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This Bull Run is Bull Scat

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October 17, 2009 – Comments (9)

I am still looking for fundamental sign of economic improvement yet there are so many problems and I still do not see how these problems get worked out.

This week at work a co-worker insisted that everything was improving and things were starting to boom again.  Yet employment is down, government receipts are down, and spending is way up. 

Mish has a post, and this is amazing stuff...

Collections dropped in 49 states in the second quarter as sales and personal-income taxes slid for the third consecutive period, the institute said. Income tax was down 27.5 percent and sales tax fell down 9.5 percent, its study said. Both categories fell by the most in 45 years.

How many jobs are gone to have sales tax down 9.5%?  Actual goods sold is probably not down 9.5% as when competition is up, vendors tend to put prices down and reducing prices reduces sales tax revenue.  It also means profit margins are being squeezed.

The market was priced on forward profits that just aren't there and it seems to me based on what the earning potential is these days, and the debt overhang and how long it will take the economy to respond to these problems it is enormously expensive.

 

9 Comments – Post Your Own

#1) On October 17, 2009 at 6:04 PM, lquadland10 (< 20) wrote:

Hedge Funds trying to work the Market.

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#2) On October 17, 2009 at 8:06 PM, tengrandchicago (44.28) wrote:

Another factor that isn't getting much press relately is the large proportion of commercial loans the regional banks hold.  That has yet to unfold.

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#3) On October 17, 2009 at 8:31 PM, nuf2bdangrus (< 20) wrote:

But the scate has cost me a bunch of dough as I went to the short side in August.  I'm about to give up forever and just buy MO and sell calls against it.  Too corrupt for me.

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#4) On October 17, 2009 at 9:07 PM, prose976 (< 20) wrote:

One thing greatly overlooked by most:

Perhaps the "crash" was bull scat, and the consolidation of business and the cutting of fat from payrolls and government is actually very good for the economy.  Hence, the "recovery" is being justified, but is actually just a return to reality.

The market is about where it should be, perhaps.

Maybe we're exactly where we should really be...even with the unemployment levels as high as they are.  While many may wish this wasn't true, and that we should really be at Dow 6000 or less, with the dollar going down in value, interest rates in the toilet and gold bubbling, a much better place to put your "money" is into something - a real asset that actually does something for you personally or for other people in your state, country or across the globe.

The market does not reflect the economy, but instead it reflect economics of the market ecosystem.  Efficient companies are worth more than inefficient companies inherently.

Here's an example of how people have looked at the market in the past.

The market was lean an mean for many years.  Then it became bloated, as did spending by the companies that composed the market.  But that bloating was recognized as valuable, because those companies were displaying "prosperous" window dressing in the form of buying more than was needed, hiring more than were needed, stocking more than was needed, paying more dividends than made sense, etc.

Smart companies have taken the opportunity to "get fit" over the last year or two.  This has made them more valuable, especially because they are still able to meet demand, innovate and also because the world is not shrinking, which gives them even more opportunity.  Conversely, current business competition IS shrinking, thus giving greater market share to the standing, more efficient companies who made it out alive.

The market companies are leveraging the long tail (read about it in Wikipedia).  There is a lower common denominator.  If you can't sell a $100 item to 100 people then sell a $10 item to 1,000 people.  With technology, it can be done, and is being done.  That's why Tech has led this thing.

I think we're fairly valued and may spend a long while between Dow 9000 and 12000, but it is very likely we could even push past our beginning 14000 because of the new value companies are bringing, not in jobs but in solid, upward trending revenues that has been enabled by the global technology revolution.

Fool on! 

 

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#5) On October 17, 2009 at 9:48 PM, davejh23 (< 20) wrote:

"I think we're fairly valued and may spend a long while between Dow 9000 and 12000, but it is very likely we could even push past our beginning 14000 because of the new value companies are bringing, not in jobs but in solid, upward trending revenues that has been enabled by the global technology revolution."

Prose, You make some interesting points.  However, revenues aren't trending up.  Many S&P/Dow companies have had huge YoY revenue declines, and at this point, we're comparing to previous year revenues that were already weak.  There may be some consolidation and some companies will come out stronger than ever, but doesn't this imply that many weaker competitors are going under?  This consolidation hasn't happened yet...we'll need to see HUGE revenue increases to get back to 14K...or hyperinflation or some other factor affecting the market.

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#6) On October 18, 2009 at 1:06 AM, usmilitiadude (30.72) wrote:

The Ratio of Total Market Cap to US GDP is at this site, gurufocus.com. Is this a valuable measurement for the market?

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#7) On October 18, 2009 at 4:02 AM, DarthMaul09 (29.94) wrote:

If the market stays up it will be more because of a falling US dollar than an increase in revenues and profits.  At least the paper wealth in the stock market as measured in US dollars will hopefully be maintained, which should provide for some comfort.  However, the real wealth will likely continue to decline.

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#8) On October 18, 2009 at 4:24 AM, portefeuille (99.43) wrote:

The Ratio of Total Market Cap to US GDP is at this site, gurufocus.com.

 

S&P 500 index in EUR.

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#9) On October 18, 2009 at 9:03 PM, streetflame (30.76) wrote:

"The market companies are leveraging the long tail (read about it in Wikipedia).  There is a lower common denominator.  If you can't sell a $100 item to 100 people then sell a $10 item to 1,000 people.  With technology, it can be done, and is being done.  That's why Tech has led this thing."

Tech has led because people are once again dumb enough to pay exorbitant sums for unprofitable or barely profitable companies like Advantest, AMD, Amkor, Ariba, Broadcom, Cadence, Clearwire, Cypress Semi, Expedia, Motorola, Netsuite, Nidec, ON Semi, Palm, Rambus, Saleforce.com, Seagate, Sun, Symantec, TNS, Unisys, Varian Semi, Verisign, X-Rite, Yahoo, and Zebra.

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