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25 Questions for the Bulls

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May 30, 2010 – Comments (17) | RELATED TICKERS: N , O , GOOD

For those who remain bullish on the markets due to the economic 'recovery', here are 25 questions that deserve an answer.

#1) In what universe is an economy with 39.68 million Americans on food stamps considered to be a healthy, recovering economy?  In fact, the U.S. Department of Agriculture forecasts that enrollment in the food stamp program will exceed 43 million Americans in 2011.  Is a rapidly increasing number of Americans on food stamps a good sign or a bad sign for the economy?

#2) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March.  This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report back in January 2005.  So can you please explain again how the U.S. real estate market is getting better?

#3) The Mortgage Bankers Association just announced that more than 10 percent of U.S. homeowners with a mortgage had missed at least one payment in the January-March period.  That was a record high and up from 9.1 percent a year ago.  Do you think that is an indication that the U.S. housing market is recovering?

#4) How can the U.S. real estate market be considered healthy when, for the first time in modern history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together?

#5) With the U.S. Congress planning to quadruple oil taxes, what do you think that is going to do to the price of gasoline in the United States and how do you think that will affect the U.S. economy?

#6) Do you think that it is a good sign that Arnold Schwarzenegger, the governor of the state of California, says that “terrible cuts” are urgently needed in order to avoid a complete financial disaster in his state?

#7) But it just isn’t California that is in trouble.  Dozens of U.S. states are in such bad financial shape that they are getting ready for their biggest budget cuts in decades.  What do you think all of those budget cuts will do to the economy?

#8) In March, the U.S. trade deficit widened to its highest level since December 2008.  Month after month after month we buy much more from the rest of the world than they buy from us.  Wealth is draining out of the United States at an unprecedented rate.  So is the fact that the gigantic U.S. trade deficit is actually getting bigger a good sign or a bad sign for the U.S. economy?

#9) Considering the fact that the U.S. government is projected to have a 1.6 trillion dollar deficit in 2010, and considering the fact that if you went out and spent one dollar every single second it would take you more than 31,000 years to spend a trillion dollars, how can anyone in their right mind claim that the U.S. economy is getting healthier when we are getting into so much debt?

#10) The U.S. Treasury Department recently announced that the U.S. government suffered a wider-than-expected budget deficit of 82.69 billion dollars in April.  So is the fact that the red ink of the U.S. government is actually worse than projected a good sign or a bad sign?

#11) According to one new report, the U.S. national debt will reach 100 percent of GDPby the year 2015.  So is that a sign of economic recovery or of economic disaster?

#12) Monstrous amounts of oil continue to gush freely into the Gulf of Mexico, and analysts are already projecting that the seafood and tourism industries along the Gulf coast will be devastated for decades by this unprecedented environmental disaster.  In light of those facts, how in the world can anyone project that the U.S. economy will soon be stronger than ever?

#13) The FDIC’s list of problem banks recently hit a 17-year high.  Do you think that an increasing number of small banks failing is a good sign or a bad sign for the U.S. economy?

#14) The FDIC is backing 8,000 banks that have a total of $13 trillion in assets with a deposit insurance fund that is basically flat broke.  So what do you think will happen if a significant number of small banks do start failing?

#15) Existing home sales in the United States jumped 7.6 percent in April.  That is the good news.  The bad news is that this increase only happened because the deadline to take advantage of the temporary home buyer tax credit (government bribe) was looming.  So now that there is no more tax credit for home buyers, what will that do to home sales? 

#16) Both Fannie Mae and Freddie Mac recently told the U.S. government that they are going to need even more bailout money.  So what does it say about the U.S. economy when the two “pillars” of the U.S. mortgage industry are government-backed financial black holes that the U.S. government has to relentlessly pour money into?

#17) 43 percent of Americans have less than $10,000 saved for retirement.  Tens of millions of Americans find themselves just one lawsuit, one really bad traffic accident or one very serious illness away from financial ruin.  With so many Americans living on the edge, how can you say that the economy is healthy?

#18) The mayor of Detroit says that the real unemployment rate in his city is somewhere around 50 percent.  So can the U.S. really be experiencing an economic recovery when so many are still unemployed in one of America’s biggest cities?

#19) Gallup’s measure of underemployment hit 20.0% on March 15th.  That was up from 19.7% two weeks earlier and 19.5% at the start of the year.  Do you think that is a good trend or a bad trend?

#20) One new poll shows that 76 percent of Americans believe that the U.S. economy is still in a recession.  So are the vast majority of Americans just stupid or could we still actually be in a recession?

#21) The bottom 40 percent of those living in the United States now collectively own less than 1 percent of the nation’s wealth.  So is Barack Obama’s mantra that “what is good for Wall Street is good for Main Street” actually true?

#22) Richard Russell, the famous author of the Dow Theory Letters, says that Americans should sell anything they can sell in order to get liquid because of the economic trouble that is coming.  Do you think that Richard Russell is delusional or could he possibly have a point?

#23) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter of 2010.  In fact, that was almost twice the level of a year earlier.  Does that look like a good trend to you?

#24) In March, the price of fresh and dried vegetables in the United States soared 49.3% - the most in 16 years.  Is it a sign of a healthy economy when food prices are increasing so dramatically?

#25) 1.41 million Americans filed for personal bankruptcy in 2009 – a 32 percent increase over 2008.  Not only that, more Americans filed for bankruptcy in March 2010 than during any month since U.S. bankruptcy law was tightened in October 2005.  So shouldn’t we at least wait until the number of Americans filing for bankruptcy is not setting new all-time records before we even dare whisper the words “economic recovery”?

 

17 Comments – Post Your Own

#1) On May 31, 2010 at 1:24 AM, ozzfan1317 (73.98) wrote:

Detroit Doesnt Count As a city anymore most of it is just the hood ;) But seriously we are bullish because stocks are below historical valuations. I am not as bullish as march but ten year from now I am confident many of us will have made a lot of money.

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#2) On May 31, 2010 at 1:32 AM, portefeuille (98.44) wrote:

I am confident many of us will have made a lot of money.

That certainly depends on who "us" are. Not so sure the usual "caps" game "bears" will make all that much money, hehe ...

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#3) On May 31, 2010 at 2:26 AM, whereaminow (< 20) wrote:

port,

What is the historical performance of your holdings vs. gold?  Since 2009?  2008? 2000?

David in Qatar

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#4) On May 31, 2010 at 2:33 AM, dibble905 (< 20) wrote:

I believe almost every single one of your 25 points is a lagging/coincident indicator. The markets had priced a much worse scenario than this in late 2008/early 200.

To use the current situation as an indicator of bullish/bearish on the the market is quite backwards. Stock market prices reflect forward expectations. Hence, the focus on leading indicators such as new orders (which have been on an uptrend).

Employment follows confirmation of a recovery. We haven't confirmed a recovery yet, in fact, we are still deep in the uncertain territory - hence the slow hiring process and very cautious new orders/production

But based on inventory to sales, spending, and new orders, the 'production' simply is not keeping up to pace with sales. It may only be a matter of time before the non-existant hiring becomes cautious hiring to outright desparation in hiring to keep up with new orders (low inventory to sales suggest retailers are already expecting a slow down, but sales are still trending upwards. one has to be right, but I'm going with the numbers here -- and that suggest retailers are going to have to begin ordering quite a lot to restock soon)

I tend to follow a value/contrarian strategy, and the current scenario says, in summary:

1. Retailers are cautiously optimistic at best
2. Manufacturers are not hiring due to the cautious new orders from Retailers
3. Jobs market is being followed way too closely as a forward indicator when it is not
4. Most retail investors are still primarily bearish and cautiously optimistic at best
5. Emerging Markets, such as China, is in a cyclical bear with overemphasis on an expected slowdown (for over a year now) when no such confirmation nor a hint of it has taken place

Unless an expected slow down actually materializes, retailers low stock could be a catalyst for significant new orders and a gap up in capacity utilization.

I am tactically bullish based on these factors. I most likely will not revert to a neutral stance until I see what I just mentioned become priced in. Especially with the European Financial scare, there is quite a bit of value in taking the risk trade.

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#5) On May 31, 2010 at 4:55 AM, JaysRage (77.65) wrote:

There is nothing lagging about foreclosures.    They will hit and drop housing prices back into the toilet, and the home-builders will be the people that pay the price.    Add to that the fact that new buyers will be limited due to the expiration of the government housing purchase subsidies and the housing market is a pending double-dip.   Forward indicator of pain.

California state debt crisis is similar to Greece....only much much worse, since California is the world's 6th largest economy.    This is not a lagging indicator either.  

It drives me nuts when people count unemployment as a lagging economic indicator.   just because they heard that somewhere.

It is both a forward and a lagging indicator.  Jobs mean income.  Income means spending.   Believe me, jobs affect the precious "consumer confidence" indicator that everyone hangs everything one, especially when the government is currently supporting a strong stance of NOT extending unemployment benefits.   It's just one more place where the government is propping up the economy that is going to be kicked to the curb.    

I'm currently stock market neutral, but I'm becoming more and more long-term bearish.   The fundamental problems that got us into this mess have not been resolved, and there are all sorts of big problems looming underneath the surface that few people are talking about (like state municipal debt and foreclosures).  As we sit at nearly S&P 1100, a reasonable recovery is still priced into the market.  

This was one of the finest posts that I'm seen in some time that summarizes all of the pain points.   

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#6) On May 31, 2010 at 8:37 AM, mhonarvar (< 20) wrote:

lol at the gold comment

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#7) On May 31, 2010 at 8:59 AM, ralphmachio (< 20) wrote:

I can see the impending need for future ego adjustments by some uber confident bulls. One in particular. My only hope is that you stay bullish for as long as I stayed bearish. he he.

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#8) On May 31, 2010 at 10:45 AM, cbwang888 (25.54) wrote:

All 25 are bad for most US citizens. However, all are supported by massive $$$ printing and bankers are now launghing. They are cooking their books and pay themselves big bonus. This kind of wealth transferring is only possible with Fiat money.

Why gold is still glittering if majority of people becoming poorer?

 

 

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#9) On May 31, 2010 at 11:00 AM, BuffetsMentor (< 20) wrote:

...because the spot price of  gold is inversely correlated with currency strength?

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#10) On May 31, 2010 at 12:30 PM, binve (< 20) wrote:

Great post JGus!!

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#11) On May 31, 2010 at 12:53 PM, Bays (28.93) wrote:

Just because you are a bull doesn`t mean you are bullish on the American economy. 

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#12) On May 31, 2010 at 1:38 PM, dragonLZ (60.85) wrote:

Just because you are a bull doesn`t mean you are bullish on the American economy.

 

I agree with Bays 100%.

I don't think economy was any better back in March of 2009, and the market is still up 60% since then. So who cares about your "bad" numbers.

So the real question, in my opinion, is: Are you trying to make money or be right about the economy? If all you are interested in is proving that the economy sucks, then good job, you did it. But how much did that help you in taking the advantage of one of the best market's in history? 

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#13) On May 31, 2010 at 2:30 PM, AvianFlu (< 20) wrote:

Item #6 (California reducing government expenditures) is actually a good thing. Instead, ask yourself this: Is it a good thing that governements large and small are raising taxes in a recession? Traditionally this has been recognized as economic suicide. This is the first time in my 55 years that I can remember this happening. Even if your investment pick has great earnings, if the government takes away most of the profit in taxes there is much less left for the shareholders.

I suggest trying to invest in countries that don't punish savers, job creators, and investors.

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#14) On June 01, 2010 at 7:56 AM, JGus (28.16) wrote:

I thought it might be helpful to add these comments. I made them on dragonLZ's last post:

dragonLZ  -

Just to be clear, I have been both a bull & a bear from 2000-present. I was a LTBH bull from 2000-2008.

From January 2008-August 2008 I sold off approximately 90% of all my stock holdings. I saw the handwriting on the wall and knew that we were headed for a crash.

I began buying again in October 08-March 09 (I bought Apple when it was under $100 for example) because I knew that the market would bounce at some point.

I sold all of my longs between the end of April-end of May (obviously wayyyyyy too early).

I started playing with some short ETFs in June with tight stops. I lost a little bit of money from June-November on these kinds of play, but was spared by my tight stops AND by the physical gold & silver I held.

I was fortunate to time this latest drop almost perfectly and am up close to 40% over the last month using levered inverse ETFs.

I just wanted to set the record straight as you seem to have me pigeonholed as a perma bear. I am incredibly bearish on the market right now, but will be very bullish in the future.

 

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#15) On June 02, 2010 at 11:02 AM, Griffin416 (99.97) wrote:

I'm with DragonLZ here, most of the time market action sometimes is not well correlated to the "economic facts" as you detailed. The market always tries to look way beyong the now.

I was not there way back (but my father explained it to me along with some research), but in 1953, we had pretty much the worst economic news in a very long time at that time and it was one of the greatest times to invest. Thanks to Buffett for reminding me.

Although, personally, I am short term bearish, but bullish mostly likely in a few months and moderately bullish for the next few years, unless some facts that I know change dramatically. I manage 1,300 residential units and things have been getting better for 14 months. We are up almost half way from the decline, income wise.

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#16) On June 06, 2010 at 5:45 PM, rexlove (99.67) wrote:

 

I agree with some other posters here that the economy does not necessarily correlate with the stock market.  You can be bullish (as I am) and still think the economy is in bad shape. The reason being - is that I think many stocks are undervalued - even with the economy being what it is. I think what many fail to recognoze is that earnings drive the stock market and not the economy. Some might argue that earnings are driven by the economy - which is true to some extent - but not the only driver. 

Earnings can be driven by:

1. Increased productivity - is it me or is your boss working you harder than ever?

2. Cost cutting - through layoffs, reduced material and labor costs, and other measures. 

3. Increased sales from overseas markets - as witnessed from the latest European fiasco - it's not just the US economy we need to worry about. Fortunately some emerging economies like China, India and Brazil are helping us out.

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#17) On June 18, 2010 at 11:31 AM, caterpillar10 wrote:

1. good sign - it's a top and helps keep farm prices stable.

2. there will be a housing shortage in 2 years ( yes, i know that SOUNDS ludicrous now but go thru all the #s, you'll see it) so those bank REO inventories will be like vaults stuffed w/ bullion are now.  

3. see 2.

4. see 2.

5. should have been done a long time ago - better late than never.

6. see 5.

7. see 5.

8. diversify overseas.

9. proportionally - it was much worse by the end of WW2 - then what happened?

I don't want to be a pig - someone else can take it from here...... 

 

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