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EScroogeJr (< 20)

I like this market better and better.

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May 28, 2008 – Comments (17)

I really can't understand how anybody can be bearish at this point. The reason it doesn't make sense is that a) The subprime crisis is almost over, everybody who wanted to walk away did, everybody else is saved by the bailout package that will materialize in the next few weeks b) The banking crisis is over after the bankruptcy of Bear Stearns, c) Oil price has got as far as it can possibly get, and d) The Dow has dropped almost as far as it can possible drop before Bernanke sends in another helicopter. When all 4 shoes have dropped, there is little the market can do but go up. Then again, without these Chicken Littles we wouldn't get today's reasonable prices...

17 Comments – Post Your Own

#1) On May 28, 2008 at 9:09 PM, GNUBEE (26.77) wrote:

too right, Thanks to all the chicken littles, I like me some sales!

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#2) On May 28, 2008 at 9:40 PM, mandrake66 (94.16) wrote:

Bernanke's helicopter is grounded, he can't afford to fuel it on a central banker's salary.

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#3) On May 28, 2008 at 9:55 PM, IBleedConcrete (85.12) wrote:

I have to say, reading this post makes me EXTREMELY bearish.

 

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#4) On May 28, 2008 at 10:10 PM, leohaas (33.32) wrote:

Kudos Scrooge, for taking on the doom-and-gloom, gold-to-the-moon blog hoggers! I am with you (85% in stocks, 14% in call options, 1% in cash).

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#5) On May 28, 2008 at 10:28 PM, camistocks (< 20) wrote:

Just a detail: the banking/housing crisis aren't over, it's just that the worst is over IMO.

Oil prices have not even reached the levels of 1980, inflation adjusted. Check this out:

http://en.wikipedia.org/wiki/Image:Oil_Prices_1861_2007.svg 

And this is if one uses official inflation data. I think we will see $200, before this is over, but not this year. For now it is a bit ahead of itself, I agree. It should correct again, maybe to $80. Nothing goes straight up.

I also agree that the Dow has had a healthy correction, before resuming its way higher. It dropped just enough to make the bears go wild again. Their short covering will provide some nice upside. I would not be surprised to see the Dow at new all time highs by the end of the year (with  some ups and downs of course).

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#6) On May 28, 2008 at 10:43 PM, mandrake66 (94.16) wrote:

I don't think the banking crisis is over because there are still too many surprises emerging. I don't think anyone still at this point knows how many writedowns/bankruptcies are still in the offing, or who will be taking them. There's still a lot of whitewashing going on here, and I think the worst could easily still be in front of us. The housing I think is mostly known and understood, so short of new and unexpected developments, it's probably an old story, though the many months of inventory needed to be worked off will continue to be a drag on the economy for a long time. Commercial real estate, though, is another story entirely.

It would not surprise me to see the Dow at new highs at the end of the year. Nor would it surprise me to see it at multi-decade lows. I simply don't know where it will be. If I were betting I'd bet on about 10-15% lower than today. But that's a moving, volatile target that will be meaningful until about January 2.

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#7) On May 28, 2008 at 11:23 PM, russiangambit (29.30) wrote:

The way I see it, the 3rd and 4th shoes are still in mid-air. 

I think S&P could go another 10% down before the rebound, we'll see. My reason,  - yes the oil reached its high, but it hasn't been fully priced into the stocks yet. Give it a couple weeks to sink in, because at this point a lot of people are thinking the $130 oil is not for real. And may be it is not. But if it is, we'll go down some more. I  am mostly shorting, until I see a 3-4% rebound on good volume

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#8) On May 28, 2008 at 11:27 PM, EScroogeJr (< 20) wrote:

" I would not be surprised to see the Dow at new all time highs by the end of the year (with  some ups and downs of course)."

14300 is my guess.

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#9) On May 28, 2008 at 11:31 PM, FleaBagger (29.63) wrote:

I am very bearish on the economy in general and the dollar in particular, so I'm all in individual issues and calls because I can't afford to keep money in a rapidly devaluing cash account.

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#10) On May 28, 2008 at 11:51 PM, goldminingXpert (29.51) wrote:

the worst isn't anywhere near over. You haven't seen the consumer begin to stop spending yet. $4 gas hasn't been around for more than a month and you say it's over. Ha Ha Ha!

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#11) On May 29, 2008 at 12:36 AM, AnomaLee (28.61) wrote:

I'm bearish on the overall economy still, but I don't see any other place besides stocks really. With such a high short interest and low rates I don't see where else investors will be putting their money. If you're hoping for a 14,000 Dow 30 you need to put down the pipe, but my thesis has already been proven to me because the stock market isn't MUCH lower.

I'm always willing to invest in anything with a high ROI. You're insane to buy a 10-yr at current yields. You can't invest in real estate. The landscape is just as bad for other forms of securities[ARS, Muni's, CDO's] that stocks and corporate debt and they are probably the "safest" multi-trillion dollar asset classes worth investing. I am excluding 80% of financials and highlighting companies that are able to pass on higher costs to OEMs and consumers. 

That's my thesis and the biggest threat to the stock market is if treasury yields start spiking higher later this year due to inflation concerns, pretty much any other reason you gave for being bullish is pointless

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#12) On May 29, 2008 at 5:53 AM, saunafool (98.81) wrote:

goldminingXpert wins. The shoe that hasn't dropped is consumer spending. It is no longer going up, but with falling housing prices, higher food and energy prices, increasing unemployment, and historically record high levels of debt, the consumer is going to cut back. They are going to cut back a lot, and the entire consumer economy is going to take a major hit.

When 72% of the U.S. economy starts shrinking, then we'll see how resilient the economy is. None other than Mr. Buffett said this past week, "the U.S. is already in recession and it will likely be longer and deeper than most people believe."

The good news is that for those of us with many years before retirement, a long bear market might finally return stocks to historical value territory. The U.S. will recover, but I will be shocked if we have turned that corner already.

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#13) On May 29, 2008 at 9:34 AM, GNUBEE (26.77) wrote:

Saunafool, I am in that "many years before retirement" crowd, I am currently not feeling any real pain. (just the kind that might make me complain, but not the kind that would make me eat out of a dumpster) So It may get worse, but I don't expect to see soup kitchens on every corner, and bankers jumping out of windows. I actually hope my prime earning years are in the low points, so my money will be there for the big upswing.

Going to get worse, very likely (increased rates and all). The Nation going to dissolve into a third world country, I say very unlikely.

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#14) On May 29, 2008 at 10:24 AM, mandrake66 (94.16) wrote:

Bankers have been jumping out of windows in large numbers, but they've all been wearing golden parachutes.

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#15) On May 29, 2008 at 11:21 AM, saunafool (98.81) wrote:

mandrake66 speaks the truth!

Hey, I'm not saying soup kitchens or great depression widespread poverty. I'm just agreeing with Buffett that it will be longer and deeper than people expect. People vaguely remember the 70's. I was only a kid, but times were tough.

This guy at a bar in Northern Minnesota was telling me about the big northern pike stuffed on the wall. He said, "Yah, I pulled her through the ice. Caught it on a homemade jig. Back then, you know, there weren't no jobs or nothin. We couldn't even afford bait. We ate that northern for 3 weeks. Worst tasting fish I ever had. Tasted like styrofoam or something."

All I'm saying is that the consumer is pretty tapped out. No more home equity, no wage growth, record levels of debt. As they pull back on their spending, which has already started, all the retailers, transportation companies, car manufacturers, appliance manufacturers, furniture manufacturers, and many other sectors of the economy are going to feel the pain. People will lose their jobs, and it is going to last a while.

In a few years, people will have put their books back in order, the bad loans will be gone from the balance sheets, and then the American economy can begin healthy normal growth again. But until we grind away or write off the mountain of debt, we're going to have to muddle through.

I've been saying all along we will likely experience a "velvet recession" like Japan has for the past 15 years. It shouldn't be as bad for us because our demographics aren't as bad as Japan, but it's basically the same problem--a pile of debt at the end of a period of overleveraged speculation.

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#16) On May 29, 2008 at 12:55 PM, mandrake66 (94.16) wrote:

My only short-term trading concern is that I expect, as does camistocks, the price of oil to pull back dramatically at some point. $80/brl wouldn't surprise me either. However, this seems to be a consensus view among many people, even Paul Krugman, so I doubt it will play out exactly like that. But any substantial pullback will cause a huge rally in stocks. I don't like to think what would happen to my CAPS score in that eventuality, but it won't change my investment strategy any more than the rally that followed on the lows of March. 

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#17) On May 29, 2008 at 7:11 PM, camistocks (< 20) wrote:

I don't see the US consumer cutting back. They will maybe drive less to save fuel costs. So instead of hopping into the SUV to get to the next McDonalds which is a few hundred meters away, they may walk! Yes walk! This could also reduce the obesity problem in the US.

Seriously: the Fed has started to lower interest rates back in August 2007. But only very slowly. Only in January did Bernanke really do his thing and lowered rates fast. And only in March was the Fed Funds rate at 2.5%. Of course the bears say: "ha! you see? he lowered rates and is going to destroy the dollar and all for nothing! There will be a deep and brutal recession."

However it takes some time until rates (lower or higher) start to affect the economy. In fact about 6 months. So, we are now almost in June. Not when the lower rates would affect the US  economy. Take February/March and 6 months later would be August/September. Just when everybody thinks the US economy is going into the worst recession since 1929. It won't happen. I think the economy will reaccelerate in the second half, led by companies who export a lot.

In Switzerland in the early 1990s the economy stagnated for many years, because of a housing boom/bust. But the stock market still rose 500% until 1998, thanks to exports.

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