Vox Rationalis

Dow Target 6,617, October 25, 2009: Here Is Why

On Aug 06 05:28 PM Jason Tillberg wrote:

> AAII listed its results of its investor sentiment survey. 50% Bullish.
> The last time they were 50% or more bullish was in May of 2008 when
> the Dow was 13,000.
> What does that tell you about the euphoria at 9260?

The answer is quite obvious: absolutely nothing.

Dow Target 6,617, October 25, 2009: Here Is Why

"Judging by most comments, many are in denial that we are headed for a depression in 2010-2012."

Judging from this one statement, everything you write is suspect, simply because you are find a depression (which most people frankly can't even imagine) to be a certainty. My skepticism increases along with the writer's certainty regarding future events.

"Tech boom peaked in 2008 when 90% of households now have internet and cell phones."

So you believe there can be no future increase in "tech" spending. Brilliant.

"Just today CSCO Chairman Chambers said economy still bad. Their revenues are down 18% from a year ago in light of MASSIVE stimulous. What does that tell you?"

1. Chambers is FAMOUSLY cautious. Look into it.

2. The economy IS still bad. Is it as bad as it was 6 months ago? Not even close.

3. Business IT spending is down. What a surprise, during a deep recession.

"Baby Boomers demographic has move beyond peak spending years in 2008 as well. They are now SAVERS and will be risk adverse."

So you think that retirees are net savers. Is anybody else paying attention to this nonsense?

"This is not much different to the generation of the 20's when by 1928, nearly 90% of households owned a car and had radios."

This is your big equivalence? Really?

"De leverage (sic) or join the ranks of now 34 Million Americans getting food stamps."

Be specific - how much debt do you think I can have and still avoid going on the dole?

Dow Target 6,617, October 25, 2009: Here Is Why

Any discussion of today and the 1930s can reach no meaningful conclusions without a comparison of macroeconomics - specifically the monetary environments.

The simple fact is that monetary policy during the early 1930s was an abject failure, forcing the economy into the depths of a deflationary depression. This is a lesson that Bernanke has well learned, as has every other economist worth his salt.

Coverage Ratios: What We Can Uncover in the S&P

"CF has been looking to buy Terra Industries, if the succeed my guess is that their balance sheet will probably tip and take them off of this list."

I don't think so - a glance at their recent financials indicates TRA would be close to making this list if it was bigger.

What this does show is they advantage these companies have in the current environment because of their solid balance sheets. Yes, their stocks have been hit just like everybody else's, but they are in a position where they can take advantage of lower asset values. CF is a perfect example, where it is trying to take advantage of the reduced value of a solid company. All of these companies are likely to be considering acquisitions - for us the trick is to get ahead of them.

Coverage Ratios: What We Can Uncover in the S&P

You need to go back to your data to include companies with zero debt. Apple and Google should clearly be on this list.