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starbucks4ever (77.39)

Stocks will disappoint investors



November 01, 2010 – Comments (4) | RELATED TICKERS: XOM

Here is my current take on the market in anticipation of QE2. 

a) Short - term

There are no positive surprises for the market. It is well known Bernanke will announce QE2 on Wednesday. The size of QE2 is also an open secret: $2 Trillion, stretched over the next couple of years. This money should theoretically provide some support for the market, but of course the hedge funds have already bought up the indexes in anticipation of the move and are now only waiting for the announcement to sell the news. The most likely outcome is a hysterical 2-3% one-day spike when Bernanke announces a $2 Trillion program and the market pretends to be surprised, and then the sell-off should take us back to where we are now.

b) Medium-term

Stocks are still overvalued and the indexes are still full of future Ch 11 candidates. And it does not help that S&P is weighted by market cap, which at this point tilts it so heavily towards such pathetic losers as XOM and COP. We are almost at the same level that we reached in April when I said there was nothing left to buy because everything was overvalued. And when I said that, QE2 was a part of my estimate. (How did I know? It was easy. Do you think I am such a fool I would think Bernanke could stop at QE1?).

So I don't expect much upside from these levels. I think S&P will spend most of the next year oscillating between 1200 and 1300. Price in 5% inflation next year, and any real gains will be modest. What about the peaks and the troughs? I think we will see 1400 once or twice in the next 14 months, but we will also see 1140 at least once.

c) Long-term

In the grand scheme of things, we face another disappointing 6 years. S&P should reach 1500 in 2017, underperforming against inflation. By that time enough dinosaurs will be kicked out of the index and enough IPOs will be added and the lights will turn green. However, those who sell today and put all their cash in TIPs will have few regrets in 2017.

d) Very long term

After 2017, there will be a very strong bull market. Dow 36000 will become reality in 2028 or so.

e) Long-term failure

The very long-term future will be bright, but investors will still find a way to ruin it for themselves. Most people will miss the party because the next decade will bring a general disappointment and distrust of stocks. The bankruptcy of XOM will still be weighing too heavily on everyone's mind when the secular bull begins for real. People will feel that low valuations don't matter anymore because every company will ultimately go bankrupt. 


4 Comments – Post Your Own

#1) On November 01, 2010 at 8:29 PM, TheDumbMoney (67.11) wrote:

I can understand calling XOM and COP pathetic losers from an ideological standpoint, but bankrutpcy seems a touch unlikely, especially for XOM.  Also, if my memory serves, XOM has handily outperformed the S&P 500 over the past decade.  It is, I admit, unlikely to outperform so strongly over the next decade, since we are not now coming off of a Y2K tech bubble wherein everybody thought that any internet-related stock was golden, and -- wrongly at the time -- that XOM was a pathetic loser.  You're a longstanding member with many more posts and a vastly better CAPS rating that mine, so I may be missing both the context of your prior posts, and something substantive, if so I'm sorry.  Do you just think that we're all going to stop using oil and gas and XOM will fail for that reason?  Short of that, I don't ever see XOM failing, and even if that comes to pass, XOM will have long since purchased some company and reinvented itself as a synthetic algae refiner or something.

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#2) On November 01, 2010 at 8:39 PM, starbucks4ever (77.39) wrote:


Don't be intimidated by the ratings.  Mine was negative in 2008 and these ratings are pretty meaningless because a real portfolio can't be managed the same way as a Caps portfolio.

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#3) On November 01, 2010 at 8:47 PM, Varchild2008 (84.00) wrote:

Prediction:  Everything in this article will be proven wrong.

Short-Term:  Investors won't be playing the market based on what Bernanke says or does.... It will now be based on flag football....Green Team versus the Purple Team....

Medium-Term:  Investors will analyze sunken treasure chests and abandon all their GOLD in favor of what's in the box....

Long-Term:  Uncle Sam actually does exist.  And that makes the stock markets rally like crazy until they find out he's broke.

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#4) On November 01, 2010 at 11:02 PM, Speculatormaster (33.59) wrote:

Man you are just speculating and too hard, no one can't make a good speculation out of real data, xom and cop are the best of the best in the oil sector, you are playing with fire, are you joking with that analysis?

Because the oil sector seem that is gaining force, and in the 2011, I am just very tempted to make move on the oil.

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