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goldminingXpert (30.65)

The Market Is About To Plunge (Day 7, Vol. 6)

Recs

30

May 06, 2009 – Comments (34)

Selected comments from the last posts of the Market Is About To Decline series. I brought back comments that were: factually correct, entertaining, posed a good question or were downright moronic. Remember that I'm keeping a file with all the stupid comments for later use when the S&P is traded with a much lower first digit.

--- (Comments in italics, my respone in normal text.)

Retailers like WMT, TGT, and KSS did not participate today. Consumer spending drives the U.S. market. If this were a sustainable bull market, the largest retail companies would be leading at new-high levels. Oil and gold were leaders today. We are 38% above the 666 bottom. The largest depression-era bear rally was +45%. 965.7 will get us there if the psychology can last that long.

+1 to this comment.

This whole thing is just bizarre. Especially BAC who went up over 15% after we just found out they needed 34 billion! Last night all the BAC holders thought they were screwed and it seemed assured that the markets would fall especially BAC. It is as if the market is in some sort of upside down world or something.

Yep. Makes me angry. Goldman Sachs is making record trading profits. No surprise. They'll make even bigger profits when they send us crashing again.

There has been talk about manipulation going on and after today there does not seem like there can be any doubt about that. The fundamentals don't support this nonsense but it is a matter of how long they can or want to hold it up. 

This isn't actually uncommon. When bad news is treated as good news(and we've had ONLY bad news recently), the market rises for awhile and then suddenly it breaks--just as when a fever breaks and people suddenly gain their senses back--the market will regain a sense of reality and pull off another Nov '08 style plunge.

Yes, i'm in short position of BAC, Long position on FAZ/SRS [. . .]God americans are stupid!

You will make money, and yes, Americans are, by and large, retarded.

WFC jumped when it was annouced that they needed a cash infusion as well.

The worse your business is, the better your stock does. This is the exact opposite of a normal healthy bull market. The laggards (of fundamentals) are leading in price. Never lasts.

I guess I'm a sheep that made a KILLING on SIRI and have now made my money back that I lost last year.

Normally breaking even isn't considered a "KILLING".

GMX- I would love to see you eat some humble pie. A big fat slice of it.

Well that's too bad cause I have no reason to do so at this juncture. If the S&P is at 1,000 at the end of the year, we'll revisit this thread.Of course, when it hits 6xx, you'll be long gone with your propellerhead cap and your foolish commentary and I'll still be here chillin in the top 10.

Did the market plunge 60% from its peak? Yes.

Is American business worth 60% less than it was in 2007? No.

Was American business overpriced by at least 60% in 2007? Of course! Probably more than that!

---

Keep tuned to the blog as this series is forced to continue as the bulls shrugged off a triplet of disasterous economic stories to keep bidding stocks higher.

34 Comments – Post Your Own

#1) On May 06, 2009 at 5:33 PM, goldminingXpert (30.65) wrote:

P.S.Those pinheads at American Krapital (ACAS) got smacked by a big huge four-by-four of reality. Man, that's got to sting. Shares declined $1.50 (32%) today to be the day's biggest loser. If it declines at the same rate tomorrow and Friday, it will reach $0.28, which leaves it overvalued by only $0.2790 or so. While today was a bad day for reality as a whole, at least in the ACAS space, reality made a stunning rally.

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#2) On May 06, 2009 at 5:34 PM, portefeuille (99.78) wrote:

does 1 count as a much lower first digit (joking)?

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#3) On May 06, 2009 at 5:36 PM, goldminingXpert (30.65) wrote:

We could get to 1,000. Crazier things have happened. We won't last above it for long though. However, I'm starting to doubt whether my glorious 2009 high of the year call back in early January will hold up. I think the bulls have just enough strength to punch through the top, destory my beautiful call, and then crater.

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#4) On May 06, 2009 at 5:36 PM, kdakota630 (31.77) wrote:

Cool.  One of my comments made the cut to be commented on.

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#5) On May 06, 2009 at 6:11 PM, Quantemonics1 (99.66) wrote:

Here is the scenario I have been playing in the CAPS game (and have mentioned in previous posts all year long), look at a chart of the market in 1975.  This is by far the most analagous "situation" to what is going on politically and economically from my vantage point.

I have been looking for a short-term top in the 950 range on the S&P 500 give or take a few percent in the latter half of May, followed by a roughly 10% correction to say 850 in the summer months, and a strong upmove again above 1000 in November 2009-January 2010.

We will get a sell-off soon below 900, I agree that is the next step on the ladder.  However, THE bottom (perhaps the biggest bottom in our investing lifetime) is already in.  Once we get better economic news during the summer months, most everyone will realize the bottom is in, and steady inflows of returning capital will prop up prices and valuations during the correction/breather in the summer months. 

After we survive September and October WITHOUT a major sell-off, stock market investors will start to look at much better earnings comparisons for 2010 vs. 2009, and short sellers will have to finally cover most macro positions in disgust, giving us another 20%+ pop in prices heading into the important and rising confidence Christmas sales season.

In 2010, life goes on in a more normal fashion.  We will, however, have to deal with sharply higher inflation rates and a declining US Dollar value, beginning next year.

-Tiger's Two Cents

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#6) On May 06, 2009 at 6:14 PM, Quantemonics1 (99.66) wrote:

By the way, our window for a monster 400+ point Dow UP day seems to be closing quickly.

If we don't get a huge UP day on Thursday or Friday, we will likely NOT undergo the short seller, back-breaker I was expecting.

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#7) On May 06, 2009 at 6:20 PM, G8BigBoom (69.94) wrote:

I would say something but I think TigerPack said it perfectly.

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#8) On May 06, 2009 at 6:29 PM, D2009 (< 20) wrote:

Less bickering, more analysis please.  I don't care how old anyone is or how long anyone has been investing, I care about good ideas.

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#9) On May 06, 2009 at 7:09 PM, goldminingXpert (30.65) wrote:

Thanks Tiger for the rational disagreement. I much prefer that than the personal attacks that have mostly been the standard here the past few days.

That said, I don't see how the market can fundamentally go higher that quickly. What part of the macro picture is so great? Unemployment is still rapidly rising, the housing market is in the dumps, interest rates are rapidly trying to rise (Bernanke is barely keeping that in check), and the market is still overpriced on a historical P/E ratio basis. I have no reason to see earnings rising over the next year from where we are now, and I don't see the P/E ratio expanding farther until GDP growth returns.

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#10) On May 06, 2009 at 7:09 PM, goldminingXpert (30.65) wrote:

Thanks Tiger for the rational disagreement. I much prefer that than the personal attacks that have mostly been the standard here the past few days.

That said, I don't see how the market can fundamentally go higher that quickly. What part of the macro picture is so great? Unemployment is still rapidly rising, the housing market is in the dumps, interest rates are rapidly trying to rise (Bernanke is barely keeping that in check), and the market is still overpriced on a historical P/E ratio basis. I have no reason to see earnings rising over the next year from where we are now, and I don't see the P/E ratio expanding farther until GDP growth returns.

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#11) On May 06, 2009 at 8:03 PM, stockfreak1 (< 20) wrote:

@goldminingXpert - I'm tempted to start looking hard at what the CAPS players around the >60, <90 scores have to say during these bear market rallies. I was in utter shock when BAC was up an additional 17% today. It should be trading at $2! Just complete disbelief. The derivates held by this company are astounding. With the imminent failure of GM and banks projecting more losses... who's at the switch here? What is the average IQ of the typical investor? How do these sucker rallies continue?

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#12) On May 06, 2009 at 8:13 PM, JibJabs (94.88) wrote:

"Thanks Tiger for the rational disagreement. I much prefer that than the personal attacks that have mostly been the standard here the past few days." 

 "and yes, Americans are, by and large, retarded."

"Of course, when it hits 6xx, you'll be long gone with your propellerhead cap and your foolish commentary and I'll still be here chillin in the top 10."

Plato wrote "Be kind, for everyone you meet is fighting a hard battle"

You would be wise to heed those words. You play the game far better than I do- I don't deny it. And, by the way, I do agree we are in for a drop soon. But, if you want real admiration you would do well to respect those you regard as less educated or intelligent than you. Misanthropy and self-righteous anger serve no one, least of all you. This is why I would love to see you eat a fat slice of humble pie. You clearly put a great deal of energy, if not respect, into your blogs. Why do you write? Why do you care for your score so much? Is it to educate or to assert your superiority? If you wish to educate you must earn the respect of your audience and you will never do that by maligning those that disagree with you (those that most need your help!). I've been reading your blogs a long time and will continue to do so, but your recent tendency to approach your readers and those less knowledgeable than you with distaste is unbecoming. 

One more thing- I personally would not mind a drop in the market or the long L-shaped recovery that many expect. I went long (decades long) in late February 2009 and every dip in the market enhances my yield. No sweat, no worries. 

 

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#13) On May 06, 2009 at 9:01 PM, Ibeatmykids (81.28) wrote:

The only reason that it is going up is because people are buying major companies for cheap prices.  It's like people are stripping the shelves clear at a 75% off clearance sale.  It doesnt matter how worthless the company is, at 75% off, don't let this offer pass you buy!!!

 I have looked at the Dow Jones graph over this century and during every dramatic recovery following a dramatic drop, their is a little hiccup in the middle.  It is usually a little less than half of the dramatic rise.  I could imagine the major indexes dropping a good 15% here very soon as the whole process of recovery has been greatly expedited due to government intervention.

The huge up day that Tiger speaks of could possible be tomorrow (May 7) and if it is I will sell my whole portfolio.  And if it isn't, I will still probably sell my whole portfolio.  I will have to see. 

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#14) On May 06, 2009 at 10:27 PM, Quantemonics1 (99.66) wrote:

I learned how bear markets, recessions and stock market crashes work right out of college from the 1987 through 1992 period of investing and trading.

I wouldn't know where to start to explain our current situation and economic backdrop vs. the way Wall Street is valuing and pricing stocks.  The latest credit crisis and fear of financial company defaults in the October 2008-March 2009 period definitely shook investors with considerably greater strength than either after the 1987 Crash or the 1990-92 recession.  "The" bottom appeared to be in place several times along the way from October 2008.  The difficulty in pinpointing an exact top or bottom in the "average" stock price is exactly the reason textbooks and economists generally recommend most of us just stay fully invested in a specific stock market weighting for long periods of time.  Without doubt baby-boomers panic sold like they never have, since retirement is right around the corner.  And I strongly believe wildly aggressive short selling added 10% - 20% "extra" to the price decline in the stock averages.  There exists plenty of evidence that short selling volumes and levels got way beyond anything seen in modern history, including the 1972-74 bear market of 50%.  Exclude the baby boomer reaction, the naked short selling and the effect of not having an uptick rule for short selling and I can logically argue the 2007-2009 drop should have been in a more normal bear market range of a 25%-35%, not the 55% whopper we got. 

EVERY bottom in the stock market I have witnessed the last 25+ years takes place in the face of much BAD news.  The stock market is a discounting mechanism, and the credit markets started to take better shape in February helping to generate the March-April bottom.  The stock bottom in March is likely forecasting a low GDP reading in the 3rd Quarter, roughly 3-6 months down the road.  That doesn't mean corporate profits or economic growth will take off anytime soon.  In fact, the 1990-93 period was called a profits recession, where GDP grew at a meager 2%-3% annually, while company profits were stagnate.  Despite the lack of corporate profitablilty the Dow Industrials and S&P 500 quickly recovered to all-time highs as ultra-low interest rates by the FED and strong money creation (like today) allowed the stock market to reflate confidence and wealth, "leading" the economy higher.  I remember most every credible adviser on CNBC in 1992-1993 was still waiting for the next shoe to fall in the economy and stock market and this situation led to the Clinton/Perot/Bush three-way split in the November 1992 Presidential election.  Citibank and Chase were both near insolvency in 1991 and 1992; we were still trying clean up the Savings & Loan mess from the late-1980s; global growth was negative; and real estate prices were falling in many areas of the country during the early 1990s.  However, the stock market was at all-time highs!  Did that make any sense?

I suspect a better stock market in April-May is already helping consumer confidence as we speak as surveys are beginning to show more positive sentiment (or simple relief the world has not ended as predicted by CNBC hedge-fund types and media-hungry bear analysts since October).  The second half of 2009 should bring just a stabilization of the economic situation, while 2010 should see meager, slow growth, with pockets of rising corporate profitability.

Many of the stocks I am buying the last few weeks are selling well below their liquidation values (which I have not seen since the crash of 1987), and/or at rational and legitimate P/Es in the 5-12 range.  Versus alternative cash yields near zero, and Treasury's under 4%, earnings yields from stable and brand name businesses in the 8%-20% range annually provide incredible "margin of safety" IF the economy does NOT recover soon.  All told, investors are being paid handsomely to take on risk at these prices, especially if the economy grows in 2010 and inflation's return gives businesses some ability to increase profitability in reported Dollars WITHOUT any jump in sales volumes.

When the economy IS clearly growing again, the stock market will be another 20%-40% higher in price than today.  The real disconnect between fundamentals and stock market pricing you refer to, happens at EVERY bottom, although it may take a year or two to make rational, logical sense of what is now happening.

Try to absorb all the news and reactions to it, plus the way stock prices and different industries are moving! The whole 2008-2009 period will be a better learning expreince for your bright investing future and knowledge base than any textbook you are reading.  I guess that's my advice for you.

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#15) On May 06, 2009 at 10:53 PM, BellasPosting (45.01) wrote:

Job losses are decreasing, housing is leveling off and the general feeling is that we've hit bottom. That is why people are now throwing cash into the market. Hate to burst the shorts bubble (like GoldminingXpert), but you will continue to lose wads of cash if you short this current market.

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#16) On May 06, 2009 at 11:55 PM, d1david (29.86) wrote:

Tiger- if the employment picture was IMPROVING, instead of WORSENING.. then i would have to agree with you...

however it is NOT...  i still have friends and family that are unemployed or underemployed and we as america are still in over our heads in debt.... 

untill the jobs in india and china come back to the usa, and we get out of debt as a people/individuals...  the bottom is NOT in

 

 

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#17) On May 07, 2009 at 1:39 AM, goldminingXpert (30.65) wrote:

Totally agree with you D1david. Just because the rate of worsening is ever so slightly slowing doesn't mean are improving. They're just getting bad (marginally) more slowly.

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#18) On May 07, 2009 at 2:12 AM, awallejr (80.08) wrote:

But a decrease in declining IS an improvement.  Things don't turn on a dime.  As for debt, we, as a nation, have reduced our credit card debt by 10% so far and our savings rate is the highest in 15 years, as per Bloomberg.  People really shouldn't underestimate the resilience of Americans. 

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#19) On May 07, 2009 at 2:14 AM, TMFUltraLong (99.97) wrote:

Even I have begun loading up on the FAZ and I have the UltraLong portfolio, lol. Im not against bullishness, but Im a realist as well as chances are the FAZ is heading back up to around 9.25 within 5-7 trading days.

UltraLong

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#20) On May 07, 2009 at 8:34 AM, portefeuille (99.78) wrote:

chances are the FAZ is heading back up to around 9.25 within 5-7 trading days

Giving such a specific "target" for a leveraged ETF for a timeframe longer than a day does not make sense. In your case you would have to make assumptions on the way the price of the underlying moves (the daily changes for 5-7 trading days) in that period. Let us assume the underlying decreases by 33% (you expect close to a doubling of the (-3X) ETF so I assume you expect the underlying to decline by around 33%) over the next 5 trading days. Then "95% confidence area" for the relative change of the FAZ is (guessing, I could look it up, calculate it, if anyone is interested) the interval from +30% to +200% (considering the expected current short-term volatility of the underlying and again guessing these numbers). Compared to the size of this interval your very specific $9.25 target appears a little audacious.

 

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#21) On May 07, 2009 at 8:40 AM, portefeuille (99.78) wrote:

(If you are inclined to believe that predicting the price of a leveraged ETF for a distant time is "something to take seriously" you might want to start reading here (see links in comment #22!).)

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#22) On May 07, 2009 at 9:35 AM, portefeuille (99.78) wrote:

to those who do not think employment is a lagging indicator:

have a look here (the lower graph) ...

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#23) On May 07, 2009 at 10:03 AM, portefeuille (99.78) wrote:

Something that might keep the market from being "About To Plunge"

QE (see here (and for the source here)) ...

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#24) On May 07, 2009 at 11:48 AM, Quantemonics1 (99.66) wrote:

Unemployment numbers and the effect on earnings of a major change in the U.S. Dollar's value on conglomerate earnings are the most lagging of economic change.

I would guess we will hover around 10% official unemployment for a good 9-12 months from here.

By the second half of 2010 we will see decent job growth again. However, when you "see the whites in the eyes" of the growth cycle of the economy the Dow Industrials will be above 11,000 or even 12,000 in the second half of next year.

Bought some more GCI and VNQ's today, plus some KO and BDX yesterday for safe blue-chip profits the next 6-12 months in the real world.

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#25) On May 07, 2009 at 12:23 PM, portefeuille (99.78) wrote:

QE now from the ECB ...

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#26) On May 07, 2009 at 12:33 PM, portefeuille (99.78) wrote:

same from here:

... “The longer a central bank keeps the collateral, pledged by banks against cash, on its balance sheet, the closer the operations resemble a proper asset purchase,” Jacques Cailloux, chief euro zone economist in London for Royal Bank of Scotland, wrote in a research note. ...

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#27) On May 07, 2009 at 12:38 PM, portefeuille (99.78) wrote:

Mr. Trichet added that the E.C.B. was not pursuing a policy of “quantitative easing,” as were the British and U.S. central banks. In its strictest sense, this policy involves purchases of government debt to expand the amount of money in circulation, but is often referred to as “printing money.” That is a label the E.C.B. is keen to avoid.

... whatever

... it still is!

 

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#28) On May 07, 2009 at 12:40 PM, portefeuille (99.78) wrote:

maybe 666 will be called the QE bottom someday ...

maybe not.

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#29) On May 07, 2009 at 12:41 PM, portefeuille (99.78) wrote:

... sorry for misusing your blog post. That is all from me.

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#30) On May 08, 2009 at 2:02 AM, TMFUltraLong (99.97) wrote:

Everything here is opinion and is to be taken as such... I didnt think a 9.25 call 5-7 trading days out needed a 10 answer response but apparently i was wrong

UltraLong

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#31) On May 08, 2009 at 2:22 AM, ozzfan1317 (81.20) wrote:

So the Apocalypse isnt tomorrow? Damn it what will will do with my extra can goods and Ammo now..lol...But seriously wether we see a small correction if you invest in great companys turning a regular profit now is the time to invest and get rich to take a quote from Warren Buffett.

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#32) On May 08, 2009 at 9:38 AM, portefeuille (99.78) wrote:

#30: My answer to your "9.25 call" is confined to comment #20 above.

 

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#33) On May 08, 2009 at 9:52 AM, StopLaughing (< 20) wrote:

So far Jan. had the highest unemployment. Normally, about 2 months after the highest unemployment month the economy bottoms (Mar.).

We still have UAW layoffs ahead but they get 90% of pay for not working. There is little loss of purchasing power. Supplier layoffs may be more serious. 

It is possible that the bottom is in on this recession. This could be a V bottom, but I think unemployment will tend to stay high.

It is also very possible that we get a W bottom in the next 1-3 years. As the economy recovers there is a high probabilty that inflation and interest rates will rise, the $ weakens and Obama begins to look like Jimmy Carter. That will be especially true if he raises the cap gains tax, and adds a cap and trade carbon tax.

Don't expect a lot of new jobs from alternative energy. A few may get moved from carbon over to non carbon but the plan is to raise the cost of energy dramatically. That keeps the alternative energy folks in business and creates subsidies for China and the 3rd world. It is also consistent with the anti growth policy (for Amercia) of the left.

That sucking sound is your job going to China in the form of cap and trade. They will pollute more and have cheaper energy sources paid for with our higher energy bills. 

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#34) On May 11, 2009 at 8:42 AM, richlongrun (87.71) wrote:

I think we will be in for a long bull market for the next few years. however I think growth will be a bit weak. As a person with a longterm bull outlook I have to say this. Right now there is  a lot of opportunity out there to grab some low hanging fruit. however the selection is limited to somewhere around 30-50 different stocks for the next couple of years. Here are a few thoughts to think about during this period.

1. we will have a higher than normal amount of inflation over the next few years.

2, There is a lot of money sitting on the sidelines waiting for an opportuinity to be invested. you will lose money if you don't invest because of  reason #1.

3. stocks are the best investment for keeping up with inflation. capital value + earnings will help maintain a better core value during this period than other investment vehicles.

4. certain sectors of the market will be stagnate or below traditional growth. However, mining, metal manufacturing,certain energy stocks will show tremendous growth.

5 factors influencing this will be a real need for cheap electric energy to revitalize our economy, and water shortages in our southwestern states,

And one last thing to think about is that starting next year 3 to 4  million people will start retiring each year for the next 18-20 years. this particular statistic is really the most important and difficult factor to figure out, because there are so many different cause and effect scenarios. however generally I think it would be a good time to be invested in some good dividend paying stocks as over all stock prices will flatten some as they draw money from their 401's. there are quite a few other factors to consider also. Such as how many will work part-time jobs and how much immigration will be allowed into the country. I think the numbers will be fairly high in both cases.

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