Gary Griswold

Equity Market Bulls: History Is Not on Your Side

I beg to differ. History is on the bull side, because the stock market will revert to its mean. The route that it takes getting there is far less important and far more difficult to forecast. There is no question that the current market is ahead of economic realities, and a major correction could occur at any time. But there is no guarantee that it will correct, and all of the forecasts I have heard this year on when it will occur have been incorrect.

There is risk in being in the market and risk being out of the market. The idea that one can escape risk is fanciful.

Applying Farrell's Rules to the Current Market

It would be interesting to see these examples of the three phases of a bull market overlaid with the concurrent economic statistics. In the 2000 to 2003 example, the third dip started near 9/11/01, an external event that hopefully will not be repeated.

The Great Recession Continues

Your analysis is missing an historical comparison of stock market performance vs these indicators in past recessions. Instead, your analysis seems to assume that the market will not recover until the indicators you have selected are returning positive numbers. I think you need to drop that assumption and investigate the relationship of this data to stock market performance with real data.

Q2 Earnings Are Not What They Seem

Is it possible to identify the source of the data that produced this chart? Other source, such as a recent vide on FT short view have shown a 30% drop in average S&P profits, which is quite different than the above chart. I have not done these calculations, but an ad-hoc review Q2 earnings that I have done makes me think the short view is much more accurate than the above chart. However, I am ready to be persuaded by actual data.

Click the following and select the article dated July 27
www.ft.com/cms/bfba2c4...

Microsoft's Windows Revenue Skids, Netbooks a Factor

The continued growth of Linux as a server operating system must also be affecting Microsoft. The cost difference is very large. A server running a number of Microsoft server products will cost thousands of dollars in license fees to Microsoft. In Linux the equivalent server products are free. In a recession one would expect many people to move toward the cheaper alternative.

Also, the popularity of iPhone has driven up Mac sales, and this would affect Microsoft on a 1 for 1 basis. The increase in Netbook sales is mentioned here as a factor. Even the continued popularity of iPhone will probably have a small dampening affect on Microsoft computer sales, because people will defer the purchase of a computer in order to help afford the iPhone.

Sorry, but I don't have any statistics to present, but I think these are the factors that are affecting Microsoft as well as the move obvious recession factor.

Is the U.S. Dollar the Fed's Next Weapon?

If the US government aided the devaluation of the dollar, wouldn't the US governments creditors regard the action as a deliberate attempt to avoid the payment of debt? And if such devaluation was done to a significant degree wouldn't some creditors consider it an act of war?

The arguments presented in the above article do make sense, but I think that conclusions are being drawn in a very narrow way that does not consider the interests of all parties, and how those interests will affect the government's decision making.

While I do agree that a reasonable hedge against the dollar is wise, I think the extreme devaluation that some are expecting is unlikely any time soon.

GE Results Validate Theory: Severe Economic Contraction

The current GE is not a proxy for the economy. It is still unwinding its financial division's mistakes, that occupied over 30% of its 2007 profit. It is a proxy for the US economy in the sense that it must transform itself. Its future is in its industrial roots, and same can be said for the rest of our economy.

All this page reads like people in search of data that fits their preconceptions. Better luck next time.

John Hussman: Green Shoots and a Grain of Salt

John,

There is lots of skepticism in here, but not much substance. You have expressed you position, but not really defended it.

Easiest Way to Find Emerging Markets? Look at Age.

The June 25th issue of the Economist contains a number of articles on precisely this issue, but from the negative standpoint of how many economies are going to be very negatively affected by their aging population. The following was the first such article.

www.economist.com/spec...

While you considered this a long-term issue, and I think you are correct, I think age correlated with stock market returns by country would show a significant correlation even in the last 3 months.

This Rally Smells Fishy to Me

Yes, it took months for the stock market to accept there was a problem in 2007 and turn down. So, you conclude that there should also be an equal delay between reality and a market upturn? No, I think stock market history is very clear that markets start rising well before the end of a recession, and markets fall only after the bubble bursts.

A similar example of this (on a smaller time scale) can be found in the Yen carry trade of the past few years. Each time that the dollar/yen started to decline it took a couple of weeks for Yen carry trade to slow down. And yet as soon as the dollar/yen started to rise the Yen carry trade returned.

I am not positive how to characterize this asymmetry between up-turns and down-turns except to conclude, possibly this occurs because more people are optimistic than pessimistic.

By the way, I am not saying that we have seen the bottom of this market, and I don't know where the market will go from here. I hope up.

The Coming Economic Collapse, Part 3

This article strikes a cord with me that must be in my genes. I recall that both my father and grandfather placed large bets on the demise of the US economy in their day. But, I must add they both lost their shirts in that decision. I have no insight into where the market is going from here, but am thankful to have made 8%, 15% and 15% in the last 3 months. I agree that most of the problems described in these articles are very real and will affect the US economy and world economy, but I am not at all certain when these problems will affect our economy and whether we are expecting deflation, hyper-inflation or stag-flation. The facts presented could be used to support any one of these future outcomes.

I think it is helpful to recall that when the DOW was at 14,000 people were talking about how long it will take for it to get to 20,000. Now that the talk is about how much lower it will get. These observations do not give confidence to the belief that we humans are good at forecasting the future of such things. Instead, these observations support a more contrarian view.

My reasoning is much simpler, and does not require a forecast of the near-term future. If I buy low and sell high I will make a profit. If this author turns out to be correct, my investments will go through a disappointing period, but my expected outcome will most likely still occur.

The Coming Economic Collapse, Part 2

Dear Graham,

You make many important points, but many of your supporting facts are bold assertions that are difficult to authenticate. For example, please consider the following:

"A lot of folks have made a big deal about the US running a $1 trillion deficit this year. Well, if you included the net value of those unfunded Social Security and Medicare expenses we cleared a $1 trillion deficit in 2007, a $5 TRILLION deficit in 2008 and are on course to clear a $9 TRILLION deficit this year."

This is a very interesting point, but without the arithmetic to support it, I am not certain how seriously to take this statement.