Friday Market Preview: Was Dow 8,000 the Bottom? 18 comments
-
Font Size:
-
Print
- TweetThis
So the market plays rubber ball rebound with a 900 point intra swing yesterday. The gravitational pull of October lows held sway early as the Dow Jones pushed below 8,000. But while 8,000 was breached, bottom fishing and bargain hunting sparked an impressive technical explosive rebound. Some commentators regarded this as psychologically very important as we have tested this area twice now and bounced strongly.
Today’s Market Moving Stories
- German press reports that there is about to be a massive shake-up of the Fatherland's banking industry with the myriad of Landesbanks being consolidated into three main banks. This is long overdue and the crisis has merely hastened the demise of a system that was an historical anachronism due to the Federal political set-up.
- Minneapolis Fed president Stern said that there was “not a lot more room to cut rates”. Talk about stating the obvious.
- Fed president Plosser from Philadelphia (a noted hawk) said that fourth quarter US growth would show a somewhat sharper decline than Q3. More of the bleeding obvious.
- US initial jobless claims pushed ahead to 516k last week with continuing jobless claims at 3897k. It’s not a question of will the jobless number be higher than last week, it’s how much more will it be higher.
Why Was Yesterday's Trade Data Important?
The trade balance report confirms that exports, the last bastion of strength for the US economy, has started to rock. The 7.8% drop in real exports was the biggest monthly decline since the inception of the series in 1993.
Keep in mind that the US economy has grown an average of 1.6% between Q2 2007 and Q3 2008. During this time net exports contributed – you guessed it – an average of 1.6% per period to growth. Hence there was no growth outside the export sector. But only last week, the purchasing managers ISM’s new export orders plunged to a new all-time low. There are concerns that US exports might eventually collapse amid the looming global recession and a stronger US dollar.
The outlook: Without the support of the export sector, the US economy will shrink by an annualized 2-2½% this quarter. The bigger picture on a multi quarter, even multi year basis, is that global growth, private consumption , corporate earnings, unemployment, default rates, housing prices, credit spreads and ratings continue to be firmly bearish. In this gloomy environment, I fully expect the Fed to cut rates to near 0% and the government to agree on another big number fiscal stimulus package.
The Next Stages of TARP
While he may be chalking off the days like a prisoner awaiting parole, Hank Paulson stoutly defended his hybrid TARP bailout, with its focus on capital injections. But he’s now saying that the earmarked $700bn won’t be enough to buy the toxic assets! He went on the urge Congress to bailout the auto industry.
Using a poker analogy, under TARP, banks have been able to give back their bad cards to the dealer in exchange for a full house. But now they are again stuck with the original dodgy hand. They are going to have to write this down, which will of course, require more capital injections.
The major issue is that the market price for these assets has now bottomed or stabilized so either banks engage in a fire sale (which further depresses prices) or they engage in the vicious circle of more quarterly write downs requiring more capital injections. In sum the changes look ill timed and poorly thought through and are a serious step backwards.
Data Today
The key number today is US retail sales at 13.30. They are expected to show a sharp drop, about -2.1%, on the back of plunging auto sales and the big drop in oil prices.
The market is also looking ahead to the G20 summit in Washington to see what fresh initiatives world leaders may dream up. There will doubtless be noises about strengthening global banking regulation and some new super duper role for the IMF.
But the two biggest stumbling blocks I foresee are the big question of where the money is going to come from and the conspicuous absence of one Barack Obama from discussions. So I feel that the event can only under whelm.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 18 comments:
Yet another move to fend off the inevitable collapse until when? Thanksgiving? Christmas? 20JAN09? Chinese New Year?
Here in Holland even the main stream media said it had to be the Plunge Protection Team and that looks like a realistic hypothesis since in the USA P/E ratio's are about triple compared to the Amsterdam AEX.
These are only bottom fishers?
Please get real and follow the one and only measure for pricing stocks: The P/E ratio...
Your P/E's are one-third ours? Stay tuned, because ours will be much lower each coming quarter. Well, the E part anyway.
I got very real the first time my index fund broke 1000. At that point it had tripled from the level I got in. I got my money out and ran.
Many laughed at me for doing it then.
I say the same thing now that I did then: Pigs get fat, hogs get slaughtered.
This data supports a worse case "depression-lite" scenario.
Startling revelation. From a common sense point of view, this nearly unprecedented volatility should scare off anyone other than day traders. It's a sign of a market in the throes of severe illness, such as convulsive seizures.
FYI: check out my blog for important charts, and pithy observations. Minimal blather, lol.
Hmm Im thinking - Close at 8200 maybe even 7,900.
On Nov 14 05:51 AM CLH wrote:
> Where did the money come from in the 1940s war? Our debt was 5 times
> larger then today (%of GDP). We soon paid it off with no inflation.
> This is what ended the depression. Spend--spend spend.
CLH,
I'm afraid the problem with that is marginal tax rates were WWAAAYYY lower in the 1940's. When the average Federal Tax rate is 3% (granted I think the top rate was 80% or so) its easy to double even triple the tax rate to grow revenue. When the top tax rate is 35% not much room for growth w/o the rate becoming punitive. I just saw some left-wing German wants to raise the top rate to 80% on incomes over $750k, its a bit much in my mind.
On Nov 14 05:51 AM CLH wrote:
> Where did the money come from in the 1940s war? Our debt was 5 times
> larger then today (%of GDP). We soon paid it off with no inflation.
> This is what ended the depression. Spend--spend spend.
Well we ARE talking about a gub'mint program. What did you expect? More of the same will follow.
"But there are a ton of stocks that look like bargains out there" - Jake Huneycutt
Perhaps, but how many of those 'bargains' will still be in business two years from now?
Back in July Fannie Mae was a 'bargain' at 10. It has dropped about 94% from that level and if not for the implied gub'mint guarantee it would be in bankruptcy court now.
If you are fortunate enough to be sitting on a large pile of cash you can afford to wait for the dust to settle. There will be plenty of time to get on board the next bull leg ... once it starts.
The figures I have on this are not very reliable, but it was reported that our P/E ratio's were about 5.7 compared to DOW Jones of about 15.
In the previous market crash there were similar figures; our Amsterdam AEX declined about 70% from the top, the DOW only 35%.
There are various reasons for this:
1) Plunge Protection Team (if that exists for real, statistical evidence supports the hypothesis of such a weird team).
2) The large cap / small cap effect combined with the large stock market / small stock market effect. That means during declines small caps always got hit harder because people trust large caps more to survive compared to a small cap.
A similar effect is there for large stock markets compared to smaller stock markets; our stock market simply is rather small since we are only with 16 million folks.
This is glued together by the confidence of investors and consumers alike.
Perhaps once the president elect begins to instigate his policies we might see a more permanent turnaround.
Until then I believe we will continue to see pops and drops, we are too emotional at this point in time.
On Nov 14 12:05 PM rktect wrote:
> This was identified as the bottom in an article on the Daily Kos
> posted yesterday morning and tracked all day with charts technicals
> and commentary
WOW.. really! on the DAILY KOS.. well if they "identified it", thats good enough for all of us, such experts that they are. Lets plow back in, now.
Actually, when such morons as blog over there, start coming out with technical charts and commentary about a market direction, you can bet that the inverse/reverse is the true path.
Or an evern sharper decline, FDR style...
On Nov 14 11:52 AM OilyGasMiner wrote:
> Perhaps once the president elect begins to instigate his policies
> we might see a more permanent turnaround.