"The best thing that Wall Street may have going for it," writes Paul Lim in the NYT, "is that so...


"The best thing that Wall Street may have going for it," writes Paul Lim in the NYT, "is that so many investors are pessimistic." That's because sentiment is a "contrarian indicator" for future activity. Similarly for consumer confidence, which continues to slump even as retail sales rise.
Comments (28)
  • Barry Crocker
    , contributor
    Comments (450) | Send Message
     
    Yawn...
    23 Oct 2011, 06:38 AM Reply Like
  • Papaswamp
    , contributor
    Comments (2236) | Send Message
     
    I don't think retail sales has risen, but rather the denominator (number of retail sales locations) has contracted. Cut this down enough and it 'appears' sales has increased. Auto sales is purely due to the return of sub-prime (and now government backed) loans.
    23 Oct 2011, 07:47 AM Reply Like
  • Tack
    , contributor
    Comments (15903) | Send Message
     
    papa:

     

    Are you so bearish that you make up the data, as you go? Go examine any gross retail data, and you'll see that your assertion is patently false. In fact, retail sales just hit an all-time high in aggregate value: http://1.usa.gov/pWh6mj
    23 Oct 2011, 11:54 AM Reply Like
  • JohnLocke
    , contributor
    Comments (383) | Send Message
     
    Can you provide a source for those numbers that do not have a vested interest in the system they are reporting on...

     

    In this game you had better look at the source of your information as well as the information itself...

     

    I'm not saying don't trust your government just independently verify any information you can.

     

    I own a small business and know alot of other business owners we know business is off (non retail),
    23 Oct 2011, 01:19 PM Reply Like
  • Tack
    , contributor
    Comments (15903) | Send Message
     
    john:

     

    Just go back a few days and examine all the various retail reports. Sales are up strongly.
    23 Oct 2011, 01:40 PM Reply Like
  • Papaswamp
    , contributor
    Comments (2236) | Send Message
     
    Tack,
    I'm sure the information you cite is correct....that is why we have 45 million on food stamps and an employment to population ratio at 1984 levels. The number of retail stores is substantially lower.

     

    If those sales numbers are correct, we should see completely different labor and wealth situation. Instead, we continue to see a decline in the wealth of the average individual.
    http://bit.ly/oXPMhw

     

    As the Social Security administration calculated...over half of wage earners make less than $27,000. Hardly what one would call buying power.
    "By definition, 50 percent of wage earners had net compensation less than or equal to the median wage, which is estimated to be $26,363.55 for 2010."
    http://1.usa.gov/rsceVr

     

    Reality of the circumstances of people does not bear out the retail numbers.

     

    So no....I don't believe the retail sales numbers.
    23 Oct 2011, 02:54 PM Reply Like
  • Tack
    , contributor
    Comments (15903) | Send Message
     
    papa:

     

    When you defy the actual data reported separately by the Government, retail associations and corporations themselves and say you "don't believe it," then, you're lost to the world of fundamentals and investment analysis and have entered the mystical, where one can believe any scenario one wihses, depending upon one's moods, I suppose. Anecdotal experiences of friends and family don't qualify as data, either.

     

    I don't expect to alter your views, but I can't support your methods, either.
    23 Oct 2011, 05:33 PM Reply Like
  • Poor Texan
    , contributor
    Comments (3527) | Send Message
     
    Tack.

     

    As prices rise and cereal box (and other) sizes decrease, are the additional dollars producing any increase in actual sales, leading to inventory replenishment and expansion, or just reflecting higher prices of existing unit sales, leading to tighter inventory control.
    I don't know but I'm concerned that the official statistics are comparing peaches and nectarines. Not making any investment decisions on these figures.
    23 Oct 2011, 09:26 PM Reply Like
  • Tack
    , contributor
    Comments (15903) | Send Message
     
    PT:

     

    I just don't know what to say. There are so many sets of data from so many sources, all demonstrating that the economy is growing, that if one wishes to ignore all these based on the vague notion that they're inaccurate, contrived, or whatever, then, it's hard to know to what information one could point to be convincing.

     

    If one doesn't make investment decisions on data, available from myriad sources, then, what does one use, one of those Crazy 8-Balls?
    23 Oct 2011, 11:01 PM Reply Like
  • Papaswamp
    , contributor
    Comments (2236) | Send Message
     
    Tack,
    I'm not saying net revenues/profits aren't increasing with some companies....but I'm not sure the average American is spending more (or if they are, they are going into debt and/or draining savings). Now overseas, specifically Asia, is a different story.
    When I see banks doing 'revaluation' on revenues...I get real suspicious. Auto sales increasing at the same rate of sub-prime (govt backed) auto loans. Mall vacancies reaching record highs. Claims that in turn this is due to internet sales, yet the king...Amazon...just had a disastrous report. Then there is the housing market....I just don't see the economic expansion. At most I see sideways.
    Additionally I see things like the HARPEX....that is showing me something quite against the reported 'expansion'.
    http://bit.ly/qiOYoN
    25 Oct 2011, 06:27 PM Reply Like
  • MainStreetKate
    , contributor
    Comments (62) | Send Message
     
    Given that the business model generally involves a contraction, followed by a trough, before achieving expansion, I'm not really sure why everyone is so surprised by the position we are in right now? It seems pretty reasonable....
    Also seems like a pretty good time to put some active management investment strategy to work & bet on the expansion that will inevitably arrive.
    Be careful when predicting the end of the world. It only happens once.
    23 Oct 2011, 08:25 AM Reply Like
  • mattskin
    , contributor
    Comments (68) | Send Message
     
    Rationale too logical...head about to explode....

     

    Amen.
    23 Oct 2011, 09:51 AM Reply Like
  • Conventional Wisdumb
    , contributor
    Comments (1800) | Send Message
     
    Main,

     

    "Be careful when predicting the end of the world. It only happens once."

     

    Sounds pithy, but we have had two drawdowns in the last 10 years that have exceeded 40% that may not be the end of the world but it was pretty devastating.

     

    Have we really solved the problems from 2008? We papered them over (pun intended) so who knows if this is long lasting solution to the problem. I certainly don't think so and that's not pessimism that's realism assuming you accept my premise.

     

    As financial history shows and this article indicates most people buy at the high and sell at the low so their pessimism is warranted even as their strategy for dealing with it is wrong.

     

    As I am sure you know we are well below our high on the S&P from March 2000 even with dividends reinvested. On an inflation adjusted basis, it is absolutely terrible.

     

    Treasuries and bonds have outperformed during this period so maybe it is time for equities to return to form but who knows?

     

    I expect one more meltdown once we get past 1320.
    23 Oct 2011, 11:22 AM Reply Like
  • Tack
    , contributor
    Comments (15903) | Send Message
     
    CW:

     

    Why "one more meltdown," why not seven? or none?

     

    It's important to keep an eye on underlying hard data, which continues to support expansion, and has for many months, rather than get sidetracked by the "fear du jour" trumpeted by the media. What's been occurring throughout the horizontal market yo-yo that's been going on for many months is that actual sales and earnings have moved relentlessly forward, making the value equation better and better.

     

    Unless we get into a major new panic, completely detached from the fundamentals, it's inevitable that the market will, at some point, have to adjust to the underlying data. That presents numerous good value plays for judicious investors, now.
    23 Oct 2011, 12:00 PM Reply Like
  • Conventional Wisdumb
    , contributor
    Comments (1800) | Send Message
     
    Tack,

     

    "It's important to keep an eye on underlying hard data, which continues to support expansion, and has for many months, rather than get sidetracked by the "fear du jour" trumpeted by the media."

     

    We've had this dialogue numerous times, I make decisions using a different set of data than you do - it's really that simple. My data got me out of the market in August 2007. It works for me.

     

    Thanks for asking.
    23 Oct 2011, 12:21 PM Reply Like
  • Tack
    , contributor
    Comments (15903) | Send Message
     
    CW:

     

    So, is your set of data telling you we'll have "one more meltdown?" More importantly, why?
    23 Oct 2011, 12:26 PM Reply Like
  • MainStreetKate
    , contributor
    Comments (62) | Send Message
     
    Fair and reasonable, points, certainly.

     

    My perspective:

     

    I did the sell-in-May-and-go-away thing this year, as far as equities are concerned. I don't always do that. This year it felt right, so I did it.

     

    Hence, most my buying & allocating took place August & October on sell-off days. Was I pissed about the stuff I bought in August that I could have bought even lower in October?

     

    Maybe a little... but I'm well aware that I'm far from *perfect* at tactical asset allocation... And my contrarian tendencies have certainly failed me before... Which is why I try to find a balance between predictive ability and technical analysis that feels right at any given time.

     

    Will I be irked if the October lows prove to be another false bottom? Maybe a little... But I've just come to terms with expecting the unexpected, good or bad, and not panicking about it.

     

    Everyone has their strategies and their theories, but no one really *knows* what is going to happen. I do my research. I try to capture value through what I feel are mispriced securities. I stay on top of what is going on with the companies I'm invested in & the macro conditions.

     

    And then I cross my fingers that I am right, mutter curses under my breath if I am wrong, and salute the doom-and-gloom crowd for one-upping me *this* time.

     

    But *this* time tends not to be *every* time.

     

    There's always tomorrow.

     

    And even if tomorrow should happen to bring the zombie apocalypse, I'll carry on as I always do. Assess the situation. Make my decisions based on the information available to me and my interpretation of it.

     

    Besides, I think we have enough canned black beans in the basement (thanks to some BJ's coupon) to live on for a few decades of Zombie Mayhem... and I'm pretty good at shooting cans off railings with a pellet gun and arrows at bullseyes painted on trees.

     

    I'll leave it at that :)
    23 Oct 2011, 01:20 PM Reply Like
  • Conventional Wisdumb
    , contributor
    Comments (1800) | Send Message
     
    Tack,

     

    Yes it does.

     

    You can read my comments here for a more thorough overview of my thinking and similar minded people here on Doug Short's article:

     

    http://bit.ly/pw8FMd

     

    I think we can be optimists in our personal lives and radiate a positive attitude (as I believe I do) and still be a pessimist about the current prospects for the markets and the economy. They are not mutually exclusive.

     

    Stephen Weiss of FastMoney fame and and SA author said this and I found it summed up my thoughts and feelings on the issue well:

     

    http://seekingalpha.co...
    "As I mentioned in a prior note being bearish is exhausting, lonely and counter to my natural optimism (although I do admit to always maintaining a healthy dose of cynicism). Imagine taking your child to see 101 Dalmatians and loudly rooting for Cruella deVille to come out on top. Your kid shrinks away to another seat on the other side of the theater while others shun you. That’s how bears are treated.'
    23 Oct 2011, 04:14 PM Reply Like
  • cynic2011
    , contributor
    Comments (660) | Send Message
     
    The article says that " the mood in the market is often regarded as a contrarian indicator of future activity. ". In other words he considers sentiment a leading indicator.

     

    I would argue that sentiment is a co-incident indicator. The market is down because sentiment is negative, it fell because peoples' pessimism led them to sell. The reverse is true on the upside. Just because people are pessimistic is no indication that the market will go up. They might become more pessimistic yet.

     

    If pessimism predicted future upturns we could all make a ton of money very easily.
    23 Oct 2011, 09:51 AM Reply Like
  • Tack
    , contributor
    Comments (15903) | Send Message
     
    cynic:

     

    Pessimism always has predicted future upturns, and despite what's in vogue in some circles, now, it's not "different this time." It's just that most of the same people that are pessimistic and cynical miss the upside because they are wedded to their pessimism. That's why they all don't make money.
    23 Oct 2011, 12:02 PM Reply Like
  • cynic2011
    , contributor
    Comments (660) | Send Message
     
    Pessimism often leads to more pessimism. So just because the sentiment is negative is no indication that the market is going to go up. Although I do recognize that it's darkest before the dawn. Problem is knowing when it's the darkest.

     

    I do watch the sentiment indicators,among others. All I know is that when the market is down it's good to add to volatility; when the market is up it's good to reduce volatility. Several weeks ago I was adding to volatility. At the moment I'm neutral. Hopefully the market will tank again.
    23 Oct 2011, 12:27 PM Reply Like
  • Rickthegeek
    , contributor
    Comments (114) | Send Message
     
    Actually, when you have an over 400 point advance and decline in the DOW in one day, there are still serious problems. (Friday the 21st had an over 400 point swing) The market reacts to even the tiniest bit of news that can drive the market down 300 or 400 in the blink of an eye. The only people making money now are the people who sit at their computers from 7am until 8pm. They have one finger on the sell button and one finger on the buy button. Unfortunately, the market is rigged against the normal investor with a buy and hold strategy. Right now, we are at the top of the range and I listen to the talking heads on CNBC say "if we can just have a breakout, we have been in this trading range for the past few months" How can we have a true breakout when we have all of the same issues unresolved? Still, all of the same problems exist. Greece will default, along with Italy, Spain and Portugal. There really is nothing to spur the market higher. A big earnings story that has gotten missed is Apple missed estimates. There has not been enough said about it. It is the first miss for Apple since the early 2000's (did not get the year).

     

    Suprisingly the author still misses the big picture. 9% unemployment with a real rate of 15 to 20%. People who have given up looking scew the numbers even worse, unemployed, underemployed, people now maxing out their credit cards (how else do you explain the meteoric rise in Mastercard, which will plummet when people can not pay their minimum payment and default on their bill) Has anyone noticed that?

     

    One final note Altera Corporation missed estimates and sales decreased by 5 million for the quarter, but their stock price jumped 12.17% on Friday based on optimism. I have a gut feeling that on Monday it will be down 10%. Ticker symbol ALTR.
    23 Oct 2011, 09:52 AM Reply Like
  • wyostocks
    , contributor
    Comments (9102) | Send Message
     
    So, by this logic, the more doctors that tell you that you are dying in the next week, the better.
    23 Oct 2011, 10:51 AM Reply Like
  • dshultz
    , contributor
    Comments (13) | Send Message
     
    And by your logic a persons health is directly correlated to the health of Wall street? Good analogy!
    23 Oct 2011, 04:51 PM Reply Like
  • inthemoney
    , contributor
    Comments (983) | Send Message
     
    The retail sales rise is in real or nominal terms? I think it is in nominal terms and therfore means nothing since the % rise is lower than inflation numbers.
    23 Oct 2011, 11:28 AM Reply Like
  • Tack
    , contributor
    Comments (15903) | Send Message
     
    In:

     

    Again, erroneous for two reasons:

     

    1) The rate of retail sales expansion has exceeded inflation.

     

    2) It doesn't matter, in the end, whether the increase is nominal or "real" because, in fact, there is no such thing as a "fixed" dollar value. One can only buy, sell and invest in nominal dollars, so that's all one need to measure. One cannot control inflation; one can only maximize nominal-value investments.
    23 Oct 2011, 12:05 PM Reply Like
  • inthemoney
    , contributor
    Comments (983) | Send Message
     
    > The rate of retail sales expansion has exceeded inflation.

     

    Really, the yoy increase is greater than 3%? I remember numbers in 1% range.
    23 Oct 2011, 01:29 PM Reply Like
  • Jackson999
    , contributor
    Comments (471) | Send Message
     
    How come none of these pundits ever seem to bring up the "contrarian indicator" when the market is going up like gangbusters? No, then it is climbing "a wall of worry". :)
    23 Oct 2011, 02:04 PM Reply Like
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