The Worst Isn't Over Yet 42 comments
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The stock market has had a great rally since March 9. As someone who has a large pile of cash, I’ve been wondering if I missed a buying opportunity, but on the other hand, my large pile of mutual funds (such as my VFIAX) has come back to levels of early February — only 15% below Election Day and 33% below the end of August.
Still, I’ve stayed out because this felt like a sucker rally. (Peter Cooper at Seeking Alpha agrees). Perhaps the market was oversold: I’m not a technician, nor do I play one on TV. The rally could also be due to a change in sentiment, and I’m no expert on mass market psychology.
But as a young investor, I recall Charles Schwab’s advice to look for economic signs in your daily life to guide your investment decisions. (iPhones among Silicon Valley housewives might seem like such an indicator, but first I’d like to see their counterparts in Des Moines and Birmingham).
The indicators that I’m seeing suggest that firms have lost their pricing power, and are scrambling to cut prices (or pretend to cut prices) to gain sales, sometimes at any cost. This will depress the bottom line and probably the top line as well.
Of course, everyone knows auto sales are down and bankruptcy-prone GM and Chrysler are doing anything they can to attract sales. Here in California, car sales (and other big ticket items) will be down for months, because legislators raised the sales tax this month by 1% as part of an ugly end to an uglier budget mess. Buyers will also be postponing purchase of other big ticket items, whether HDTVs or Caterpillar (CAT) earthmovers.
Beyond this, home improvement stores are also aggressively trying to attract business. Conventional wisdom is that in a down economy (or when financing is tight), homeowners remodel rather than buy a new McMansion, but that doesn’t seem to be happening right now.
Here we have three main stores — Home Depot (HD), Lowe’s (LOW) and OSH Hardware — and all three are promoting more aggressively than any time in the 6.5 years I’ve lived in the Bay Area. Perhaps they are quietly cutting corners on the quality, such as by pressuring suppliers to ship shoddier Chinese-made tools, or lowering the grade of building materials — but it still seems as though their earnings will be depressed for the rest of 2009.
The NYT wrote Monday about how the home improvement and other retailers are aggressively repositioning themselves as value havens during the down economy.
Another area that’s supposed to do well in downturns is fast food, and indeed McDonald’s (MCD) has held its market value compared to the broader market. However, in the overall fast food/quick serve market, the last 3 months has seen a dramatic increase in the emphasis on bargain menus — items in the $1-1.50 range. Locally, it started with our sub shops (Subway, Togo’s, Quiznos) which are at the high end of the fast food/quick serve price bracket, but now it's hit all of the FF/QS market. (Some of these are phony price cuts based on reduced portion sizes).
All of these depressed profits will not help stocks. Falling revenues and profits (into losses) would also bring more layoffs, and layoffs will reduce purchasing power and consumer confidence.
This morning, the Merc published a SVLG survey of SV CEOs about their expectations for the economy, which are expecting more job cuts this year.
Finally, economists at UCLA’s Anderson Graduate School of Management are predicting real GDP declines through September, and unemployment peaking in 2010 — at above 10% for the US and nearly 12% for California. Even ignoring Anderson’s good forecasting record, I don’t see how a recession this strong will turn around substantially in 2009.
So my expectation is for ugly corporate earnings for several quarters. Banks may be off their firesale prices, but it’s hard to see much upside for the overall economy for the next 6-9 months.
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History repeating?
"Based on 2009 forward reported GAAP earnings, the S&P should be near 0."
There's good support at 0!
"I learned that [it] is sometimes better to be a year early than one day late."
Quote of the day! And one that stubborn bulls will be mumbling ruefully a month from now.
i bought and sold oil stocks twice for modest profits, i came t realize i was tying up way to much money in stocks tied to whims of demand. i put that money into 5-20 dollar stocks where since u own more good stocks they increase n price faster and dont go up or down substantially day to day. ive owned POT,MON,CVX,HES,BP,PBR... still own some PBR, made abunch of money off that but it shot up to fast. its oming back to a good buy price. i do own DO,DXQ, DO is the highest price stock i own. but cut shares of it. i do own oil - enery sector but keep it to the services end. ive sold WMT,KO,PEP,HSY,HD,MCD,... yesterday-cant get greedy) AND MANY MORE. majority of these stocks have not gome back to the what i sold them for. and i bougt them all cheap// eg HD i bought at 17.20. i have bought and sold the same stock a few times. i keep accurate records and study very hard. my short term game plan is to continue taking profits as stocks ride their streaks, once they lose steam, sell them, continue not to invest n stocks costing 35 or more dollars.
FUTURE PLANS--invest in high growth dividend stocks once i get to a goal i have in mind, and im pretty close. hopefully by end of year. one other thing i did was to convert a total of 26,000 of my tradional ira over to roth ira. 13,000 for each 2008 and 2009, they are now in stocks, which will now grow tax free. im doing ok for a dummy with brain trauma with no outside help. AND U CAN DO IT TOO! BTW-- i kept track of the funds i held and if i kept thingd as they were- i would have over 14,000 less in my account and 3100 in my roth ira. my roth currenty stands at 30,650 and thats extremely important.
On Apr 18 02:17 PM pocono wrote:
> i really like analsyts like you, i am a first time invester, age
> 58, prir to that i held several my ira in several mutual funds thats
> were down 30-40 percent. i started studying. 3 times as hard as when
> i went to college. what i did was convert all my mutual funds to
> cash, opened a trading account with scottrade on feb 29. with a total
> of 54,000 another 22,500 was lale in coming from one mutual fund.
> so my total worth transfere was 76,200. btw, this was worth about
> 135,000 2 yrs ago at its high. by march 31 i grew it to 96,566. at
> end of fridays close ur was worth 111,765 my all time high so far.
> i am consisting beating the s @p because i pay no attention to articles
> of gloom and doom, quite frankly i use them as buying oppurtunies.
> as the stocks in question tumble a bit, it gives me a chance to finally
> buy them. AND if u are right and the stock market tumbles a bit,
> i will not tumble back to 76,200. i take my profits when stock levels
> off and start over again with another up and comer. i have no buy
> and hold forever, i have to work with what i have, cant put anymore
> more into ira, im disabled,
> i bought and sold oil stocks twice for modest profits, i came t realize
> i was tying up way to much money in stocks tied to whims of demand.
> i put that money into 5-20 dollar stocks where since u own more good
> stocks they increase n price faster and dont go up or down substantially
> day to day. ive owned POT,MON,CVX,HES,BP,PBR... still own some PBR,
> made abunch of money off that but it shot up to fast. its oming back
> to a good buy price. i do own DO,DXQ, DO is the highest price stock
> i own. but cut shares of it. i do own oil - enery sector but keep
> it to the services end. ive sold WMT,KO,PEP,HSY,HD,MCD,... yesterday-cant
> get greedy) AND MANY MORE. majority of these stocks have not gome
> back to the what i sold them for. and i bougt them all cheap// eg
> HD i bought at 17.20. i have bought and sold the same stock a few
> times. i keep accurate records and study very hard. my short term
> game plan is to continue taking profits as stocks ride their streaks,
> once they lose steam, sell them, continue not to invest n stocks
> costing 35 or more dollars.
> FUTURE PLANS--invest in high growth dividend stocks once i get to
> a goal i have in mind, and im pretty close. hopefully by end of year.
> one other thing i did was to convert a total of 26,000 of my tradional
> ira over to roth ira. 13,000 for each 2008 and 2009, they are now
> in stocks, which will now grow tax free. im doing ok for a dummy
> with brain trauma with no outside help. AND U CAN DO IT TOO! BTW--
> i kept track of the funds i held and if i kept thingd as they were-
> i would have over 14,000 less in my account and 3100 in my roth ira.
> my roth currenty stands at 30,650 and thats extremely important.
Until most believe in this rally it will remain in place...
i started with the big names, bought them low, got alittle more money to keep increasing my portfolio. and its rapidly multiplying. i am betting the market by almost 14 percent. if u have a better plan, i am all ears. a i stated, i have a brain injury, a novice invester, as u cn tell from my spelling. i do have problems, it takes me 3 times as long to do things as most people but i dont give up. so what is fishy? i hide nothing!
On Apr 18 03:49 PM StockMan99 wrote:
> How did you buy PEP, MON, CVX, HES, POT, WMT, KO, and MCD if you
> never buy a stock over $35 a share? There 52-week ranges are all
> higher than that? Something smells fishy!
Prudentinvestor is right about the 1915 timeframe. Perhaps a more precise pin-point date would be circa 1921-23 when the U.S. called the series of Washington Conference - turning the table from Great Britain to become the world's undisputed leader.
Bjarne may be right if we continue to spiral downward from this inflection point, he said: "...I predict that in two years, we will be a third world country no longer able to save ourselves." But I dispute the timing. It would be more like 2050 that we become a second-tier nation; and by 2099 as the vassal of the then new world superpower. My view is, eventually, as was what happened in the Bible, the American people will be led off to captivity as the Isralites under King Nabucadnezzar and Cyrus the Great.
Donzelion is right about China's GDP in circa 1800 at the height of the Qing Dynasty under the Emperor Qianlong. For those who visited the Williamsburg, VA Governor House, one would have noticed that the decor was distinctively Chinese to reflect the glory and prestiage of the greatest empire at the time. Unfortunately, it was a waterfall juncture when that nation soon began its long descent ever since till modern time, mainly because of the onslaught of corruption.
then you don't even say specifically what you mean by that. chimp-level article.
On Apr 18 11:54 PM Teutonic Knight wrote:
> Many great comments. I have a few observations below:
>
> Prudentinvestor is right about the 1915 timeframe. Perhaps a more
> precise pin-point date would be circa 1921-23 when the U.S. called
> the series of Washington Conference - turning the table from Great
> Britain to become the world's undisputed leader.
>
> Bjarne may be right if we continue to spiral downward from this inflection
> point, he said: "...I predict that in two years, we will be a third
> world country no longer able to save ourselves." But I dispute
> the timing. It would be more like 2050 that we become a second-tier
> nation; and by 2099 as the vassal of the then new world superpower.
> My view is, eventually, as was what happened in the Bible, the American
> people will be led off to captivity as the Isralites under King Nabucadnezzar
> and Cyrus the Great.
>
> Donzelion is right about China's GDP in circa 1800 at the height
> of the Qing Dynasty under the Emperor Qianlong. For those who visited
> the Williamsburg, VA Governor House, one would have noticed that
> the decor was distinctively Chinese to reflect the glory and prestiage
> of the greatest empire at the time. Unfortunately, it was a waterfall
> juncture when that nation soon began its long descent ever since
> till modern time, mainly because of the onslaught of corruption.
On Apr 19 12:25 AM Teutonic Knight wrote:
> typo: corrected spellings for presige, descend.
When it comes to investing, I am still a "neophyte" - so the rule of thumb is "How Much Discount Do I Get?" rather than asking "Is This THE Bottom or Not".
Buying XLF and UYG as long-term investments when the BKX was more than 80% discount was not hard at all. After all, the banks are in such a big trouble. Buying them at 30% or 50% discount seems not worth the risks. But at 80% or more, that is something else other than too risky to pass.
The banking system is not going to crumble, are they? The American economy, the stock markets, it's government, and the existence of it's own people will survive again if not make another progress in the future, are they or are they not?
We are not going into Fascism or Communism, are we? The world will not end in World War 3 within the next few years or decades, will it?
We will survive, and we will make progress again in the future. Otherwise, why study the markets and invest in it?
BKX made a March 2008 bottom with 85.33% discount. Whether that will be THE bottom or not is practically immaterial at that level. Hoping for 90% or 95% discount is a fool's errant.
I wish you nothign but success in your future investments, but don't get too greedy or boastfull over some good stock decisions made in a six week period during a stock market rally.
The bank profits are due to FASB, and of course AIG scam, and getting 0% money from the Fed – does all that even count. The fundamentals of the economy are unsound, this is structural bear market – the great deleveraging. We are likely headed into deflation, stock markets cannot do well. I am 95% cash.
Worst is yet to come.
The bank profits are due to FASB, and of course AIG scam, and getting 0% money from the Fed – does all that even count. The fundamentals of the economy are unsound, this is structural bear market – the great deleveraging. We are likely headed into deflation, stock markets cannot do well. I am 95% cash.
Worst is yet to come.
As for this rally, I read in Jim Wille's newsletter that this rally ws started by wallstreet brokers calling in shorts on Citi. And my son who works at a trading company somewhat confirmed this in that his company can no longer get Citi shares to short.
Seems to me that this is a set up to help some banks sell shares or make profits in selling shares they had taken positions in. I have read so many articles that say earnings will be terrible for the S&P500 and I think the recovery will be muted, too much debt, no HEW (home equity withdrawal). HEW has fallen from $228 a couple of years ago to only $9B in 2008 and added 5% to GDP. With home values down, 401Ks down, and job losses up I think consumer spending is going to trimmed significantly.
Good Luck.
A bear market rally is fine and it's a way to make money, especially if you use trailing stops to lock in gains.
But it is not the beginning of a new bull market.
On Apr 19 05:46 PM Fighting Yoda wrote:
> This rally started from Citi making bullish comments, should anyone
> care about Citi – it is on life support. Last rally started with
> Geithner nomination. None of the rallies had any basis in fundamentals,
> so like the previous, this rally too shall die.
>
> The bank profits are due to FASB, and of course AIG scam, and getting
> 0% money from the Fed – does all that even count. The fundamentals
> of the economy are unsound, this is structural bear market – the
> great deleveraging. We are likely headed into deflation, stock markets
> cannot do well. I am 95% cash.
>
> Worst is yet to come.
www.wealthalchemist.co.../