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goldminingXpert (29.79)

The Market Is About To Plunge (Day 2, Volume 2)

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May 01, 2009 – Comments (28) | RELATED TICKERS: F

Yesterday, I highlighted the reason for this series. We are celebrating the remaining few days (weeks) at this elevated level in the stock market before the reality of "Sell in May and go away" sinks in leaving bulls despondent as the S&P slides back into the mid-700s. Already, the market has slid significantly since the inception of this series yesterday morning. Will the rally that began at the metaphorical 666 end at the equally numerical 888? The answer appears to be yes, though the deluded bulls may try to argue otherwise.

Today's reason to justify the argument that we are near, at, or past a top in the market: swine flu. Actually, since the WHO renamed it to some forgettable jumble of letters, lets just go back to naming flus the way they are normally named: country of origin. So, what do we know about the Mexican Flu? It is really contagious, yet not very lethal (so far.) No big deal, eh? We'll all get sick but nobody dies. That works. But wait, what if we all get sick at once? See, the flu has been following an exponential growth model where the # of cases is not rising up a linear trendline but instead growing on an exponential curve. As recently as Wednesday night, there were under 10,000 cases of Mexican Flu, but now there are over 16,000 suspected cases (citation). One model I've seen indicates that even with the lethality of the regular flu (0.1% of people contracting the disease die) America will still face great danger. Keep in mind that the normal flu bug only hits ~10% of the population every year whereas this one is infecting 30+% of the people it comes into contact with. Assuming that the disease spreads unhampered (which one must assume unless the government shuts down society thus sending the stock market plunging anyway) 30% of the US population will get the disease. Result: 120 million American cases, ~1.2 million hospitalizations, and 120,000 deaths. Bad. Worse? All of this would come in a short span (a month or two). Result: Hospitals completely overworked, death rate rises due to treatable secondary conditions. Result of this result: Government will quarantine and shut things down. Result of this result: Stock market plunges. I haven't decided if this series will continue over the weekend, but by Monday, Part 3 of this series will examine the fundamental lack of earnings in the S&P 500 and how it impedes any further rally.

28 Comments – Post Your Own

#1) On May 01, 2009 at 11:54 AM, russiangambit (29.53) wrote:

It should hit retailers, if it is contagious people won't go shopping. Or may be it is just my wishful thinking, I am short retailers. So far consumer confidence reins supreme.Gee, who are these people? But since Americans use shopping as a sort of stress therapy and hobby rolled into one, even flu might not be able to stop them.

Retailers are up 100% since the lows, back to the October 2008 levels.

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#2) On May 01, 2009 at 12:09 PM, dudemonkey (40.64) wrote:

I think I'm tired about reading market predictions that are fairly consistently wrong.

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#3) On May 01, 2009 at 12:16 PM, dudemonkey (40.64) wrote:

I think I'm tired about reading market predictions that are fairly consistently wrong.

... meaning that basing market predictions on a media hellbent on stirring up a panic (which improves their ratings) seems like a path that is not likely to bear fruit.  The WHO has aggressively disavowed those death numbers and place the number of dead at 8 as of last night.  Worldwide.

And the survivors, which accounts for 99.6% of those infected (historically speaking, although I know that you don't believe that this swine flu is anything like the previous several swine flu outbreaks), report mild flu-like symptoms and most of them do not require hospitalization.

What you are reading about the swine flu is fairly biased.  It's no different than the crazy fear that caused people to nail themselves inside their homes on Dec 31, 1999, caused them to buy out all the duct tape and saran wrap in 2002 based on exaggerated politicking of intelligence reports, and is causing them to stockpile guns, ammo, gold, and canned goods because the stock market went down in 2008.

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#4) On May 01, 2009 at 12:19 PM, djkumquat (43.30) wrote:

my eyes just rolled so far, i think i can see the back of my head.

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#5) On May 01, 2009 at 12:22 PM, kdakota630 (29.86) wrote:

dudemonkey

I agree that the swine flu thing is probably overblown and that it's far too early to tell, but taking precautionary measures probably isn't a bad idea.

However, I disagree with your line about "market predictions that are fairly consistently wrong".  If you're referring to GMX, he's got a pretty good track record.

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#6) On May 01, 2009 at 12:23 PM, binve (< 20) wrote:

Yessir, I still agree with you.

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#7) On May 01, 2009 at 12:35 PM, dudemonkey (40.64) wrote:

However, I disagree with your line about "market predictions that are fairly consistently wrong".  If you're referring to GMX, he's got a pretty good track record.

 

Correct.  that's why I clarfied.  I realized that, just because that idea made sense in my uncaffeinated head didn't mean that it read the same to someone else.

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#8) On May 01, 2009 at 12:36 PM, kdakota630 (29.86) wrote:

Then my job is done here.

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#9) On May 01, 2009 at 12:43 PM, bridgeboy0 (88.15) wrote:

One of the reasons given as to why "Sell in May and go away" is valid is that many of the traders and others on Wall Street go away for vacations during the summer months.  It will be interesting to see how many of them are vacationing this year if  times are so bad for everyone.

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#10) On May 01, 2009 at 12:54 PM, OldEnglish (28.20) wrote:

Swine Flu is a joke. More people died in Mexico City of pneumonia in the last 24 hours. Just more WHO propaganda to justify their jobs. Remeber when they speculated that Avian Flu could kill a quarter of London. It isn't 1918. Relax.

The market is going to collapse but not because of some WHO hype. Consistently lower earnings and endless unemployment will do the trick. For the bulls, be sure to ignore the upward revisions in unemployment that happen EVERY month. You'd think that occassionally they'd revise downward just to maintain a shred of credibility. 

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#11) On May 01, 2009 at 1:03 PM, goldminingXpert (29.79) wrote:

The WHO has aggressively disavowed those death numbers and place the number of dead at 8 as of last night.  Worldwide.

Bwahaha. You just proved you have no idea what you're talking about. That is cases THE WHO HAS CONFIRMED! You think they're testing every ill person in the world? Of. Course. Not! And they haven't disavowed anything. I can see why you'd be tired of reading about it when you fail to grasp even the basics of the situation.

Ironically enough, you granted the disease a much higher kill rate than I did. You say .4% die whereas I say .1% of people with the disease die. Putting your kill rate into my model, we arrive at a death toll of 480,000 instead of 120,000.

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#12) On May 01, 2009 at 1:10 PM, kdakota630 (29.86) wrote:

Regarding the general thesis of your blog series (rather than the swine flu aspect of it), I found this:

Tice Sees Stocks Plunging 54 Percent

I don't know much about David Tice or his track record other than what's mentioned in this article, but I thought it was interesting enough to share with the group.

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#13) On May 01, 2009 at 1:18 PM, goldminingXpert (29.79) wrote:

Thanks for the interesting read Kdakota.

The comments to this thread make the blog point stronger. No one, other than myself, is showing any real concern about the Mexican Flu as it effects the economy. The government of Mexico is shut down, the restaurants are closed, private businesses have been ordered to closed by the government. Here is the states, we have dozens of school districts shutting down for a week or more and yet investors don't see any impact on the market. If the Obama administration grounds all non-essential air travel on Monday--tell me what happens to the stocks of DIS, Starwood Hotels, AMR, UAUA, and so on. Think Obama wouldn't do that? Well, his own staffers are getting the flu so think twice if you're so sure. Remember, Honest Joe Biden told us all to not ride subways.

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#14) On May 01, 2009 at 1:31 PM, dudemonkey (40.64) wrote:

Bwahaha. You just proved you have no idea what you're talking about.

Can we at least attempt to discuss like grownups? Report this comment
#15) On May 01, 2009 at 1:36 PM, goldminingXpert (29.79) wrote:

I can, I don't know about you.

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#16) On May 01, 2009 at 1:55 PM, dudemonkey (40.64) wrote:

Well, clearly we disagree about a few things that are largely not related to stock picking.  This really isn't the forum for those kinds of things, since it typically turns into the loudest, most obnoxious one "wins" and I'm not interested in "winning."

I'm sure we actually agree on a lot more things that we disagree about.

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#17) On May 01, 2009 at 2:00 PM, goldminingXpert (29.79) wrote:

That's fair and probably true.

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#18) On May 01, 2009 at 2:19 PM, Deepfryer (28.18) wrote:

If we stop riding the subway, the swine flu has already won.

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#19) On May 01, 2009 at 2:22 PM, goldminingXpert (29.79) wrote:

Yeah, Biden is a little crazy. I still rode the bus today.

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#20) On May 01, 2009 at 2:36 PM, RonChapmanJr (97.13) wrote:

Biden is just a "little" crazy?   Now you're just being nice.

Related to this post, I am amazed at how easily people dismiss something (the threat of a pandemic) just because they have not experienced it before. 

ron

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#21) On May 01, 2009 at 6:48 PM, RainierMan (81.15) wrote:

I think a bigger threat than the flu to the market might be what is happening to treasuries right now. Is it just me, or are rising yields at a time when the Fed has been purchasing Treasuries a potentially big problem? 

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#22) On May 01, 2009 at 7:15 PM, devilinside (77.47) wrote:

My portfolio is up 93% as of todays close. Are you sayng that I should sell before that great armagedon returns again?

I'm a long term investor with an eye on 3, 5, 10 year time spanes. I would welcome a pull back as I do think that the markets as a whole are over bought based on current economic conditions.

So I agree with your assesment that the markets are due to pull back. With that being said, bring it on. I'm ready to take advantage of it when it does.

Traders beware. Long term investors another oppertunity may be coming your way again.

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#23) On May 01, 2009 at 11:23 PM, drummnutt (< 20) wrote:

NEWS FLASH:

Almost ALL viral infections of this nature spread exponentially. 1 person infects 3, then 3 infect 9, then 9 infect 27, then 27 infect 81....etc...

So what is your point? I agree completely with dudemonkey, I am sick of hearing stupid predictions that are based on rubbish. This rally will continue

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#24) On May 02, 2009 at 12:15 AM, BellasPosting (42.73) wrote:

Show me any evidence that an increase in cases of the flu (swine or other) ever caused the market to crash, or even decrease, for that matter. Total hogwash (pun intended). I'll bet you're a short seller. Short sellers like you are taking a beating and trying every trick in the book to get the market to go down. Not gonna happen, son.

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#25) On May 02, 2009 at 3:51 AM, uclayoda87 (29.49) wrote:

Mexico has far more important problems than a mild flu strain, but with enough ignorance and fear I'm sure that they could create a real problem for themselves.

As for the US, we have seen so many made for TV health crisis, that this one seems like a boring rerun.

How many people remember:

 The AIDS scare.  Magic Johnson still looks pretty good.  How long ago was he diagnosed with this incurable disease?

Fen-Fen valve disease.  Even the Mayo clinic predicted a massive death and disability rate given the number of people who took this weight reducing product.  The crisis never happened, but some trial lawyers did make out well.

Mad Cow disease, which was supposed to turn our brains into mush.  This apparently did affect some in the media, financial sector and government.  This disease is closely related to another disease associated with cannibalism, which could explain why it affected some people more than others.

I am sure you could add to this list of fad diseases, but the point is that this flu is just a minor medical problem with little real impact on society, other than the political super-infection which may become a real threat.

I don't believe that the market is dumb enough to believe Joe Biden when he has another one of those senior moments in fromt a microphone.  In fact I think when people watch crazy old Joe saying that he is afraid of planes, trains and cars it helps us see the silliness of this media circus.

So when the market crashes it won't be because of fear of a pandemic, but because dead companied don't make money.  It's back to that old Clinton campaign line:  "It's the economy, stupid!"

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#26) On May 02, 2009 at 3:38 PM, OmiKell (< 20) wrote:

The Swine Flu will be an excuse for the Market to drop, but the Market will drop.

I'm sorry to hear people yelling for a continued rally. Any who won in April should take his gains and pop a champagne bottle.

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#27) On May 03, 2009 at 3:28 PM, goldminingXpert (29.79) wrote:

Short sellers like you are taking a beating and trying every trick in the book to get the market to go down. Not gonna happen, son.

 Ha! Ha! Stupidity knows no bounds.

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#28) On May 03, 2009 at 3:52 PM, NOTvuffett (< 20) wrote:

I don't see how the market can not go through a correction, the underlying economic numbers are still bad.  I don't mind, it is another chance to visit the bargain bin.

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