Welcome to the stock market's House of Pain ! This board is really just about anything but will probably focus on the gloom & doom the markets will experience as a result of the on-going collapse of the housing and credit bubble. This board was started on April 2007 which was well in advance of those in control of Wall Street and Washington admitting the US economy had a problem. Many people outside the Wall Street mainstream, like Bill Fleckenstein and Mish Shedlock made it very clear that the US economy from 2002 - 2007 was an artificially enduced real estate and credit bubble that could not be sustained.
January 10th Update:
The markets have had a nice 2 month rally off their November lows. But the averages seem to be thinking about rolling over after seeing the job report for December and continued reports of layoffs and earnings dissapointments. Like everyone else I traded in and out of stuff like consumer discretionaries (SBUX, DPZ) and gold (AUY). I'm back to 90% cash again. Like Bill Fleckenstein I see the market for the moment battleing between the effects of severe recession and huge stimulus. The only compelling argument for stocks is that many of them yield way better than treasuries right now. Economists predict another 3 million people could lose their jobs so that's another 3 million people who are probably not buying stocks. And with the Palm Beach crowd selling jewelry and furniture to raise cash take by Berine Madoff, that adds yet even more hestitation to put money into he equity markets, because hedge fund managers and financial advisers have proven yet again that they can't be trusted.
Where the selloffs of October and November were panic induced forced liquidation selling, the next delcine in the markets will be more from simple attrition as people need to sell stocks for college tuitions or retirement and less people buy stocks. Very much like the 1970s. Although deflation is the big fear to avoid right now, eventually all the stimulus will result in a weaker dollar. But between the time the deflation fear subsides and the inflation kicks in, the stock market should have an awesome rally.
October 17th Update:
So hedge funds and institutions proceeded to liquidate, dump & short on October 3rd for one of the worst weeks in stock market history. When losses, gains, and volatility gets compared ot the 1970s and 1930s, you know were in for trouble. The markets dove on the Monday after the bailout bill was passed. But that's not why the markets dropped. The markets dropped when the banks figured out how screwed they were by the collapse of Lehman Bros (LEH) and AIG. Their balance sheets must have included a lot of securities/obligations associated with LEH and AIG were not longer worth anything, massive selling errupted to fix their balance sheets. Kind of like the finacial equivalent of "The Emperor Has No Clothes" story.
On the plus side, EVERYONE now believes we are in a recession and it with be long and serious. Makes ya wonder what those expert analysts and economists were smoking. Some of them are still saying stuff like the economy will recover in the Spring of 09. What a joke. But most talking heads think it'll be late 09 or early 2010 before the economy starts to recover. I tend to agree with that and since the markets anticipate economic recovery 6 - 9 months in advance, the markets might be at their bottom next Spring.
The other good news is -- as predicted, the price of oil is dropping. And so is gasoline. Its already under $3/gallon and I'm guessing $2.50 will be the new norm. This will help consumer discretionary stocks like Starbucks and Domino's Pizza.
There are 2 keys to the economic recovery that I'm looking for. This first is the 3-month interbank lending LIBOR. Its 4.5% now and it should be about 2%. When it gets below 3% we'll know the banking system is thawing and it will lay the groundwork for economic recovery. The second thing I'm watching is the unsold home inventory. There's currently an 11 month supply of unsold home. When it start heading down to 8 months we'll know the economic recovery is underway.
As for price tarkets, the S&P500 typically trades at a PE of 12 during recession bottoms, and its somewhere around 14 now. I expect earnings to drop below current estimates, so its not unthinkable for the S&P500 to drop to 600 - 700 which is about 30% down from its current mid-900 level. It hit a panic selling low of 838, so if there's another massive liquidation selloff, we could see mid 700 quite easily.
I'm still hoping UVE doesn't bite the dust -- it's at 2.50 and yielding .40 per year ! I'm also considering China Mobile (CHL) . Its at 40, has a PE of 10 and yields almost 4%. Its down 60% just like the overall Chinese market.
Gold is being dumped like all other commodity plays so I'm out of that. The QIDs and QLD are just nuts -- moving 10%+ daily so I'm out of them too. I expect that when the gold dumping stops and people realize that they're actually losing money in money markets and treasuries, gold will head higher again.
September 21st Update:
It appears that my July predictions came true. In a big way. Fannie, Freddie, Mortgage Companies, Investment Banks could finally no longer hide their debts and perpetuate their lies. Not to mention all the talking heads who said commodities weren't in a bubble.
For the past 2 years cracks have been forming in our economic infrastructure. Last year the cracks became visible. This week the dam finally broke. The next thing that will happen is the water will come out of the dam, run down the valley, and wipe out the town that was foolishly built in the valley below the dam.
The government bailout of Wall Street and the housing bubble may cost the taxpayers as much as $700B near term. Where is that money coming from ? From higher taxes ? Not likely unless we want to turn our up coming recession into a depression. Will foreign governments keep lending us money ? Sure -- as long as the interest rate compensates them appropriately.
Governments ALWAYS print their way out of debt. We've only done so mildly because we a prosperous and hard working country. But this bailout amount added to our regular annual debt, and a slowing economy, will overwhelm us.
It will take 3 - 5 years to work of the debt and backlog of foreclosed properties. Maybe longer. But in the meantime, the dollar's buying power will decrease. Other countries will also devalue their currencies so that their products are priced competitively, and global commodites like gold and oil will increase in dollar terms. The price of oil is uncertain because supply will not be a problem in a slowing world economy (i.e lowering the price of oil ), but a weaker dollar will increase the price of oil making both factors a wash.
The price of the stock maket is also uncertain because stock prices should drop in a slowdown/recession but stocks with solid book values will rise in dollar terms. So the DOW should be ok, but the NASDAQ could be in trouble. Like I asked in July, who will be buying stocks ? Most of America's spare change will be going to pay off our debts.
Gold ETFs and QIDs and of course, cash equilavents seem like the best place to be.
July 2nd Update:
What a difference 8 weeks makes !! Oddly enough my market prediction from May 11th was correct. The markets are more-or-less back to their 52 week lows except this time, the price of oil, other commodity prices, and unemployment are sinking in.
I would never have guessed that oil would go for $140/barrel. It is definitely in the grips of "hot money/big money" speculation, no matter what anyone says.
We maybe be experiencing cost-of-living item inflation, but the real truth is that we're experience real asset DEFLATION such as real estate and the value of too many business with too much capacity chasing too few customers. Housing, autos, consumer discetionaries are all getting hammered.
I'm guessing, barring some event that disrupts supply lines (weather or political unrest) oil will drop because demand in the US and China will drop. I'm expecting this to start by the end of the summer. But I don't expect oil to go much below $110, if at all. ChrisJP Note: There's a good chance that oil completed its double top this week (7/18).
The other problem going on is that pesky banking system, which needs to raise capital to cover their losses. So some of them are most likely selling billions of dollars of stocks every day too. And they're in no position to loan money to help businesses who are having cash flow problems weather the down turn. So business that are losing money and are running out of money (i.e. GM & F ?) are in trouble.
So the big question is -- who is buying stocks ? Are baby boomers on the cusp of retirement ? Maybe. Are GenX'ers who just bought their McMansion dream homes. Probably not. Are GenY'ers who are still living at home with mommy and looking for work ? Nope. Are the rich buying stocks knowing full well they will under-perform for the next few years ? Probably not.
So hardly anyone is buying stocks.
I'm mostly in cash (i.e. money market) but I have some UVE for its 8% yield (and I'm praying no hurricanes hit Florida, lol) and I have 1000 QIDs and 300 DUG (which I bought too early). I maybe buy a gold ETF in August if I think the Fed plans to keep rates steady.
My plan is to avoid stocks and wait for a washout in the next few months. I'm also considering shorting (with QIDs and DUG) until Obama is elected and when the markets crash -- I'll sell my QIDs and DUG. I will consider nibbling in December to ride a possible January effect.
Jan 10th note: The S&P500 is bouncing around in its new trading range of 800 - 950, but appears to be ready to drop below its 20 dEMA again.
From July: The S&P 500 hit a new low on July 15 and the trend of lower highs and lower lows is still in place. I still think there is at least one more leg down maybe in the fall. I''m also interested in seeing how the S&P 500 does against its 20 and 50 dEMas (currently at around 1270 and 1310)
Looks like Iwas right about one more leg down. I gotta admit, I had no idea how big a leg down that would be !
April 13th Update:
Well it looks like back in January we did hit bottom, until Bear Stearns imploded in March, lol. Since the markets are controlled by Wall Street, they tend to moved based on Wall Streets perception of how the banking industry is doing, as opposed to what it really should be doing which is trading based on the US economy. Right now, the banks think they are gonna pull through, so the markets are holding up. If they drop another credit crisis bomb, all bets are off. The fact that the S&P 500 keeps selling off at 1380 is disturbing.
I still think for the next 2 years we are going to experience something like the 1972 - 1974 recession and something like Japan experienced in the 1990s. I think the "experts" estimates for 4th quarter earnings are a joke, but what do I know.
As for gold & oil -- recessions are supposed make the prices of these commodities drop. But if the Fed keeps interest rates below the inflation rate (like was done in the 70s) , the dollar will continue to fall and gold & oil will go up in dollar terms. Over the past 5 - 6 years, gold tends to make its big move in August through March, and then do mothing for 5 months. So I'll be looking at gold again in August.
Solid consumer disretionaries seem to be rebounding, but who knows how long it wil last. I noticed the chart patterns of CROX and NTRI improving, and since they have 1) dropped 80% quickly from their highs last year and 2) appear to have low PEs (assuming their earnings more hold) I decided to take small positions in them. With my luck I will dump them for a loss sometime in the coming months. NTRI was just added to the S&P 600 small cap index. CROX was doing fine until Thursday April 10th when it fell below its 20 dEMA again. So the big question is will CROX test its lows of 15.40 ? (ANSWER: YES !) CROX does not report earnings for the quarter ending March 31st until May. But it warned on April 14th. I expect it to lower estimates again between now and July 31st.
Smith & Wesson 3-month Chart - Jan 10th note: SWHC seems to have hit a wall in the 2.80 area so I sold.
Nutrisystems 3-month Chart - Jan 10th Note: I didn't trust NTRI and I was right. Why pay $150/week for diet food when its easier to just not by food you can't afford anyways ? NTRI ALWAYS gets a boost in January becuase of increased New Years resolution sales.
CROX 3-month Chart - Jan 10th Note: CROX is a total POS but it made a nice dead cat bounce in Nov from .87 to 1.60.
ETFC 3-month Chart - Jan 10th Note: The 20 dEMA and 50 dEMA are getting closer. At the moment it seems to be following its 20 dEMA support line.
China Mobile (CHL) - Jan 10th Note: I bough CHL in the mid 40s and sold it in the low 50s for a quick gain. Its back below its 20 and 50 dEMA because of concerms again over the Chinese economy. 45 seems to be a key level for CHL
Starbucks 3-month Chart - Jan 10th note: Starbucks is still riding its 20 dEMA trendine. With gas at $1.50/gallon it seems to be a good buy if it holds its trendline.
Dominos 3-month Chart - Jan 10th note: Dominoes made a nice January effect move. It has a lot of debt but it too should be helped by lower gas prices..
Visa 3-month Chart - V could have some problems as unemployed people up to their eyeballs in credit card debt stop paying their bills. For some reason V LOVES 55. No clue why.
January 31st Update:
It appears the markets have bottomed for the near term, so rather than gloat over the gloom and doom of the credit and housing markets, this board will be discussing stocks that will benefit from the huge Fed rate cuts and from Americans getting stimulus checks.
Consumer discretionaries have been beaten to a pulp so I think they will rebound. Starbucks (SBUX), Brinker International (EAT), and so on. I'm not looking for much, just 20% - 30% over the next few months. ChrisJP Note: As I predicted, the 30% move happened and these stocks are back down near their lows again.
ULTRASHORT NASDAQ 100 (QID) CHART
GOLD ETF (IAU) CHART
THE BIG LIE
The Federal Reserve tried to curb the explosive growth in the U.S. housing sector under Alan Greenspan's tenure, but each time it tried to raise long-term interest rates it failed, the former Fed chief said.
"In 2004 we tried to raise mortgage rates by moving the 10-year Treasury note up and we failed," Greenspan told CNBC, adding that the Fed failed again in 2005 and would have failed had it tried in 2002.
"We had no control, that I could see, which would have made any difference in the extent of the bubble that was emerging," he said. "And we concluded, as we did with respect to the stock market bubble in the 1990s, that … as I pointed out previously, every time we tried to tighten … we weren't trying to knock the stock market down. We were reacting to inflationary pressures.
Greenspan denied that the Fed inflated the economy under his leadership, saying that rate policy was reacting to price pressure.
THE TRUTH COMES OUT
Two pieces of housing news from the government on Tuesday: (1) Construction of single-family homes plunged last month to the lowest level in more than 16 years. (2) The Federal Reserve unveiled a plan to police the mortgage lending industry.
It's difficult to avoid concluding that if (2) had occurred sooner, (1) might have been avoided.
Though long overdue, the Fed's proposal strikes a reasonable balance between protecting consumers and avoiding overregulation. It would require lenders to — imagine this — consider the ability of borrowers to repay their loans. And the plan would restrict some of the most abusive practices designed to keep borrowers trapped in loans with escalating and exorbitant interest rates.
But this new plan also poses one obvious question. If it is so worthwhile and logical today, why wasn't it several years ago as the tidal wave of abusive and ill-considered loans was just developing?
Acting now on mortgage lending — when foreclosures are soaring, the housing market is sinking, banks are writing off billions in losses and a credit crunch threatens the broader economy — is like the proverbial farmer closing the barn door after the animals get loose.
Had the Fed plan been in place long ago, it might not have prevented a subprime lending bubble from forming, but it might have made it smaller and less damaging.
ChrisJP Note: Greenspan could have dampened the 1990s stock market bubble by simply requiring tighter margin restrictions. But he didn't.
For those who can't deal with market selloffs (courtesy of Tina Marie)