One of the Last Bears Standing

Stock-market bears are on the endangered-species list. More and more are morphing into bulls, including Interest Rate Observer publisher James Grant who says the deeper the slump the zipper the recovery (hat tip to Canadian Capitalist).

But there are still a few lone bears roaming the commons. Of note is Charles Biderman, CEO of TrimTabs Investment Research. His latest analysis of daily income tax deposits to the U.S. Treasury projects 358,000 U.S. jobs lost in September, almost double the consensus estimate.

A TrimTabs study concludes job losses

are contributing to record mortgage delinquencies, which will be a drag on economic growth for several years. In addition, defaults have spread to commercial real estate loans, credit cards, and commercial and industrial loans.

Mr. Biderman adds:

Consumers are in terrible financial shape despite the trillions of dollars the government has spent on bailouts and stimulus programs. When investors realize how weak the economy truly is, stock prices are going to plunge.

Comments

[enigmaman:]

Agreed, add to that the following from SA
"One possible reason that insider selling has become so lopsided: a Business Roundtable survey (.pdf) that finds over the next six months 79% of CEOs expect capital spending to be flat or worse - and 87% expect to do no hiring"

So the front line CEO says " pull back" "sell everything" taking their chips off the table because they see a train not the light coming!

Sep 30 04:14 PM

[The Geoffster:]

Watch top line 3Q earnings.

Sep 30 05:09 PM

[untrusting ...:]

Only problem is fundamentals, economic recovery claims, technicals, valuation, nor any other normal stock market metric has anything to do with the recovery rally.

The recovery rally in stocks is almost 100% due to: 1) massive Fed liquidity, 2) virtually zero interest rates, 3) hugh declines in US dollar, and 4) manipulation of 50-70% of the market trading volume by a tiny handful of 2% of the big traders (GS, JPM, HFT, etc with Fed/Treasury approval).

Thus the artifical recovery rally can go on as long as the Fed is willing to finance it and let the handful of big traders continue to move it higher. The insiders selling know this and that is why they are selling. The smart money knows this and that is why money inflows are 10:1 going into bond funds now and not stocks. Just saw an article (Reuters survey of big fund managers) and most of them are also were moving in Sept. to cash and bonds.

The wild card that all stock purchasers have to realize is that the big traders ONLY CARE about maximazing their trading profits and their multi-billion dollar bonuses. At some point, probably sooner rather than later, they will be able to make a lot more money shorting the market and letting it crash again, instead of supporting it. You probably won't want to be in the way of that one.


On Sep 30 04:14 PM enigmaman wrote:

> Agreed, add to that the following from SA
> "One possible reason that insider selling has become so lopsided:
> a Business Roundtable survey (.pdf) that finds over the next six
> months 79% of CEOs expect capital spending to be flat or worse -
> and 87% expect to do no hiring"
>
> So the front line CEO says " pull back" "sell everything" taking
> their chips off the table because they see a train not the light
> coming!

Sep 30 07:23 PM

[Roger Knights:]

"His latest analysis of daily income tax deposits to the U.S. Treasury projects 358,000 U.S. jobs lost in September, almost double the consensus estimate."

This has an important implication about the unemployment rate at the end of the year. It suggests that the BLS may have to revise its estimated-employment numbers for earlier in the year sharply downward. (Its birth/death-of-businesses estimates are being made based on the pattern of previous recession-recoveries and are therefore probably unrealistic.)

"When investors realize how weak the economy truly is, stock prices are going to plunge."

Sharply revised BLS numbers would strongly revise investors' perceptions. The green-shoot beanstalk would wilt under the weight of all the Jacks atop it.

Sep 30 07:30 PM

[Moon Kil Woong:]

Most of the bulls I hear are bears in disguise.

The general concensus is "Sure economics are bad but you have to join the spending party and stand very close to the door for when it ends." I think everyone is waiting for a sequel to Carrie. The only problem is like in that movie, no one gets out in time.

The other end of the spectrum is people waiting for inflation to occur in which those in bonds and fixed income get waterboarded for each year they locked their money up for. Apparently no one is willing to risk 30 times with a 30 year US Treasury anymore. Thus all their money ends up in equities since commodities is simply not a big enough market to hold all the cash.

Sep 30 10:52 PM

[David Van K...:]

One of the last bears standing? Is that a joke? What about the thousand or so bears who comment and write articles every day on Seeking Alpha? Don't they (we) count? Or does Seeking Alpha just represent "dumb money"?

Sep 30 10:54 PM

[E Nuff Sed:]

Biderman is focusing too much on unemployment and not on the employed. Consumer spending which was depressed over the last couple of years is now coming back and the wealth effect (after a 50% +rally) will likely start reasserting it self.

Sep 30 10:56 PM

[Nick36:]

In the long run, stock prices will have to be related to the earnings of companies. And the reported earnings of companies so far are resulting in some pretty wild P/E ratios. The S&P 500 P/E based on reported earnings is well over 100 now.

It's the Bulls who need to prove their case and not the Bears.

The Bulls are predicting that the earnings of companies are going to improve a lot. But whether that's true or not still remains to be seen. And the present fundamentals of the economy simply don't support this kind of an optimistic prediction.

Bulls can hold onto their stocks and not sell them for a while, even while the economy stagnates without much improvement. But eventually they will sell. Because staying invested for the long term with such poor P/E ratios simply doesn't make sense. They can get better yields in government bonds with a lot less risk than in the stock market.

Sep 30 11:03 PM

[thiazole:]

I agree - the economy has recovered with worse unemployment than this. In fact, if you look at GDP growth, the strongest recoveries have occurred when unemployment was worst, while recessions like the last two where unemployment wasn't very high saw very weak recoveries. This is probably because an ample and cheap labor supply is conducive for business growth.


On Sep 30 10:56 PM E Nuff Sed wrote:

> Biderman is focusing too much on unemployment and not on the employed.
> Consumer spending which was depressed over the last couple of years
> is now coming back and the wealth effect (after a 50% +rally) will
> likely start reasserting it self.

Oct 01 10:18 AM

[thiazole:]

They will improve based on the simple fact that you are using trailing P/E ratios to get those numbers, and the worst quarters (where companies lost a ton of money) will fall off the trailing data eventually. Why should we all pretend that this event won't happen and be surprised when the trailing P/E magically falls a bunch? Remember how many $10s of billions companies lost in Q4 2008? That quarter alone is responsible for vast majority of the P/E ratio that you cite.
Those of us who are bullish have made this case DOZENS of times, but for some reason bears keep citing the trailing P/E number as if it were a new revelation. It makes me think that many bears are being intellectually dishonest.

On Sep 30 11:03 PM Nick36 wrote:

> In the long run, stock prices will have to be related to the earnings
> of companies. And the reported earnings of companies so far are resulting
> in some pretty wild P/E ratios. The S&P 500 P/E based on reported
> earnings is well over 100 now.
>
> It's the Bulls who need to prove their case and not the Bears. <br/>
>
> The Bulls are predicting that the earnings of companies are going
> to improve a lot. But whether that's true or not still remains to
> be seen. And the present fundamentals of the economy simply don't
> support this kind of an optimistic prediction.
>
> Bulls can hold onto their stocks and not sell them for a while, even
> while the economy stagnates without much improvement. But eventually
> they will sell. Because staying invested for the long term with such
> poor P/E ratios simply doesn't make sense. They can get better yields
> in government bonds with a lot less risk than in the stock market.

Oct 01 10:31 AM

[Nick36:]

The fact is that due to recent changes in accounting rules, a lot of financial losses of banks and other institutions have been hidden instead of accounted for.

And many Bulls are intellectually dishonest when they pretend that the financial crisis is finished and all of the losses have been accounted for. This simply isn't true.

There are hundreds of billions of losses that still need to be accounted for. And that's why the so called trailing P/E is a true reflection of the economy.


On Oct 01 10:31 AM thiazole wrote:

> They will improve based on the simple fact that you are using trailing
> P/E ratios to get those numbers, and the worst quarters (where companies
> lost a ton of money) will fall off the trailing data eventually.
> Why should we all pretend that this event won't happen and be surprised
> when the trailing P/E magically falls a bunch? Remember how many
> $10s of billions companies lost in Q4 2008? That quarter alone is
> responsible for vast majority of the P/E ratio that you cite.
> Those of us who are bullish have made this case DOZENS of times,
> but for some reason bears keep citing the trailing P/E number as
> if it were a new revelation. It makes me think that many bears are
> being intellectually dishonest.
>

Oct 01 12:51 PM

[thiazole:]

Well, regardless, Q4 2008 will fall off the map in a little more than 3 months. You might think it still matters, but the rigid 1 year trailing P/E valuation model that you adhere to won't. Maybe you should lobby to make the trailing P/E go back 2 years so this data won't fall off so soon - of course, you will also data prior to that, so that might backfire on you. I personally prefer to look forward when investing, not backward.

Much of the billions in paper losses that you think should be on the books may never become realized losses. It would require that real estate continues to crash, and at least the shorter term trend is in the opposite direction. There are many reasons to believe that the longer term trend will at least be stable (the biggest probably being the amount of inflation that we will see over the next 5-10 years).


On Oct 01 12:51 PM Nick36 wrote:

> The fact is that due to recent changes in accounting rules, a lot
> of financial losses of banks and other institutions have been hidden
> instead of accounted for.
>
> And many Bulls are intellectually dishonest when they pretend that
> the financial crisis is finished and all of the losses have been
> accounted for. This simply isn't true.
>
> There are hundreds of billions of losses that still need to be accounted
> for. And that's why the so called trailing P/E is a true reflection
> of the economy.

Oct 01 03:01 PM

[Shishir Nigam:]

There's definitely lots of bears out there right now so I find it hard to agree. I'd even be tempted to say that there's more bears now than bulls, at least amongst the informed investors.

It might be the case that there's a lot new un-informed investors that are being pulled into this rally just because are seeing higher prices but in the informed community, I continue to see many bearish opinions.

Oct 01 03:06 PM

[Jeff Miller:]

Roger -- you write that the (BLS's) "birth/death-of-busine... estimates are being made based on the pattern of previous recession-recoveries and are therefore probably unrealistic.)"

That is not the BLS methodology -- not even close. The BLS imputes a lower rate of job creation for new businesses based upon the behavior of existing businesses. It then has a (much less important) birth/death adjustment. The overall process has been very accurate throughout the business cycle, improving forecasts in every quarter since it has been implemented.

Most commentators on this subject do not want to be confused by actual facts or data :) If you are otherwise, I summarized it here: oldprof.typepad.com/a_...


On Sep 30 07:30 PM Roger Knights wrote:

> "His latest analysis of daily income tax deposits to the U.S. Treasury
> projects 358,000 U.S. jobs lost in September, almost double the consensus
> estimate."
>
> This has an important implication about the unemployment rate at
> the end of the year. It suggests that the BLS may have to revise
> its estimated-employment numbers for earlier in the year sharply
> downward. (Its birth/death-of-businesses estimates are being made
> based on the pattern of previous recession-recoveries and are therefore
> probably unrealistic.)
>
> "When investors realize how weak the economy truly is, stock prices
> are going to plunge."
>
> Sharply revised BLS numbers would strongly revise investors' perceptions.
> The green-shoot beanstalk would wilt under the weight of all the
> Jacks atop it.

Oct 01 03:38 PM

[thiazole:]

Believing that we are in the midst of a mild correction does not make you a bear - the fact that you are looking to buy this correction means you are a solid bull (and you will make money with your strategy).

The real bears out there are the ones who are saying the S&P will go to 500 and some are even saying 100. They are not "informed investors" (unless by informed, you are talking about keeping up on the latest neo-Nazi conspiracy theory propaganda). They are some of the most irrational uninformed people I've ever met.


On Oct 01 03:06 PM Shishir Nigam wrote:

> There's definitely lots of bears out there right now so I find it
> hard to agree. I'd even be tempted to say that there's more bears
> now than bulls, at least amongst the informed investors.
>
> It might be the case that there's a lot new un-informed investors
> that are being pulled into this rally just because are seeing higher
> prices but in the informed community, I continue to see many bearish
> opinions.

Oct 02 11:58 AM

[Roger Knights:]

In my comment above I was prescient. I wrote, "the BLS may have to revise its estimated-employment numbers for earlier in the year sharply downward. (Its birth/death-of-businesses estimates are being made based on the pattern of previous recession-recoveries and are therefore probably unrealistic.)"

Today there's an article in the NYT stating that the BLS will have to make a .8% downward reduction in its employment figures (in February). Here's the link:
norris.blogs.nytimes.c...

Oct 03 12:35 AM