The Market Is Priced to Perfection

At some point this week the stock market indexes could reach a moment of truth on their respective stock charts. Last week we wrote about possible downside support levels. Well, we are within spitting distance of each.

Pay close attention to how the indexes trade as the hit these key levels: NASDAQ – 2200, Dow Jones Industrials are there right now and the S&P 500 – 1000. The routine has been hit support and bounce. As they say “the trend is your friend” - until it’s no longer a trend. If we hit support and sell off, that’s a break in this routine.

There is a lot of worry building up out there. The indexes have turned a deaf ear and a blind eye to the fact that the economic picture and news remain bleak. Unemployment is still on the rise and headed to at least 10%, the dollar is sinking and losing its world currency appeal, Social Security is already out of money, gold is rising, debt is exploding, Greenspan says 2010 will suck, Afghanistan is getting worse, paychecks are flat, future inflation is feared and Chicago lost the Olympics (thankfully as a Chitown taxpayer.)

It is often said that certain stocks are priced to perfection, meaning they have no room for error. Let us be the first to say the stock market, the current congress, the Fed’s and administration’s policies are priced to perfection. If we have one misstep, what bullets are left in the gun to fire? Interest rates are next to nothing, the tax-payer is spent, the government is broke and there are no pennies for a rainy day.

If we have some sort of natural or “manmade” disaster, how do we dig ourselves out of that hole? If these borrow and spend policies don’t work, then what?

As long as we can stay in the uptrend, a lot of these problems can iron themselves out. As the market goes is how the economy usually follows. Here’s to crossing your fingers and hoping the trend is a true friend.

Comments

[Daniel Eskin:]

Wow very well written... pretty scary to just throw all those facts in together, but it's true, the government in this time has really caused a lot of damage that will be very hard to fix... and yet keeps wanting to spend more on things like a health reform - that could wait until we're out of this economic slump.

To answer your rhetorical question of what to do when nothign is left for a rainy day? .... unfortunately probably print more pennies... aka hyperinflation. But let's hope for the best that it doesn't turn out that way. Nothing is certain until it happens.

Check out my blog at: youngandinvested.com

Oct 06 04:53 PM

[Albertarocks:]

Depending on who you listen to and how you make the measurement, the S&P is priced anywhere from 20 future earnings (what?) and 130 times last year earnings. Let's split the difference and make it 75 times times the average of last year's earnings and next years wishful thinking earnings.

75 times earnings doesn't sound "priced to perfection" no matter how you slice it.... EVER.

Oct 06 08:48 PM

[untrusting ...:]

Eskin,
Just curious, what makes you think the government caused all the damage? Sure both the political parties are incompetent idiots, but they certainly did not cause all the problems.

Did they cause AIG to fraudently write derivative contracts AIG could not pay for? Did they cause Lehman or Bear or Merrill to use tens of billions of dollars of overnight money that when crunch time came then nobody would lend to them? Did they cause private ratings agencies to fraudently rate securitized mortgage bundles as AAA when they were probably not even DDD? Did they cause the big banks to use 30-50 times leverage? Did they invite Pfizer to defraud them (4th time recently) out of over $2billion in billings? Did they ask Haliburton to bill them for tens of millions of dollars in worthless electrical contracts in Iraq? Did they ask Wall Street to fraudently misrepresent hundreds of billions of dollars in worthless DotCom startups in the early 2,000's? Did they ask Enron to fraudently sell unregulated energy to California and destroy by fraud one of the largest companies in the US at the time?

Somehow you overlook the massive greed and fraud at the corporate and Wall Street level that has been a key part of this mess. Somehow you overlook the hordes of corporate lobbyists that are paid by corporate america to actually pay off the politicans and get laws passed which enable this greedfest by corporate america.

And on the point of healthcare, what makes you think US healthcare is not a large part of the problem with the economy in the US?

The fact is the US spends 16-17% of GDP on healthcare, a hugh economic cost. And the fact is the US healthcare system is a private healthcare model and has been for many many decades. The bigger question is, give our so-called titans and superstars of private industry, why is it that US healthcare is the MOST expensive in the developed world and produces among the worst health outcomes(results) in the developed world. The logical answer to that is: (a) the greediest insurers in the world, or (b) the most inefficient private medical practicioners in the world, or (c) the most corrupt/inept healthcare system in the world. You see, private enterprise is supposed to be judged on results and nobody can objectively claim that the US healthcare system is anything but the most expensive least efficient system in the developed world - and private enterprise has to accept their responsibility for that.

For example, PBS did showed an objective documentary of healthcare in Holland/Netherlands. They just converted to mandatory national healthcare (in 2006 if one remembers correctly) and it is 100% run by private insurers. The Dutch spend about 7% of GDP, less than 1/2 of the US spending. They have 100% of the population covered and the health outcomes/results are far far superior to those in the US. The average Dutch citizen pays $160/month for basic healthcare. No citizen can be excluded or age, sickness, or any other reason by the private insurers. Any Dutch citizen can purchase additional coverage for things like dental, cosmetic surgery, etc, but they pay extra for that.

Most Americans would practically kill for the healthcare cost and coverage the Dutch have.

So the bottom line is, you can rant and rave all you want about the government being the problem. The fact is that our greedy and incompetent and crooked American pseudo-capitalists have to take at least as much blame for the state of affairs in the US today as does the government.

If you don't think that is true, ask yourself about US bankers executive compensation. China, a communist country, now has 3 of the 10 largest banks in the entire world. The highest paid bank CEO is China earned about $250,000 in compensation last year. Yet our US bank CEO's paid themselves tens to hundreds of millions of dollars in compensation. They attempt to justify it by claiming it is based on performance. Rubbish, they have been outperformed by Chinese bank CEO's earning a tiny fraction of their compensation. But then, according to you .... the government caused the massive excess compensation for the US bank CEO's. Nonsense.


On Oct 06 04:53 PM Eskin wrote:

> Wow very well written... pretty scary to just throw all those facts
> in together, but it's true, the government in this time has really
> caused a lot of damage that will be very hard to fix... and yet keeps
> wanting to spend more on things like a health reform - that could
> wait until we're out of this economic slump.
>
> To answer your rhetorical question of what to do when nothign is
> left for a rainy day? .... unfortunately probably print more pennies...
> aka hyperinflation. But let's hope for the best that it doesn't turn
> out that way. Nothing is certain until it happens.
>
> Check out my blog at: youngandinvested.com

Oct 06 10:25 PM