kevintx

Market Outlook: Watch Out, the Signs Can Be Deceiving

leh - great post, the bottom calling seems way premature. The financial stability risks are through the roof. Despite lower P/Es the risk/reward of stocks is still too high now. Bear Stearns forward P/E fell to 0.5. Sorry for the haircut Mr. Miller. An unknown but large part of earnings has been paper shuffling on a growing debt bubble, something near 40% of S&P 500 earnings from financial companies or financial subsidiarys. Millions of homedebtors are underwater on their mortgage and ready to walk. With massive leverage who knows where the next default will happen.

6 Reasons the Market Should Bounce Here

1. S&P 1325 support: possible
2. Stochastics oversold: maybe, market down abt 18%
3. Fed 0.5% cut not priced in: doubtful. Fed futures even some 0.75%. Not sure ARMs are tied to this if they would reset. This is a big cut though ~10% Fed model valuation jump of market.
4. $150B stimulus: Last rebate $300 gave about 0.7% GDP boost to 2H 2001. Market kept sliding. Now it maybe $800, but still too uncertain right now.
5. VIX overshoot: nope. now 27, hit ~30 August and November
6. Less bad news: Dunno, still catching up on old bad news.

The market has been too high for awhile.

Why Is This Market Holding Up?

The bursting of the housing bubble is driving the credit crunch. The thinking was that it was 'contained' to housing or even just to subprime and would not necessarily hurt stocks. The crunch effect mechanisms affecting overall corporate earnings are still not completely clear. The bond market has been spooked more so far, maybe they're just a little quicker on the uptake when it comes to overleveraged financial shenanigans.

Defending This Bull Market Once Again

Wow, excellent article, thanks.