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May 21, 2008 – Comments (14)

I have been told I am too bearish, yet I have consistently given good reason for being bearish.

Mish is very worth having on your daily reading list.  The quote he pulled today says what I've been saying since last summer very well...

"I'm surprised people still don't get this. They look at the headline statistics the government puts out and don't bother to think about the real information embedded in the numbers.

The crush on profits is beginning to take full force as companies are having more and more difficulty passing higher input costs on to consumers, as they're getting squeezed too.

This is the most important statistical relationship to stock prices by far. (emphasis mine)"

What did I read somewhere, 3 stocks are responsible for all the profits and the rest are down 30%.  Three stocks keeps the market at this level?  I don't think so, the squeeze on profit is crushing and business is going to be hard pressed to turn that around for years because the consumer is maxed out. 

14 Comments – Post Your Own

#1) On May 21, 2008 at 10:10 AM, wolfhounds (29.48) wrote:

The real inflation is already here for anyone who bothered to decipher how the BLS calculated April's inflation number.

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#2) On May 21, 2008 at 10:16 AM, FourthAxis (< 20) wrote:

Now D, who wants to read some dry blog like Mish when we all know there's going to be a "second half recovery."  ;-P

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#3) On May 21, 2008 at 10:24 AM, LordZ wrote:

Dwot you can make money in any kind of market ?

Despite the hating and lack of love i've been getting for blogging and posting about my sucess. In fact Dwot some of the best investments are made in times of trouble.

Its funny but most people wait until stocks are too expensive to gather enough nerve to buy them to compare this to the real world its sort of waiting until after the sale and until after store raise prices on their goods to buy groceries ?

How funny it is to comprehend people not wanting to buy a can of soup because the price isnt high enough or that the store has it now on sale ?

You wouldn't do it like that in real life.

Profits will always be suspect to being reduced based upon situations, however most businesses still will be profitable.

There's always something to worry about
Peter Lynch meant that worries always abound. The successful investor knows to mostly ignore them.

Right now the big issue is with rising oil costs.
Before hand, the big bugaboo was the turmoil in housing and the credit markets. Two years ago, it was avian flu. At the beginning of the millennium, it was the dot-com crash.

Before that, we feared that Americans couldn't keep up with the Japanese. Remember when "they" bought Rockefeller Center?

The 1970s had inflation and an oil crisis. The 1950s had fears of nuclear war.

Do you see a pattern here?
Although the market always has something to worry about, the worry du jour has never meant the end of the investing world.

Instead, strong businesses survive and keep growing -- taking the market along for the ride.

Less worry, more money
Now, not every company survives, and people do lose money investing. That's why you'll do well to focus on strong operators and superior management teams.

Why did Blue Nile (Nasdaq: NILE), founded in 1999, survive the dot-com crash? It had a viable business model and the right people in place to make it great. While many dot-bombs disappeared forever, Blue Nile went public not long after the bubble burst.

Although Asian manufacturers did end up gaining an edge in many markets, American entrepreneurs responded with businesses such as Cisco (Nasdaq: CSCO), founded in 1984, that have kept our capital markets strong.

Northrop Grumman (NYSE: NOC) has been affected by every one of these worries -- and lived to tell the tale. It's a blue-chip brand that's always worth considering for purchase when the market dips.

Consider: Northrop Grumman has returned more than 15% annually over the past two decades!

Something for everyone
Which kind of investor are you: a Chicken Little, or one who will take advantage of market panic to profit?

Dwot you can always make or lose money and stocks give anyone the biggest ability to become wealthy much quicker than any other investment. 

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#4) On May 21, 2008 at 11:03 AM, EScroogeJr (< 20) wrote:

I agree. The foundation for the next run-up to Dow 17000 is being put in place now. The construction site always looks ugly, but it's at this stage that you have to buy. When it's all finished and landscped, it will be too late.

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#5) On May 21, 2008 at 11:32 AM, RockyNicky3728S (< 20) wrote:

PTRY is a convenience store operator in the southeastern U.S. The company's stories market a broad selection of merchandise, gasoline and ancillary products. It's down from about $48.96 to $12.27. The real estate they sit on is worth more than the stock price reflects.A second half recovery will soon be here.

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#6) On May 21, 2008 at 12:07 PM, abitare (61.26) wrote:

Lordz is a fool, who does not know his history. A two month track record and he thinks he get it.

In a bear market 80% of stocks get taken down. The FED has dropped rates to 2% to keep the market juiced, the market thinks the FED is going to 1%.

Dwot,

I am uber bearish. The markets fall far faster then they take to climb. The news is bad and it will get worse before the next president will get into the office.  

(ref my blog on 21 Apr 08 Being a Bearish, Does not Mean I am Depressed or that I will Eat Bugs…(unless I have to))

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#7) On May 21, 2008 at 1:08 PM, camistocks (< 20) wrote:

Abitare, maybe YOU are wrong?! The stock market history is marked by people who missed the trend. Many of them think they know better. Probably they have lost a lot of money during a bear market before and now they know it's going to get worse.

Are we in a bear market? I don't think so!

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#8) On May 21, 2008 at 2:24 PM, abitare (61.26) wrote:

camistocks,

"Are we in a bear market? I don't think so!"

The S&P500 is net even after 10 years (ref WSJ The Lost Decade)

The S&P is Negative in Real terms, after you subtract the 20% inflation. Or if you price the US market in Euros or Gold the US market is DOWN significantly.  The US dollar has fallen 50% against many of the worlds currencies. The US has built an Empire on Debt.

You cannot print money and create wealth and prosperity, just inflation. 

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#9) On May 21, 2008 at 2:37 PM, eldemonio (97.96) wrote:

Being bearish does not necessarily mean that one thinks the world is going to end, or the market is going down in flames, to never exist again.  Being bearish means that one thinks that the market will decline before the next run-up. 

Sure, there is plenty of money to be made in a bear market - but to deny that we are in a bear market is ridiculous.  Bear markets are not defined by whether individual investors make money or not.  Bear markets are defined by overall market performance.

History tends to repeat itself - People tend to make the same mistakes over and over again.  But this time around, don't be fooled into thinking that the same factors are present in determining market futures.    We are indebted out the a$$, and our economy is heavily dependent on consumers who can't continue the credit-junkie spending spree of the last 10 years. 

Maybe I'm wrong, but I can't think of anytime since market inception that we have seen this same set of circumstances.

Bears rule!

 

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#10) On May 21, 2008 at 4:05 PM, camistocks (< 20) wrote:

abitare, this is if you bought at the top in 2000. If you bought at the lows in 2002/2003 you have made good money. Of course it depends on if you know when to take the opportunity and what sectors you bought... The stock market will not make Joe Average rich...

eldemonio, why is it ridiculous to say we are in a bull market? Hey, the markets are doing just fine... Other countries are far more indebted vs GDP than the US. There is about $3 trillion sitting on the sidelines.

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#11) On May 21, 2008 at 5:33 PM, FleaBagger (28.19) wrote:

Wow. You are all so wrong, I don't know where to begin. ;)

LordZ - if your stock investments had aped the S&P 500 through the 1970's (there were no index funds then, but try to see my point), your gains (from dividends - there were no capital gains) over those 10 years would be taxed down to well below inflation. That is what a bear market means to me.

Scrooge - Dow 17000 is either not going to happen in the next 5 years, or will be accompanied by so much inflation as to be meaningless.

Abit - Actually, you're right, except that 80% of stocks going down is meaningless if you can weed out the tares from the wheat. Invest in the other 20%. 

Cami - This really is a bear market. 0% returns are not from the market top in 2000, but from before the market top, in 1998. 1999, 2000, 2001, 2005, 2006, and right now are some of the worst times in history to have invested in the broad stock market. Inflation should not be overlooked, as it combined  with taxes to destroy investor returns in the 1970's, and it has and will again this past decade and probably for the next 4-5 years.

demonio - It's not our economy that's dependent on credit-fueled consumer spending. Just huge companies and the stock market. That may seem like a fine distinction to you, but the difference is huge. Go out and start your own company. There's tons of opportunity right now, and that's the economy. Your index fund returns are just one small part of the economy. 

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#12) On May 21, 2008 at 6:04 PM, camistocks (< 20) wrote:

Flea, again I maintain if you bought at the right time you made a lot of money. Even if you bought at the dates you mention, you could still have made a lot of money. I just say oil, commodities, gold. Again the stock market will not make Joe Average rich!

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#13) On May 21, 2008 at 9:35 PM, abitare (61.26) wrote:

camistocks,

Please let us know when the right time is. Meanwhile I am bearish thru the summer. SKF and SRS. 

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#14) On May 22, 2008 at 8:07 PM, dwot (46.63) wrote:

Wolfhounds, in Vancouver Canada is has been high for a long time.

FourthAxis, good luck with that second half recovery.

LordZ, I have no doubt that some of the best investments are made in troubled times, I just don't think the degree of trouble that we are going to see is here yet.  It is significant to me that I have zero job history from 79 to 86 because ALL the businesses went under.  When I look back, there were also well established, big 100 year old businesses that went under.  I wouldn't say I'm a chicken little, I just have more caution and I am in a comfortable place and I'm not risking that when I think the risk/reward profile is way out of whack on the risk side.

You too EScroogeJr, good luck with that prediction.

RockyNicky, looks like I'm very out numbered in beliefs of a second half recovery...

Abitarecatania, I've read your post.

Camistocks, good luck as well. 

eldemonio, I think you are right about the number of circumstances against the market right now.

FleaBagger, I agree with your sentiment. 

 

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