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How much is priced in?

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November 13, 2008 – Comments (7)

 

I'll save the perma-bears the trouble and post the following headline for them:

U.S. Jobless Claims Reach Seven-Year High of 516,000

Yep, the weekly jobless claim number that the government reported this morning was atrocious.  We past the psychologically important 500,000 marker and are sitting at the highest level since September 11th.  The more important continuing claims number soared to 3.897 million, its highest level since January 1983. 

These numbers really didn't surprise me at all, though it is always disturbing to see confirmation of the bad news that you expected in writing.  What did surprise me however, is the fact that the futures market took the numbers in stride and barely flinched.  Sure we were due for a bounce, or at least a breather after yesterday's 5% shellacking, but the fact that we could get such terrible news and not have a major sell off got me thinking about how much bad news is already priced into the market.

I suspect that quite a bit is, but probably not enough.  I would be very surprised if the S&P 500 didn't re-test the lows that it set earlier this year.  In fact, I would not be surprised at all if we even fell through them.  Why am I such an optimist then?  Because recessions, even ones as bad as this one don't last forever.  Even the Great Depression ended and people who purchased stocks at or near the lows always have done better than those who ran away and hid. 

What do you think is more likely, that this is the end of society as we all know it and we will enter an era where guns and canned food rule or that this recession will eventually end?  I'm betting on the former because if the latter happens I'm screwed anyhow so I might as well go down fighting.  Besides the odds are heavily in my favor.  Keep gradually purchasing stock in non-consumer discretionary companies that have attractive valuations, solid balance sheets, and pay solid dividends and more likely than not several years from now you will be glad that you did.

If you aren't taking advantage of the recent weakness in the market to at least dip your toe into the water, then chances are you are more interested in this:

Deej

7 Comments – Post Your Own

#1) On November 13, 2008 at 10:27 AM, socialconscious wrote:

Good stuff TMFDeej panic like greed is no good. Those of you who are building a fort... sing with me the woes is me new depression song.....

Once I built A railroad watched it watched it run on time now Can you spare a dime.... Took a chance on hotel reits that wasn't S@#T...  Brazailian airline lost my mind... then a small cap now its a wrap... Brother can you spare a dime...  Trusted Greenspan got kicked in the can .I'm a Mets fan AND. Cant get none of the bailout plan.. brother can you spare a dime inflation adjusted to $2.75..  

Tough year but fortunes are built on risk and cycles. Dont bulid a Fort!  

 

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#2) On November 13, 2008 at 11:33 AM, starbucks4ever (97.52) wrote:

"What do you think is more likely, that this is the end of society as we all know it and we will enter an era where guns and canned food rule or that this recession will eventually end?  I'm betting on the former because if the latter happens I'm screwed anyhow so I might as well go down fighting. "

 

A Freudean slip of the tongue, no doubt :) 

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#3) On November 13, 2008 at 11:56 AM, kaskoosek (55.45) wrote:

This is definitely not the end of society.

BUT

Previous earnings have really been inflated in the past due to people taking more debt than they could afford. When the comeback happens, stock prices are never gonna reach new highs except through inflation.

 

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#4) On November 13, 2008 at 1:09 PM, TMFDeej (99.43) wrote:

Good catch, zloj.  I reversed the two ;).

Deej

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#5) On November 13, 2008 at 2:15 PM, johnw106 (56.74) wrote:

One thing I think people are overlooking. Information technology and the population.

 Population:  I keep seeing this crash compared to 1929. But think about it for a minute. The sheer number of people who have gained access to the market over the past ten years. Now compare this number to those who had access to the market in 1929. It seems it would be of benefit to look at percentages after factoring in the increase of investors. There are a lot of people who adhere to the buy and hold strategy and willl not sell regardless of what happens. So even though there are large numbers of stocks, there are not a lot of stocks left in the hands of people who are inclined to sell.

Information: News that used to take days and weeks now takes mere seconds to spread around the world. This gives a great advantage to those who try and guess the future. Can you think of anyone on Wall Street who does not know we are in a recession and expects bad news? Bad news is common these days. The random jolt of good news is ignored because we just know something is going to happen to nullify any gains. So I think most of the really bad news has been priced in. Unless something very drastic happens we have seen the bottom. The question is when will people feel safe enough to start spending again and move some money back into the market?

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#6) On November 13, 2008 at 6:28 PM, kirkydu (93.75) wrote:

Agreed, this is much more like early 70s to early 80s, than Depression era.  That would bode well for a recovery of significance beginning in a few years.  My thoughts are that Jim Rogers is right and that commodities are the place to be for awhile now that we've gotten a huge correction, although with the pressure on gold, oil and ag, could see entry points another 20-30% lower.

Anyway, feel free to read my "Dead Cat Bounce" blog entry.  It's a funny in a catty sort of way.

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#7) On November 13, 2008 at 6:30 PM, kirkydu (93.75) wrote:

BTW, society began to end when the AL adopted the DH, only the NL is saving us now from utter destruction.

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