Owen

Think the Dow's Decline Has Been Bad? Check Out the Nikkei

investor88, are you for real, or just pulling our leg?

Two weeks ago curbs-in was telling us how the Chinese government is actively trying to poison all Americans, last week he was convinced that all bids on eBay are by shills, and that we'll all be dead before this crisis is over.

You've been here long enough to know this character, and if not--soon you'll see his response here, with my name mentioned every other sentence--that should make this even more evident. Seriously, you're better off taking advice from a Magic 8-Ball.

If Curbs-in really believed the Nikkei or the DJIA are dropping to 4000, he would have taken a short position in both and now be merrily counting his fortunes. No; he's the guy at the street corner with the beard and the cardboard sign telling us that Armageddon and the End times are upon us, and lest we repent we are all doomed. He's not interested in making money, but in being heard. The more attention you give him, the more of these doomsday prophecies we'll be hearing.

Is It Time to Bottom Fish?

Since November, the US market has lost about $5 Trillion of shareholder value. So based on that anonymous journalist, Wall Street employees received about $15 Trillion in bonuses, or an average of $50 million each--including every junior analyst, assistant broker or floor sweeper. This number is bigger than the US GDP; where did this windfall come from? I guess it's good news, as it means the GDP has doubled.

Does that journalist have basic math skills? For that matter, do you? Last month you advised us to "not be clever". You are clearly following your own advice.

Fundamental Valuation: How Low Could We Go?

Say, TraderGreg, what will the weather be like on May 17, 2015? I'm planning a BBQ for that Sunday.


On Oct 18 05:35 PM TraderGreg wrote:

> The K-wave will bottom in 2015 as well.
> The Mortgage reset mess will bottom around 2013

Fundamental Valuation: How Low Could We Go?

Book value analysis made sense in the 1920 when most companies were industrial, coal, railroads and banks. For such companies, tangible assets play a valid role in valuation. In today's economy, companies like Microsoft, Apple, Google or even Coca Cola get their value from a strong brand name and loyal customer base. Assessing such companies based on their tiny book value is meaningless. A company like Altria generates more after-tax profits each year than its book value. Does it make sense--in any economy--for such a company to sell at a P/E of 1?!

Historical comparisons should be done with an understanding of the changes in the playing field. Remember, 300 years ago a plot of land in Manhattan was only worth as much as the crops you could grow on it. Even with the housing crisis, I don't think real estate prices will ever fall to those levels.

Will We Know When We've Made a Low?

Smarty_Pants, In 2005 Nortel traded between $25 and $40, adjusted for the 1:10 reverse split. You must be thinking of 2000, when it was trading at $120 _unadjusted_, or $1200 adjusted for the reverse split.

Based on standard valuation metrics, Nortel wasn't worth $1200 in 2000, $25 in 2005, or even $1.60 now.

Will We Know When We've Made a Low?

'The World's Worst Stock Picker',

You may call yourself The World's Worst Stock Picker, but you sound smarter than many here. Your entry point and stop strategy sound well thought and I believe will prove to be right on the money.

I'm not sure what you mean by 'bought a covered call'. Do you mean you _wrote_ a covered call on Ford? If you received the premium, that means you sold the Call, not bought it. And who is the other 'win' in the 'win win' you mention?

Will We Know When We've Made a Low?

Those waiting for "The Bottom" will have to wake up at some point and realize we've already passed it last Friday, October 10, at 2pm ET. But to vindicate their failure to act, they'll say they are 'waiting for a pullback'. When the masses finally start getting back into the market in droves, you'll know we are near the top.

Where's the Smartest Money Investing?

Retail mutual fund holders have a history of pulling out their money at the worst possible times. The last record for equity mutual fund redemptions (as percentage) was in 1988. As we know, that was followed by the biggest bull market in history, with over 400% return to those who stayed in.

The biggest inflows into equity mutual funds was in 1999 and early 2000, just before the tech bubble burst.

When you see mutual fund holders running, your best bet is to run the other way.

This Isn't a Bottom, It's a Disturbance in The Force

rge270, funniest post ever!

Please stick around, we want to hear more from you.

This Isn't a Bottom, It's a Disturbance in The Force

Update: we are now up 19% from the Friday intraday low. But no worries, we'll go up another 30% or so before people stop telling us we haven't seen the real bottom yet.

A free crow stew for the first analysts to use the term "dead cat bounce".

This Isn't a Bottom, It's a Disturbance in The Force

Smarty_Pants,

Makes sense. Just be sure you don't miss the boat--we're already 12% above the Friday intraday low of 837. Rebounds after major selloffs are sharp and violent. If you blink, you miss it.

This Isn't a Bottom, It's a Disturbance in The Force

Smarty_Pants,

I have no problem with a US dollar decline and a rise in interest rate. In fact, for full disclosure, I am currently short Treasuries (10 and 30 year) through the Futures market. I don't see hyperinflation ahead, but I do see a rise to the long-time average range of 5-7% on the 10-year.

Is that a problem? Not for me or other equity investors. Stock markets have done very well during periods of increasing interest rates--don't take my word for it; check it for yourself.

I'm also not concerned with China and Japan taking a bigger portion of the world pie. My investments include a large portion of European and Asian stocks. Only a fool would limit themselves to the US market.

Housing prices will plummet? Again, not a problem for me. I'm not looking to sell a house.

While you are trying to make it sound over-dramatic, your predictions aren't as wild as you'd think. Personally I don't see China or Japan dumping $2 trillion worth of treasuries all at once. They're smart enough to know how to avoid flooding the market and destroying their own wealth. In time, they will diversify away from US treasuries. In fact, I believe it's happening right now, although we'll only find out about it a few months from now.

Yes, I have no doubt Chinese sovereign funds are buying US and European companies right now at these ridiculous prices, paying for their purchases with US treasuries. And if they're doing it, I'm happy to make the same trade along with them, selling treasuries and buying stocks. Are you confident enough to bet against China and Japan?

The Crash of 2008

Good analysis, Mr. Steinhilber.

Even more telling is the equity risk premium, which is the difference between the earnings yield (the inverse of P/E) and the risk-free interest rate, which is now clocking at around 800bp, the highest since the 1930s and twice as high as other market bottoms since World War II. Equities are now earning 8 percentage points above, or three times as much as the best yielding treasuries, versus the typical 1-3 percentage points.

Another telling indicator is the sweeping bearish sentiment, as we'll likely soon see here in the next few comments.

This Isn't a Bottom, It's a Disturbance in The Force

Ya! Curbs-In, I agree. No, not that smart investors should stay out of the market, but that you, Curbs-In, should.

This way, when the S&P rebounds by 20% to 1100, you'll come here and tell us this is a "dead cat bounce".

When we hit 1300, you'll explain it as a "bear market rally", and advise us to stay out.


When the S&P gets to 1500, you'll tell us that valuations are too high, and the market is due for a correction, and talk about soup lines the likes of which we haven't seen since 1929.

Sometime over the next four years, when we get to 1700, you'll call this a "bubble", and tell us we are irrational to own equities at these prices.

Finally around an index value of 1900 or so, you'll realize you are missing the bull market of the decade, and change your tune. You'll have a new theory about the "new economy" and why valuations don't matter when it comes to solar energy/oil sands/pet rocks, and along with your like-minded buddies allow us to unload our stocks for a nice 100-150% gain, as is typically the case for bull market runs.

If not for people like you, we'd have no one to buy from at the bottom and sell to at the top. Keep up the good work!

The Last Days of Morgan Stanley

MS is now trading at under $8, well below book value. Even more interestingly, the Jan-2010 7.5-Put options are trading above $5: people are willing to pay $5 for the right to sell MS at $7.50, translating to a market sentiment of about 65% that the stock will become worthless.