MMMPARSLEY1

The Bears' Skepticism Is Getting Old

InvestBaboo,

While it's impossible to argue against the idea that the masses opinion of the safety of equities is a strong negative indicator, I don't believe the seekingalpha community is representative of the average investor. Most people in this community actively follow the newscycle, and have healthy skepticism about whatever they hear on CNBC. Moreover, a significant amount of the posters here have some skill in doing their own research and due diligence.

There are plenty of reasons to be bearish. The most significant one is that bear markets don't end at 22x projected year-end earnings. That's where we stand right now. A double from here would be valuing companies in a time of suspect growth at Internet Bubble PE's of 44x 2009 earnings! If valuations are halved from here because of the continued drag on earnings and the consequent weakness in investor sentiment, the market would be valued at a conservative, yet still fair, 11x 2009 earnings.

I offer that as only one example of legitimate reasons to be prudently bearish. I also want to caution you to believe the seekingalpha community shares the same demographic as the CNBC Jim Cramerites who are much more reliable negative indicators.

Dave




On May 17 12:28 PM InvestBaboo wrote:

> This is very good. Almost all the comments here are bearish and many
> extremely bearish in nature. By definition such overabundance of
> bearish sentiment in the early stages of a bull market is good because
> it helps sustain the rally and take the market to new heights.<br/>
>
> As I have always said everytime I have tried to judge the direction
> of the market based on my own anaysis I have been wrong. I just follow
> the trend. We have had a negative week and yet the charts don't say
> the trend has ended. If the trend does end I will jump ship and let
> my bearish emotions come out in full swing and have a good cry with
> all the bears. Meanwhile, I will finger those crispy currency notes
> I have in my pocket thanks to the recent bull market which I benefited
> from by just following the trend rather than sitting on the sidelines
> like most bears shaking their heads in disbelief. Why people just
> don't follow the market rather than sitting on the sidelines and
> trying to second-guess is beyond me!

Where Is That Mythical Housing Bottom?

One caveat to GoMyLittleSheep's argument is that if you paid more for your house, you are also making higher monthly payments, thus making you more dependent on the income-stream that you had when you applied for the mortgage.

For many individuals, because they paid such a steep price for their house, they can not afford even merely one small financial setback because it will cause them to fall behind on their pay schedule.

In this environment, it's hard for people invest for the next 30 years and buy up all the excess inventory (which as of now is at a record high, ~13 months supply), causing the potential problem of housing staying at low prices due to large supply and, at best, average demand while more and more of those who suffer a financial setback are forced to sell their home due to foreclosure.

Investor Sentiment and Market Returns: Now's the Time to Be Bold

Money is being printed with rapidity to increase "liquidity".

Who's fearful it's going to end up in Joe Sixpack's pocket? Not I.

Who thinks it is going to end locked in commodities sending them to levels that cause commodity prices to fall sharply on their own weight, while destroying economic growth? Not I.

Who think it's going to end up in companies that are innovating and creating new efficiencies (alternative energy, distribution technology) instead of just extracting stuff from the earth? I do.

Stocks are going to rise from here - especially China Stocks.

Buy EFUT, WX, XFML now, and you'll be sitting pretty in 10 years.

“A Whiff of Panic...”

Reinko,

Pardon my ignorance. I have one last question.

Don't you think investments banks, for the sake of the broader economy, should start going back to their roots and doing more banking and less investing?

It's been mentioned that if the Fed Rate is considerably higher than the market rate for bonds, that banks would rather park their money in government bonds instead of take unnecessary lending risk at a lower return.

I am a believer that the international market panic we noticed early this week was a result of western institutions bailing to provide immediate liquidity to stay solvent. After all, there is no more liquid asset, other than cash, than equities.

How I'd approach the market:

If I had any free cash after buying some OPTT and TCM, I'd be an aggressive buyer of Asian ETFS or Precious Metal Miners. GFI, perhaps?

What about you?

Dave

“A Whiff of Panic...”

Reinko,

Do you think this portends to more aggressive rate cuts? If so, I think gold/international equity markets are safe havens from the US government printing press.

Also, do you think these numbers may be the reason we're seeing heavy selling on international markets. I see from the published spreads that individual Thai and Indian investors (among others) have been accumulating in the SET and SENSEX, while international holders (likely large banks) of foreign stocks are bailing - perhaps only for liquidity purposes.

Don't you think this is a reason for buying at these levels? The depressed prices have nothing to do with valuation reasoning.

“A Whiff of Panic...”

It's pretty interesting to see how people are reacting to the news today. It seems like it all depends on whether they were waiting on the sidelines (for those it was bad news for independent investors - because it's going to take a couple days to move funds into trading accounts from savings accounts) or attempting to catch the falling knife (for those it was very good news - more cash in the system means savers lose and investors win over the long term). Barry apparently was playing it cautious - and I don't blame him, but in the end, technicals don't matter and fundamentals do.

Growth would have to go deep into the red for a considerable period of time before investments fairly valued at these prices. Companies with 30% growth are priced at 10-12 PE's right now. I'm looking at a few companies that traded for under cash value today - one includes OPTT which may in the next decade post First Solar-like earnings growth. OPTT was free this morning - with a rebate! If I can buy a house for $100,000 in a nice neighborhood, get a green pasture with horses for free, and find $100,000 neatly stacked in "Benjamins" in the front hallway - I'd be a fool not to buy that. That is, effectively, what happened this morning when a few companies - such as OPTT - went into panic mode.

The recoiling we saw this morning was strong, and it appears almost certain that many stocks have hit a bottom. I'm only bearish on strowth growth companies with PE's over 25-40 (EG Goog, Appl) that merit strong earning's growth in the future to validify current prices. Still, those companies are a lot cheaper now than they were a few months ago when irrational speculators were taken ill-advised risks in high-growth companies.

I may be wrong - but I think this is a long-term bottom. All the fed did was inject more liquidity into the system. That has to be a good thing for financial markets - unless you are afriad all that cash is going to end up in the piggy-banks of the struggling American middle-class! HA!

I've been wrong before. Don't quote me!

The Bear Turns Mildly Bullish

Hammerhead,

I totally agree with you that the US markets that operate and sell their products within this country are going to struggle. However, with inflation running rampant, do you really think the DOW is going to go down when it's pegged to the dollar? I'd rather have my money in producers than in cash.

That being said, I wouldn't put my money in one of those companies. However, as paper money loses its value, what do you think is going to pick up the slack? International stocks are trading at very attractive PE's after today. Those economies are still going to grow despite trouble in the US. In fact, they developing countries may stabilize their economies more than ever in the past as they stop subsidizing our debt and begin consuming their own resources.

Do you really think that with all the American companies which are world-class innovators with current of potential global products are going to go down in dollar value? The way I see, as new money hits the market, all speculative innovations go up in dollar terms.

The one thing I wouldn't want to be in is bonds. 2008 is going to be the year of inflation.

The Bear Turns Mildly Bullish

Wake up. We aren't lemmings, we are investors.

Volume is not higher than in mid-August. What you are seeing is a bubble bursing stemming from heavily margined accounts. Corporate earnings are slowing, but global growth remains strong. Even if it didn't, the cash printing press is flooding the market with new cash, so unless you think none of that cash is going to find it's way into the equity market you should be holding tight through the drop.

International growth is still very strong and most country's PE's are still rather low - especially considering the torrid growth rates. Slowed growth is more than priced into foreign equities right now, so put 2 and 2 together and realize that the heavily margined are paying a severe price for their greed right now. We're putting the flailing out of their misery while rewarding those who put capital aside with very cheap prices on equities.

The Bear Turns Mildly Bullish

Some Russell 2000 stocks can't go much lower. Many are trading well below book value as if these mid-tier companies are bankruptcy candidates - and they most assuredly are not.

The market is way oversold, and we're seeing traders heavily margined forced to capitulate to savvy trader who are scooping up shares at a bargain.

There is no reason for Asia to go down. Many countries are still trading at 10-15 PE's and have very significant positive balance of payments. Asian consumers have only begun their spending spree. Many of these companies are trading at VERY low PEG ratios so there is plenty of room for slowed growth already priced into these foreign equities.

The only market that is still arguably overbought is in Shanghai. US traded Chinese ADR's are valued rather nicely right now, with a few expections such as BIDU, CTRP etc.

Fundamentals are all that matters in the long run - and stocks are fundamentally undervalued even when adjusting for slowed global growth.