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Thursday, April 30, 2009 12:35:38 PM
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No, There Is Not a New Bull Market
C'mon guys.
The callers are all out this morning.
Jesus, can we have a bit of reality? There are a few listings of actual ALT-A mortgage defaults out there on structured deals, where its easy to get the numbers.
They're running anywhere from 35-50% with fairly tight clustering, so ~40ish percent is about right.
These are 60 day+ delinquencies, which means they're not someone who missed a payment or two; they are people who can't restructure because they're severely underwater and would have to bring tens of thousands of dollars (which they do not have) to the closing table.
90% of those loans are going to foreclose. This is a fairly representative look at the 2006 and 2007 production in the "ALT-A" (Option ARM and Liar Loan) space, which was 30-40% of the market during those two years. These foreclosures have not yet happened but they will, and so will their economic impact. That's a certainty over the next 6-12 months.
All this "new bull market" nonsense is crap.
Pure, unadulterated crap.
What we've got going on in the market is massive short-covering that is driving prices higher along with people in the media that are lying outright.
Look, the law of mean reversion has not been repealed and neither has the fact that one pays for forward and sustainable earnings when one buys stock.
ACTUAL P/Es are off the charts stupid. If you look at the various market data pages you will see this note that "Forward 12 months" is based on some estimate from one firm or another.
The problem is the estimates. They're still way too high. Does anyone remember last spring when everyone was saying that the S&P 500 would have $100 in cash earnings by this year? Did it?
Past performance is no guarantee of future results but when you make enough bad calls you should be ordered out of the pool before your sharts turn into a biological contamination disaster.
I said quite some time ago that I expected this sort of rally, and in fact I still think we are going to get some sort of pullback before the 'final thrust" higher - but there is a decent chance that we got the pullback two weeks ago, it was weak, and we're now going to make that next thrust NOW. I cover this stuff nightly in the videos on Tickerforum (for Gold Donors) with my commentary being tailored for short-term trading, not longer-term investing. Drop on in if you'd like to see 'em.
The point for longer-term investors, however, is risk .vs. reward.
Consider this: If 666 was either "a" or "the" bottom on the SPX, how much further is it likely to run this year?
You've had a 32% run. If we were to get a 50% run you'd be up around 1,000 on the SPX. Possible? Sure.
But if you're a long-term investor and got trapped here's the question you need to be asking yourself:
Are you willing to risk losing half (from here) in order to capture (another) 13% gain (again, from here.)
That is always the question you need to be considering - all investments must be looked at from today and this is the only question you ask:
At today's price, would I buy this position?
If the answer is "no" you sell it. Period.
As things stand today sitting in cash, in terms of house prices, is actually appreciating. The same is true of the price of many other capital goods. That's deflation, which takes the "inflation penalty" off the table - at least for right now.
For those who are trapped I see this as a tremendous opportunity to scale out of positions that you should have sold in early 2008.
If we really do get the proper "buy signals" for a new bull market, then we do. But before I would be willing to jump on that I'd have to see evidence that total debt load is coming down and coverage (that is, the ability to make the payments) is improving.
So far there is no such evidence and the above statistical information makes clear that the "mortgage mess", despite all the crooners, is nowhere near over.
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