Help: I Can't Get These Alstry-Coloured Glasses Off
July 29, 2009
– Comments (29)
As many of us know, and the rest of us will soon discover, the stock market is overvalued. Ringing in the echoes of Hoover ("The fundamentals of the economy are sound")--Nov. 1929 and Fisher ("stocks have reached a permanently high plateau")--1929, we have the tag team of fools in Bernanke and Obama telling us that it's all daisies, rainbows and kittens. (I like kittens, but this is irrelevant to my point.)
Let's examine short list of news events that have occured during the S&P's 47% rally off of it's march low.
*CIT Bankruptcy wipes out access to credit for thousands of small businesses.
*S&P P/E rises to over 500 (and rises by the day as more companies announce ghastly earnings.)--this is based on operating earnings, not Enron-accounting earnings.
*Dell, Microsoft, Google, Qualcomm and Amazon all announce godawful earnings reports and yet the Nasdaq rises 11 consecutive days in the midst of the carnage.
*What little earnings do appear come from crazy cost-cutting. Read that Intel report again guys, if you take out Asia and layoffs, the company missed in just about all other respects.
*Every smartphone maker in the world continues to rise limitlessly--have people not heard of competition and market share? Phone makers are priced as if the Zulu tribes of Africa will start ordering Blackberries in bulk. Even lowly PALM has 14-tupled in the past few months.
*The shares of bankrupt GM traded over $1 for almost two months despite the company telling investors, cough, um, uh, I've got no family-friendly word for fools owning GM, that its shares had literally no value whatsoever.
*Jim Cramer continues to call a new ball market (this is all you really need to know to know that the rally is about to end) and make truly assinine predictions-- BAC to $18? Why?
*Inflation continues to not appear. The prices of commodities are getting smashed, reminscent of 1929-31 the price of wheat has collapsed this year. Even Natural Gas continues to plumb new lows despite its excessively cheap valuation. The only commodities holding up are oil and the precious metals... the rest of the bunch, particularly the ags, are getting destroyed. This is the real economy... the US' biggest export is agriculture. Agriculture's collapse is going to hurt.
*House prices continue to get decimated. That's actually not a strong enough word. In California, median house prices are down 38% and more than half of ALL SALES are foreclosures. That sure screams of a bottom, eh? Um, no!
*The US Dollar has sharply declined as it appears to be getting used as a carry-trade funding currency. This happened to Japan in 1990--the result: two decades of recessions interspersed with an occasional depression. This will, in my opinion, be likely to reverse and wipe out the foreign bulls who are borrowing US dollars to buy US equities. However, if the carry trade doesn't reverse, read up on Japan circa 1991, cause a repeat is coming.
*Margin debt has grown markedly in the past few months. People aren't buying stocks, they are borrowing money to buy stocks... this sort of gambling is hallmark of bubbles, not recessions. Again, this echoes of 1929. When the market starts dropping, you're going to see even more margin calls then we've seen thus far during this bear market.
*The US is running obnoxiously large budget deficits, leading to the sale of hundreds of billions of dollars of debt every month. This is continuing to beat down the bond market, halting any rallies there in their infancy. With the upcoming deluge of bond issuance over the next month, it is virtually assured that interest rates will continue their ascent throwing more ice on the already frost-bitten housing market.
*US malls are withering away. Been in one lately? I'm lucky I got out of the one here in Fort Collins without getting mugged.
*The Euro has made another run at 1.45 and failed. It is a barometer of risk acceptance across the global economy. As it sharply rejected a new high and is again plunging (-2.5 cents this week), it will deflate commodity prices and global risk tolerance further yet.
*The Chinese stock market divebombed last night, falling as much as 8%. CNBC didn't report that one, did they?
----
Actually, I'm just getting started--I could go on for much longer, but this post is kind of lengthy already. Executive summary:
By this time next year, the S&P will be trading under 666.
That's all for now. Best trade idea, if you have a forex account, short the EUR/USD cross. If you don't have acccess to that, buy FXE December at of the money puts for a probable triple/quadruple.
Hope you're having a good week, I am still out of regular internet access, so I won't read your comments until much later.
RSS Headlines
Fool UK