FB5000

New Lows in Pessimism Could Signal a Top

The data is all around you - you just need to sift it.

Profit growth. Everyone complains about no revenue growth - but they miss the point. Sequential profit growth in this environment is outstanding performance. You saw this in Q2 and accelerating in Q3. Time to buy.

Negative payroll numbers. Everyone has been complaining about the "jobless" recovery but before payrolls goes positive (which they will) you need to see initial claims come back to the 300's - which they are. The day they turned was the day to buy. When payrolls are positive - will start to signal market top is coming.

Consumer confidence. Meaningless. Everytime it comes out negative and the market sells off. Buy.

Fed. Interests rates are zero. The yiled curve is >3%. Time to buy. When rates bounce back up and the difference between the 10 year and the Fed funds is less than 2%. Time to sell.

Productivity growth. Good news.
ISM data. Good news.
Housing starts in relation to inventory. The number of starts is low but inventory is at 30 year lows. Good news. It tells you that housing is healing.

Most SA readers are morons. That is why I read the boards. There are no inights other than in the aggregate. The more negative they are the better I feel about the market. Time to buy. It is always good to be on the other side of the trade from morons. Buffet has been buying for 12 months. What does that tell you about the geniuses on the boards.

This data is all around you.


On Dec 02 09:05 PM inthemoney wrote:

> Wouldn't the SA readers be more pessimistic in general, though? I
> mean, the more you know, that the market has really very little to
> do with the economy. it is all about the money available and where
> the big companies put their money. That is enough to make any retail
> investor pessimistic. The odds are stucked up against retail investors
> not because they are not smart enough, but because they don't have
> the access to the information the big ones ( called the smart for
> no reason) have.

John Hussman: Reckless Myopia

Rosenberg is another one. Utter garbage. He has very little understanding of operating leverage. He wonders how you can get 10% profit growth in a 2 to 3% growth economy.

Do the math.

If profit is 10% say 100 out of 1000 and costs decline by 2% from 900 to 882 and revenue increases by 1% from 1000 to 1010 I can get profit growth of about 30% from 100 to 128. If I cut back on my investment I can juice free cash flow. This is the environment we are in right now. This is what better companies are doing. This is why US equities are attractive. Because they are demonstrating the capacity to grow eranings in a tough environment.


On Nov 30 11:16 AM Roger Knights wrote:

> "As Gluskin Sheff chief economist David Rosenberg noted last week,
> “Even if the recession is over, the historical record shows that
> downturns induced by asset deflation and credit contraction are different
> than a garden-variety recession ..."
>
> I agree, and I've come up with a phrase that puts this whole argument
> in a nutshell: "It's the debt, dummy." I encourage others who like
> it to use it, to get their point across.

John Hussman: Reckless Myopia

Utterly ridiculous. Hussman is discredited as a source.

An 80% probability. Really? How can anyone be so precise?

And this statement "the historical record shows that downturns induced by asset deflation and credit contraction are different than a garden-variety recession induced by Fed tightening and excessive manufacturing inventories since the former typically induce a secular shift in behavior and attitudes towards debt, asset allocation, savings, discretionary spending and homeownership. The latter fades more quickly"

There are no datapoints upon which to base any sort of conclusion like this.

As to over or undervaluation. In the long run - earnings drive markets. And what we know as a fact is that earnings have held up very well, companies have added significant operating leverage and developed large amounts of cash. S&P earnings in 2010 are probably going to be around $75. You can figure out what that is in terms of forward PE. But it does not equal overvaluation.

Comanies have done very well. Operating leverage will lead to impressive earnings growth in the absence of major top line growth.

Productivity is good, rates are low, the yield curve is steep. Inflation is very low. Yes lending is down but think of it. It is down from the days when you get 100% of a property without proof of income. Is that a bad thing? And while money is not easy to get - it can be got. Banks are doing their job. They are assessing risks. Overall this is a net positive.

People are driving themselves nuts trying to be the next genius to predict the next disaster Witness the unholy rush to label Dubai the next "black swan" disaster. Bove today says banks will need to raise capital if capital requirements are raised - no kidding - do you think? And what is the likelihood of that. About zero. Especially when banks are doing very well. Whitney says banks are in trouble. Give it a rest Meredith. You and Elain Garzarelli had your little 15 minutes of fame. The spotlight is elsewhere now. Get over it.

Get a grip. I feel sorry for you if you can't. And don't listen to this garbage. The mere fact that all these "pundits" cannot bring themselves to bless the rally means that it is the place to be.

That's all.

Global Markets in Review: Waiting for Fundamentals to Play Catch-Up

Good comment swissie. I like your style.

My guess is that CB's are fairly priced and equities are undervalued here. Despite the almost constant hysteria from SA folks and the sharp run up since March. We are sill have about 15% more upside from these levels. Expect Q4 profit to be very solid and first half next year to be better than that.


On Nov 30 03:25 AM swissfrank wrote:

> Investment grade corporate bonds should stand - in risk and return
> - midway between Treasuries and equities. The mispricing of these
> CBs last winter (prices fell sharply due to perceived danger of corporate
> default) created a once in a generation chance to buy investment
> grade at bargain basement prices.
>
> (If you have a strong stomach you could no doubt buy the Nakheel
> Dubai bond today at half of what it traded for a week ago - not that
> I am calling that investment grade. The point simply is that bonds
> look steady and reliable until a black swan swims along then things
> go crazy.)
>
> Fully agree that 'Western' investment grade CBs have returned to
> normal pricing today as fear of risk has waned. They may indeed have
> overshot. No one really believes that Siemens, France Telecom or
> Coca-Cola will default.
>
> As an investor, the historic value opportunity has been and gone
> but yields remain fair if your reading of risk for top corporates
> is low.
>
> As for equity stocks, it is surely impossible to make sensible comments
> about value or future performance given the exceptional factors at
> play. If the market tanked in January, should one be surprised? Not
> really. Could the market trundle along registering gains throughout
> the entire period of Bernanke stimulus - say all of 2010. Why not?
>
>
> Very problematic to try and rationalize risk and return here. Better
> surely to make a decision as an investor about allocation between
> asset classes (not forgetting PM and currencies) and be ready to
> rush to the exit...

Global Markets in Review: Waiting for Fundamentals to Play Catch-Up

Doubt that Corp. bonds are overvalued.

You expect stocks to return more. Large Cap stocks about 12 to 13%. Corp bonds. less around 6 to 8%. Over 20 year horizon.

Since 2000 large cap stocks have returned around 2 to 3%. That situation cnannot last.

Expect a rebound.


On Nov 29 08:33 PM Greg Ripka wrote:

> Or they are both overvalued.
>
> I am not sure how you can say equity is undervalued based on the
> inversion in returns between fixed income and equity. Historical
> relationship have been fractured all year and while you are theoretically
> correct that as risk increase so does yield, you are not looking
> at these returns in the context of what has happen in the markets
> over the last year. The asset's respective yields have been driven
> by different factors.
>
> The fact that corporates have outperformed a riskier asset is, to
> your point, they are considered safer asset. Returns are a result
> of flight to relative quality. Safety has been at a premium to return,
> the fact that fixed income has returned more than equities is only
> a byproduct of risk appetite. Outperformance has been a consequence
> of, not a reason for investment in the fixed income market. Spreads
> have compressed dramatically over the year as investor piled into
> a ridiculous cheap corporate market, by way of example at one point
> GE Capital CDS was trading up front and over a 1,000bps during the
> year.
>
> Now, generally speaking, the corporate market has overshot again
> and bonds trade very rich and haven't been fairly valued since the
> spring to say nothing of the equity market.

Global Markets in Review: Waiting for Fundamentals to Play Catch-Up

The chart on returns says it all.

Corp. bonds up 28% vs. DJ Stocks up 17% over the last 12 months.

Riskier assets cannot return more than risky assets. Either bonds are way overvalued or US stocks are undervalued.

Since debt holders are smarter than equity holders - I am betting on US stocks being undervalued

Why I'm (Cautiously) Optimistic About the Future

Overtime hours, inventory levels, temp. hiring.

The signs are easy to see. This is a very odd crowd that misses these things. Do you suppose they all live in Detroit?

I agree with you.


On Nov 29 03:56 AM bbro wrote:

> Mr Mauldin says " Job losses are continuing to mount"...remember
> that statement in a few months.....

Is the Market Reversal Already Happening?

We could be fellow travellers on the first part of your piece but you lost me on protectionism and some of the other nonsense you spouted off.

Protectionism is a bad. Most people just don't get Comparative Advantage and Ricardo so I understand if you are confused. I can try to explain but best just to read up on it. It would also be better to relabel it "Innefficient Producer Subsidies" or IPS

If China wants to put up large tariffs to "protect" their <fill in the blank industry/producers> e.g. Toy makers. Just let them.

We get cheap toys (what's not to love) and they get their Toy industry preserved in amber (literally). They shoot themselves in the foot. They mis-allocate capital - money flows into Toy production when instead it could flow into something else where they might have a comparative advantage and be more productive. Yes they "save" jobs - but not really - they are giving up other higher paying more productive jobs and distoring the wealth generating capacity of their economy. This is all self-inflicted.

Yes - our toy makers go out of business or be pushed to be more efficient but the side effect of this is that the dude who was going to set-up the next toy factory finds the capital and resources to create something else - say the next Microsoft...or McDonalds or <Fill in the Blank> most will fail but hey that's capitalism. It actually works. Look around you.

On Organized labor. You are kidding right? Dude - Andy Stern has been a guest at the WhiteHouse maybe about 30 times - over the past 12 months. Mr. Stern is a a very dedicated man and committed to one thing. His own agenda. Also seriously. The Tire thing, the Truck thing, these are straws in the wind. They practially vomited on the idea to tax the Cadillac plans - and the GM bankruptcy was just funny. That's a lot in 12 months. You want to lend money to a unionized business? Be my guest. This administration is under the thumb - it is an issue and they will need to figure it out and deal with it or they will come up with more bonde headed stuff and not be re-elected. It is kind of hilarious when the American President goes to China and gets schooled on capitalism.

Not sure what you are talking about with regard to politics. I have no ideology - you sound like you do - I only care about intelligent policy and making money.

that's all.


On Nov 23 05:10 AM Anandakos wrote:

>
> I very much agree that taxing carbon would have been FAR better.
> The current cap and trade is so eviscerated that it won't accomplish
> much, but will guarantee trading profits for big coal and utility
> companies.
>
> I'd prefer to see a mandatory universal single payer catastrophic
> system and leave the rest to the private sector. I think some fellow
> from the Hoover Institute suggest that "catastrophic" be defined
> as a percentage of last year's income. Something like 25% or thereabouts.
>
>
> That gives people the opportunity to save up a quarter of their annual
> earnings or buy private insurance to get to the Federal level, preventing
> fiscal Armageddon for families, but allowing reasonable premiums.
>
>
> In the years following the onset of a debilitating disease, the threshold
> of Federal payment would fall because a debilitated person has no
> income.
>
> It also removes the quarrels about pre-existing conditions, rescission,
> and the "public option".
>
> Do calm down about "protectionism" though. Since we don't make much
> except airliners, grain and CDO Squareds here in the US anymore,
> what do we care if other people raise tariffs on our exports? With
> a few well-placed tariffs we might be able to make some things again.
>
>
> You're smoking some old leftover John Birch brand pre-Fidel Cuban
> stogies if you think that organized labor controls this administration.
> Ha. Ha. Ha.
>
> And finally, how in hell do you propose to pay for the debt which
> means so much without raising some taxes? Yes, spending needs to
> be cut, mostly on Imperial Wet Dreams and no-bid contracts. But most
> of the difference between 19% brought in and 25% spent is W's tax
> cuts and the spending to catch the economy falling off the step ladder.
>
>
> Your characterization of Democrats shows an excessive intake of Vitamin
> G. Poisoning by this vitamin is shown by enlargements of the abdomen
> and buttocks caused by lethargically channel surfing between Fox
> News Channel and the WB.
>
> On Nov 22 10:52 AM FB5000 wrote:

Large Caps Outperform While Small Caps Stumble

Maybe.

There is also mean reversion at work.

Asset classes return in relation to their risk.

Smalls are riskier than Large so you expect to be paid for that.

2001 to 2008 Small Caps are up about 6%/year while Large Caps are flat.

1972 to 2008 Large Caps are up about 13%/year while Small Caps are about 14%/year.

Both are due to rise relative to their long run returns but Large Caps have some catch up so you expect them to do that. The longer they lag the greater the rebound will be. It's like trying to force a ball underwater - sooner or later it has to come up and revert to its normal position - whatever that is. Point is. Large caps wil return lower than Smalls but the gap these last few years has been too wide. Nothing goes down forever or stays up forever. Stuff evens out over long periods.

Large Caps Outperform While Small Caps Stumble

Yield curve is not currently inverted. It is steep. Signals growth and/or inflation.

Inverted is associated with top but short term rates would need to be greater than 3.5%. Clearly that is not the case right now.


On Nov 13 08:27 PM bartpr wrote:

> i am of the opinion that a market top is approached when the yield
> curve is inverted,ie. short greater than long . now the 10 yr exceeds
> the 2 by the widest margin in years. when the diff approachs zero.
> then watch. this is the past history of market tops. the small caps
> have been in correction for months. when the big caps correct i believe
> a bull will revive.

Preview: October Employment Report

this report will be negative as will the next 3 but read the signs mother of all economic recoveries is coming down the pipe - recovery will surprise to upside. get set.

Equities Update: Post-Fed Gains Hefty, But Temporary

pay attention

sell of was coincident with the house accelrating the consumer fiannce legislation. it sold off on news. financial led theway down.

To Heck with Fundamentals: Dow 11,000 Is Up Next

sell when payrolls turn positive - first month they do is time to go to cash

The Dow: Ominous Parallels to the 1929-1930 Era

Seriously. You r misguided. Markets don't work the way you think they do. They are driven by earnings, money and sentiment. I would not expect history to repeat bcause it just does not if it did it would be all to easy. It isn't.

These things are true.

1. Returns will always revert to the mean for all asset classes. Nothing goes up or down forever. Large cap stocks have returned nothing over the past decade. That is a situation that cannot last.
2. Over long periods stocks will outpace bonds.
3. High returns equal high risk
4. Valuations in the long run reflect earnings and dividends. In the short run they are influenced by sentiment and liquidity.

The rest is nonsense and 3000 pn the Dow is basic stupidity. Don't your breath waiting, champ.


On Oct 10 10:53 AM David McSwain wrote:

> FB5000 said:
>
> "This sort of analysis is useless."
>
> Your statement proves the old adage "The only thing we learn from
> the past is that we don't learn from the past.
>
> Is looking back useless? I say it is invaluable. Go ahead, forget
> the charts and pour your money into the market and hope your right
> about it getting to 13,000. If analysis of the past is worth anything
> then the dow will not move much higher than 10,000 and then will
> begin a long slow steady decsent to 3,000.

The Dow: Ominous Parallels to the 1929-1930 Era

This sort of analysis is useless. The past has no bearing on today. The world is different in so many ways that it is just tiring to list them. The only thing that is ominous here is the lack of intelligence shown

Here's what is going to happen. Forget the charts. Think about what is going on.

Earnings are going to be strong this quarter and next. Beating consensus. The market wil go higher.
Economic growth is going to beat consensus over the next 3q's. Retail sales will beat consensus during the holidays .
Payrolls should turn positive during Q1 2010.
We will see an upsurge in bank lending.
Inflation will start to perk up by the summer.
The market will continue go higher.
All this money flowing into bonds and sitting in cash will flow to equities.
10 year yields will rise to over 4% and could hit 4.5%, S&P will nudge 1350.
Faced with improving conditions the Fed will begin to tighten - the consensus is not before 2011. I say we will see tightening by next summer.
This will bring about correction. There will be a 10 to 15% move down. If you sell in the 1300's and buy the 4.5% yield on the 10 year. you will then be able to do the opposite trade around this time next year.