010 at 10:49 am
Oh, and I’d add that the leading indices (ECRI and ADS, which isn’t strictly leading but I find useful to think of as such) appear to be topping out/rolling over.
March 12th, 2010 at 11:51 am
1150-1200 SPX is the Maginot line for the market. If and when the market breaks out over 1150, shorts will be rocket fuel for the market, and there will be new positions initiated if and when the market breaks out and stays over 1150. At the same time others will initiate new shorts in that area and profit taking as well. The blogs are dripping with pessimism created by the terrible economic conditions and global uncertainty.
We have now reached a point where time and price are converging. A predictable outcome might be a giant trading range market that might last for months, or years. (1966-1982 DJIA?) Stocks don’t grow to the sky but they also climb a wall of worry. The 1982 bull market came out of the some of the worst economic conditions since the Great Depression.
March 12th, 2010 at 12:39 pm
Dss — agree with most of that, however, the 1982 Bull Market also climbed from a CAPE of <8 (vs 20-21 now).
It's an underappreciated fact that the bull market of 1982-2000 while benefiting from improved Earnings (CAPE/PE10-wise, Real Earnings went from 36.36 – 42, and in nominal terms from 10.50 to 29.40) was also largely driven by the collapse of Equity Yields (from 13.5% to 2.3%, i.e. PEs expanding 7.5x from to 44x).
While this could be a start of new bull market, it's one that's got to rely predominantly on Earnings growth given the current multiples.
March 12th, 2010 at 1:11 pm
One of the major pieces that causes people to MISS on market / valuations is that “index PEs” often mask what going on under the surface.
For example, 1-yr ago lots of the “value” guys were saying that PEs were >100x and that stocks should go down to 600 SPX or even 500 or even 400. Today were back at 1150. Stock have paid $25 in divs last year, look set to do the same, earnings and cash-flow are even better and cash on bal sht is all time highs.
What did those guys miss? (bc the recovery is just beginning, so its not like they missed that badly on the economy)
The answer is clear and simple. AIG had a huge loss. Other financials had large lumpy losses in Q4 2008 and Q1 2009. This took SPX earnings to $0/q at the bottom. But wait… just because AIG has a big loss, that doesnt really affect the value of MSFT, PG, MCD, KO… right? If we have some 10% of the companies posting large negative earnings. The other 90% of the index should still be valued on a 15-20x PE basis… right? So in theory, we can go about this in a bottoms up way… where was say, lets value each company at 15x PE. And then for companies with losses… we determine some call-option upside value to the equity (it cant be negative, right?).
The basic conclusion this drives us to… is that IF the “index PE” is 18. The PE on the main stable positive companies is probably less than 15. We can spot check this by looking at the largest companies — HPQ 11x, PG 15x, XOM 11x, PFE 8x, MSFT 15x (12.5x net of excess cash).
An interesting indicator for this analysis is the “EPS positive” metric for an index. Which on the SPX is $70+ for the last 12 months. That indicator and its associated P/E should be both more stable and economically logical over time. I dont see a history chart of that.
March 12th, 2010 at 2:08 pm
cognos,
No, since the S&P500 index value is derived from the prices of both the winner and loser stocks in it, the earnings of both the winners and losers need to be considered in the P/E ratio as well. You want to include the winners and losers in the numerator, but only the winners in the denominator. THIS doesn’t make sense.
Investors lose real money with the losers like AIG. A lot. (Not even speaking about the fake operating earnings, on which your talk is always based, which don’t measure what investors get out of the companies as real cash flow).
If you only want to measure the winners to make yourself feel good, create a subset of the index that include only those.
And the fact that the S&P500 is at 1150, but not at 600, currently, doesn’t mean that something has been missed necessarily, except for how far short sighted speculation and riding on the momentum can drive away the stock market from the long-term fundamentals. In the long-term, fundamentals will prevail nevertheless. I am optimistic that S&P500 P/E ratios (based on 10 year normalized earnings) will go to single digit values first and the dividend yield will go much higher, before this secular bear market ends. It always has. Why should it be different this time?
rc
March 12th, 2010 at 2:27 pm
rc –
I dont disagree. I dont want to “only measure the winners”. Sorry if you got that impression.
BUT the losers cannot have negative value. I.e. if my “winners” are worth 1,000/shr on SPX. The “losers” and isolated giant bankruptcies… DO NOT cause the SPX to be worth 800.
This IS the mistake. The “equity” shares in any single company cannot be worth <$0.01/shr. Since some companies are going to have some large negative… this will necessarily result in an index PE that is higher than "fair" versus a single stock PE. (For example, 18x on index represents 12-15x on stable positive stocks).
See that?
March 12th, 2010 at 2:30 pm
Now IF every company, sector, industry was having recurring, periodic, large losses… then it would be fair to average these into valuation. BUT that is not AT ALL the case. The good large companies and winners have zero losing Qs (MSFT, HPQ, PG, MCD, KO, GOOG, AAPL, etc, etc, etc). In fact, these companies often have 2x, 3x even 10x growth in EPS going forward.
Again, if we fair value those strong companies (and our estimate is good).
Then the index must be worth AT LEAST this much. Every isolated troubled company share must have a positive value.
March 12th, 2010 at 2:46 pm
s&P .vix is on a slight bounce since march 7th and on a friday? ….while index is up only 10 points over the period and unchanged today???
March 12th, 2010 at 3:49 pm
cognos,
“This IS the mistake. The “equity” shares in any single company cannot be worth <$0.01/shr. Since some companies are going to have some large negative… this will necessarily result in an index PE that is higher than "fair" versus a single stock PE. (For example, 18x on index represents 12-15x on stable positive stocks)."
But the S&P500 is not supposed to measure only the "stable positive stocks". Of course, there is a subset of stocks whose P/E ratio is lower than the P/E ratio calculated from the market value and earnings of all the constituents of the index. However, you can't validly compare the P/E-ratio of the subset to the historical mean of the P/E-ratio calculated from all constituents to conclude that the market wasn't overpriced. But this is what you want to do, isn't it? If you want to make a statement about the subset, whether it is overpriced compared to the historical mean value, you would have to know the historical mean for the subset of "stable positive stocks" first instead, which you don't.
Or I don't understand what your argument is.
rc
March 12th, 2010 at 4:32 pm
RC -
Well so the variability of the “positive EPS” PE and the traditional aggregate PE is going to be VERY DIFFERENT at different times. That is exactly the point.
So, in 2004-07 and 1-yr from today. These will be the mainly same. Some minor consistent bias downward… maybe call it 1 pt on the ratio. 16>>15 or 18>>17. Maybe its 2 pts.
But after Q1 2009, TTM traditional E looked like $40. So P/E looked like “20″ at 800 on SPX. Maybe worse if you included all the non-cash goodwill writedowns.
BUT if you had used the “positive EPS” PE you would’ve had positive EPS of $70. One would’ve seen the SPX as a huge screaming buy at 700… at 10x PE. Perhaps in prior dramatic recessions (like 1980s) the divergence was not as pronounced because it was a not an “sector focused” or “isolated company focused” crisis. This would further add to the usefulness of the metric… of a more stable, “positive EPS ratio on P/E”.
If this is true, thats what “value” is, right? Indicating the right things to us at the right times.
Then it also might be helpful in that (just as it does in this indication) it can bridge the gap as to why some claim 18x PE is too high. If the positive EPS PE averages only 14x, it kinda explains that the main stable components of the index are averaging <14x on a valuation basis and then some 20% of the index is being value as a "growth call option" despite negative earnings.
March 12th, 2010 at 4:34 pm
Know the risks inherent in running around saying… “the market is systematically way overvalued”.
Plenty of folks were saying that in 1985 and 1995. They made very poor investors.
In a positive economic cycle the “E” can grow… A LOT.
March 12th, 2010 at 5:58 pm
cognos,
“BUT if you had used the “positive EPS” PE you would’ve had positive EPS of $70. One would’ve seen the SPX as a huge screaming buy at 700… at 10x PE.”
No, your logic is flawed. You draw a conclusion about where an index representing all companies, including winners and losers, should be “fairly” valued based on the earnings of the subset of the winners in the market.
Now, if you want to account for the strong volatility of the earnings over the whole business cycles, then it would be another argument. For instance, Shiller does this by using the earnings normalized over 10 years. I prefer this approach compared to using 12-months trailing earnings, because of the earnings volatility. Based on this metric, S&P 500 valuation dipped to about the long-term mean in March 2009 for a short moment. Now valuations are back to about peak levels of previous bull markets, except for the last one with its extreme overpricing in 2000:
http://www.multpl.com/
“Know the risks inherent in running around saying… “the market is systematically way overvalued”.
Plenty of folks were saying that in 1985 and 1995. They made very poor investors.”
Based on Shiller’s metric the market wasn’t overpriced in 1985. It was in 1995, though.
Sure, there is a risk. One shouldn’t make such a statement w/o taking into consideration the context of the whole economy. In 1995, the credit market bubble was still in a strong expansion phase. In contrast, there is a very good chance that we will have years of credit deflation ahead, not just in US, which constitutes a very unfavorable economic environment. If this deflation doesn’t materialize and credit resumes expanding again like it has before, although I don’t think it’s so likely, it will change the game, though.
rc
March 12th, 2010 at 6:13 pm
The logic is perfectly consistent.
Think about it this way. You can run the “index PE” and look for fair index value. That is, a “top down” approach. OR you can value each component “bottoms up”. EACH company MUST be worth more than ZERO, right? Well lets say you only have two kinds of companies… “consistent positive earners” and these deserve a 15x multiple. And erraddic, questionable companies, “currently big negative earners”. You might say 15x PE is fair for the consistent positives. And then you might handle each “neg earner” individually based on the business, bankruptcy potential, upside potential, etc. But value of each must be >0.
Well then even though individual consistent earning companies deserve a 15x PE.
The “consistent earning index” in this case will have a >15x PE and may have a dramatically higher “fair” PE on a traditional basis if the magnitude of the losses is significant. (Exactly the case, Q1 2009).
Long-term “average EPS” as you cite for Shiller are not very helpful for predicting the future (or making money). Its a poor methodology choice because it would have to get lucky to get to the heart of the issue (next year’s EPS, next 5 year’s eps, etc).
March 12th, 2010 at 6:23 pm
My point on watching the “the market is overvalued” commentary is that those pundits, academic, etc tend not to understand — its a risk/reward process. And risk/reward is skewed to the upside.
For example, the bearish types — Roubini, Faber, Rosenberg, etc, etc — not only have they mainly been bearish for decades, ha. But they also didnt turn bullish 1-yr ago. “Double dip” anyone? So now, not only have they not really made any money in their call… but there was a whole host of the same thinking in 1985, 1995. When the market goes 3x on you… the bearish types dont really feel the pain the same way. The “loss” is just a flat, cash account. They pretend the “loss” is an illusion. But its the same loss -200% versus peer group. And then it goes 3x again. -800% versus peer group. One can never recover from this type of mistake.
Take the opposite…. somebody who “bought on dips” in 2008. First, there were actually ample opportunites to make some money. Bought heavily on dip in Jan/Feb and late Jun by mid-summer one was up 10-15%. Then Q4 was a killer for that buy-on dips mindset. Lots of guys went from +15% to -20% or more. Some even got short in early 2010 (and then held too long). But generally most of these types managed to turn it around and finish strongly positive in 2009, making up for most if not all of the losses in 2008. The 3 hedge funds I have worked closely with are ALL above high-water.
“Growth” is as normal as aging and time. Plants grow, livestock fatten and cash-flows at companies. Stocks pay dividends, repair balance sheet, and do R&D. “Shorts” have to be very timely and targeted. Consider the risk/reward.
March 12th, 2010 at 10:05 pm
@ cognos,
I had to think though this a bit . If I understand correctly, your arguments almost make sense to me. But as I have read it there is for me one missing link and one caveat.
The missing link for me in your approach of using positive EPS in calculating an index PE is what value of PE constitutes exceptional value? Work by many, probably most notably and separately being Graham and Shiller, indicate PE on 10-year averaged EPS ~ 10 on the index being the extreme target for reversion. Grantham looks for an index PE on 10-year EPS less than or equal to 15 to suggest good value conditions for stocks in general. Both of those are, as best I know, based upon the typical EPS that includes the negative components of EPS as well as the positive. So I am left wondering when you remove the negative components, which leads to higher E and hence lower PE, what value of the adjusted PEconstitutes exceptional value ?
The caveat I think that goes with using the modified positive-only EPS adjustment is what you mentioned a few posts above, “In a positive economic cycle the “E” can grow… A LOT”, meaning that for this approach to be indicative of exceptional value we must be in the growth phase of the economic cycle. Is that accurate? Given that markets tend to precede and anticipate economic conditions the obvious follow on is then how is the positive economic cycle condition determined at the time when the target PE is first observed?
March 12th, 2010 at 10:31 pm
cognos,
“Well lets say you only have two kinds of companies… “consistent positive earners” and these deserve a 15x multiple. ”
So let’s assume these companies “deserve” (why “deserve”?) this P/E multiple. And how do you exactly get from here to at what index value the S&P 500, which represents all companies, should be (e.g., 1150 instead of 800) given a certain set of economic conditions that deliver a certain amount of aggregate earnings (composed of positive ones to the winners and negative ones to the losers) to all companies?
“Long-term “average EPS” as you cite for Shiller are not very helpful for predicting the future (or making money). Its a poor methodology choice because it would have to get lucky to get to the heart of the issue (next year’s EPS, next 5 year’s eps, etc).”
The knowledge of past earnings enables at least to get an average trend line of the earnings growth as a normal, around which the growth of aggregate earnings of the companies move, sometimes they are above the trend line, sometimes below, depending on the economic conditions. You apparently rely on some projected “operating” earnings (i.e., not based on GAAP) for the next years, delivered by some analysts, for your prediction of where the stock market is headed. How exactly is that better? Where do those projections come from and how reliable are these projections again? What makes you believe that these projections will be close to reality?
“Take the opposite…. somebody who “bought on dips” in 2008…” etc.
Sorry I don’t believe your assertions at face value. Show me some evidence.
How has the buy at the dips and hold folks fared in Japan since 1990?
rc
March 13th, 2010 at 12:11 am
@Our Man in NYC
Dude, I don’t do fundamentals! Don’t believe in them as we can see that corporations lie. I never said that a new bull market was starting “here” only that I think a trading range market makes the most sense. It took 16 years to get that bull market started.
Disclaimer: I am not predicting a bull market, nor am I predicting a bear market. I was merely pointing out that a giant bull came from the worst economic news, after 16 years of churning, and everyone quotes the DJIA in nominal terms, not real terms, where would you have held for 16 years you have lost 59% of your purchasing power. Sometimes the market doesn’t need to go down in order to trash investors. Inflation/Deflation can both destroy assets.
March 13th, 2010 at 1:41 am
The question has no relevance. The correct answer is, “Who cares?”… Trade what you SEE – not what you THINK… Ride the lie – and make money – up or down! Pretty simple!
March 13th, 2010 at 6:21 am
INTERESTING discussion! Black Swan/Penguin?
People seem sanguine about the T selling the mortgages they have acquired. I wonder. How many Chinese, Swedish Pension Funds, Sovreign Wealth Funds will load up on 5% 30 yr fixed rate US home mortgages when underemployment is 17%, 450k new unempl. claims/wk, home prices still falling, delinquency +/- 16%, BKs still rising, Cons. Confidence slipping, lots of pre-BK governments (local village had its fire truck repo’d), problems (legal, mostly hopeless mod. programs) processing OREOs and now cramdowns (short sale programs)? So, Mr. Pension fund, earn 5%/yr (in the face of anticipated i rate increases) and lose what % on the credit side? 10%? 15%?
T seems confident. Say any Mortg rate increase will be minimal. Say credit quality now is LOTS better. Am I missing something? What would jump in rates from 5% to, say, 6.5% or 7.5% do to the housing market, refis, modifications, new home ownership, etc. – especially with credit clampdown by GSEs, PMI companies, and lenders? What yield would YOU want under these circumstances? 5 or 4.875%? Sign them up!
If housing rolls over and turns down will that be the Black Swan? It pulled us down 24 months ago, will it do so again? Don’t we now understand the ripple effect of that? Are we looking into the distance when the Black Swan is right under our eyes?
March 13th, 2010 at 10:31 am
Jim67545 — The mortgage pools acquired by foreign banks are guaranteed by Fannie / Freddie. They pay 5% coupon and carry ZERO credit risk. That the whole point of Fannie/Freddie and the liquid tradable pools.
RC — You seem to continually forget… one key to this “positive EPS” look is that the difference between the traditional PE and the positive-only PE will fluctuate massively in time and cycles. One year from now these will converge (as no large companies will have large losses in ttm window). But at other times it might (I think it would) be a key “value” indicator that would help one be a buyer in 2002-3 and Q1 2009. This is what we are looking for, right? Its why I was buying big in early 2009 and remains one reason I think the “market” is undervalued. I am surprised no one has formalized the indicator.
March 13th, 2010 at 11:09 am
cognos,
So what you actually do is to anticipate that the rest of the market and the overall P/E-ratio will catch up with the “positive earnings” companies and you anticipate an EPS amount for the whole market a couple of years ahead or so, accordingly, e.g., $100 for 2011. This x15 would give about 1500 for S&P500 in 2011. That brings me back to my question that you haven’t answered. Where do you get the future EPS projections for the whole market from? How reliable are these projections? What makes you believe that these projections will be close to reality?
That is, your whole exercise has an underlying assumption about the future economic development, which is certainly not a modern day depression scenario for the coming years (so no Japan scenario), right?
Would you dare to make a statement now what future outcome (e.g., what future S&P500 index value) would prove your expectation and your decisions that you made based on this expectation wrong?
rc
March 13th, 2010 at 12:42 pm
rootless –
Your comment has two parts which are kinda disconnected. First:
It already HAS caught up alot. So for example, on a “positive EPS” basis we might have had $15/shr in Q4 2008 versus $0 on the standard traditional metric. At that point the gap would’ve been the largest. In Q1 2009 we had $10/shr on the traditional metric and might’ve had $14/shr on the “positive EPS” metric. By the most recent Q we’d be back to a typical $1-2/shr gap as no large companies have large isolated losses. At peaks, we few companies posting losses, the “positive EPS” number and the traditional EPS number would be virtually the same.
So then, if your valuation metric was “I’d like to buy the positive EPS at 15x”… and “then I get the upside on the losers turning things around for free”. This idea was very helpful to me last year, and I think the metric would prove helpful overall. (Different cycles would have different reactions to this metric — 1999, 2002, 1992, 1980, 1985, etc).
The second part of your comment — is just, “arguments FOR buying stocks assumes were NOT headed into a depression or Japan-style deflation”. I dont disagree. Economic indicators look good. Risk/reward is skewed to upside. But this is a separate, longer discussion. I see no arguments (and few proponents) pushing the longer-down cycle theory that are not fundamentally THE SAME arguments erroneously made in 1985, 1995-97, 2004: “too much debt”, “persistent overvaluation”, “gold/fiat money”, “gpr risks”, “entitlements”, “taxes, politics, corruption”. None of these arguments has stopped capitalist growth and human productivity in the past. None seem to be any more of an issue today than 1985. Same mistakes. Not worth the “downside” of holding cash versus the growth case.
March 13th, 2010 at 1:03 pm
bloging such a bore, to inpersonal
Where is the markets going “what markets” except for a few stocks that represents the DOW the markets remain flat. NASDAQ can’t even ses 2500, anyone rember 5500. I could continue on an on why these markets will remain flat but just let me make a quick list of a few reason
1) NASDAQ remains flat
2) limited new investors
3) small investors (you & i) maintain limited positions
4) limited new 401k investing, many company forgoing matching contributions
5) This leeds to even a greater reduction of 401k investments
6) volitility in the general markets are way down, common pre was 1.00+ movers, now the markets struggle with a dollar move
7) small markets OTCBB, AMEX etc. way down to non existing. Without these invistments many company may never find opertunities.
8) Leagal problems for small investors (martha Steward) while large theft goes unchecked
9) Broakers houses are desperate for new investors. Ameritrade offers 100 free trades or the CEO’s daughter for the weekend (take the free trades :)
10) My tracking programs all show pathetic market condition. If I can’t find profitable trades you guys can’t. There are very few out there
But the question was where? with the 10 negatives above and lets not even include the poor job markets, flat wages, depressed retirments accounts, or even your morgage and forclosures. Why is this markets showing the horns of a bull, simple as some above abtly stated
March 13th, 2010 at 2:06 pm
cognos,
If I understand you correctly, you are saying that a depression scenario won’t happen because it contradicts the nature of capitalism (“None of these arguments has stopped capitalist growth” – as if there haven’t been depressions before, and as if Japan hasn’t experienced a depression like scenario for two decades now). You also are saying that the “too-much-debt” argument will never be correct. You say there aren’t any inherent limits to debt growth. So according to you, the debt to GDP-ratio in the economy could also go up to 500% or 1000%, it could grow infinitely, this wouldn’t constitute any substantial, inherent problem to capitalist growth. Tell me, if I summarize your view correctly, please.
rc
March 13th, 2010 at 6:54 pm
RC -
No. I am saying the current arguments, and yes definately including the “too-much-debt” argument, seem to be THE SAME ones made (again, mainly by the same people) in 1985, 1995, 1997, 2004, etc. They seem to have little / no value.
The debt-to-gdp ratio will naturally grow over time and as a society get wealthier. See savings/debt balance. Every $1 of “debt” is $1 of someone elses “savings”. No one holds large amounts of cash (think $1B bills in the mattress) and money ONLY pays interest when its LENT OUT, right? So everyone LENDS there money to someone.
Now this can grow too fast (too much debt/savings) which can cause inflation. This is why/how we manage the basic money creation process through interest rates. We dont have this problem. Or the debt/savings money creation process can be mis-allocated. Too much debt linked to certain people, companies, assets. We DID have this problem, but it seems to be >75% fixed already.
But the overall level of debt/savings is not a high concern for modern developed economies.
It seems logical to focus more on the “costs of debt service” and there seems to be a logical and empirical link between wealthier society having higher levels of debt/savings and lower levels of interest rates. So this moderates silly comparions of Japanese debt levels (at 0-1.5% interest rates) with US debt levels (at 0-4% interest rates) with Mexican debt levels (at 4-10% interest rates). Starts to make much more sense, right?
March 14th, 2010 at 12:09 am
cognos,
“No. I am saying the current arguments, and yes definately including the “too-much-debt” argument, seem to be THE SAME ones made (again, mainly by the same people) in 1985, 1995, 1997, 2004, etc. They seem to have little / no value.”
To say some argument wasn’t valid because it had been allegedly used before is a non-sequitur conclusion.
“Every $1 of “debt” is $1 of someone elses “savings”
I wouldn’t call it “savings”, since only a fraction of debt in the system is really created from someone else’s savings. Another fraction is created by banks out of thin air. They create debt for the borrower and assets for themselves.
” So everyone LENDS there money to someone.”
This is a fallacious argument. Just because someone’s debt is someone else’s asset (of course!), it doesn’t follow at all that the absolute level of the debt load in the economy wasn’t a problem. Exactly because the net debtors in the society aren’t identical with the net creditors, it can become a problem. The net debtors have to pay off debt and interest to the creditor and the ability to do so and the ability of the debtors to load on more debt depends on their already existing debt load and on their incomes, which are summarized only a fraction of the GDP. Thus, the higher the debt to GDP ratio in a society, the less will the net debtors in this society be able to pay off debt and pay interest on the already existing debt load to the net creditors. And, therefore, it’s not possible that debt relative to GDP grows infinitely, differently to what you want to assert.
“Now this can grow too fast (too much debt/savings) which can cause inflation. This is why/how we manage the basic money creation process through interest rates.”
Who is “we”? The Federal Reserve? Now that’s just a myth that the Fed was able to control inflation and other economic macro variables by tuning such a tiny parameter like the Fed Funds target rate. There isn’t any empirical evidence for the validity of this assertion. And no one can really explain how this alleged causal link between the Fed Funds target rate and inflation (or GDP growth) is supposed to look like. But this is actually another topic than the “too much debt”-topic.
“Too much debt linked to certain people, companies, assets. We DID have this problem, but it seems to be >75% fixed already.”
Sure, yet another number you just make up.
“It seems logical to focus more on the “costs of debt service” and there seems to be a logical and empirical link between wealthier society having higher levels of debt/savings and lower levels of interest rates.”
The costs of debt aren’t just a function of the interest rates, they are also proportional to the absolute debt load. You seem to forget this.
“US debt levels (at 0-4% interest rates)”
Again, you make up some fake numbers to support your views, or where do you get the 0-4% interest rates on debt in the US from? The interest rate on 30-year fixed mortgages is 5%, home equity loans 8%, auto loans >6.5%, credit cards about 14%, small business loans about 8%, investment grade corporate bonds about 5%, high yield corporate bonds about 9%. And the worse the standing of the debtor, the higher the cost of debt for the debtor, on average.
I have some homework for you. Starting from the total debt load in the US economy and assuming the average interest rate to be paid on debt in US, calculate the nominal GDP growth that is needed just to pay off the interest on the total debt load from the income increase that the net debtors get from the GDP growth.
rc
March 14th, 2010 at 4:31 am
What are they doing? If I knew, I would be drinking a margarita in a cafe in Canes. The only thing that is clear is that they pulled out all stops to save the big banks and took their sweet time on shutting down the smaller failing banks.
I got out near the top and expect another move down. I fear they are trying to sucker us into their casino.