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Why I think everybody's assessment of the market is wrong



June 30, 2009 – Comments (30)

Long story short:  I think everybody that thinks we had a rally is crazy.  I'll explain why, but just below I will offer two small disclaimers.

I subscribe to many or most of TMFs paid services, and as this blog is provided by TMF free of charge, and as this blog brings me enjoyment in life, I want to say that i'm not trying to condone, but...  I recently signed up for a trial subscription to Real Money Silver at  Its pretty itnersting, you can read blogs over the course of the day from Doug Kass, Jim Cramer, Rev Shark, Tim Melvin, and many more.  Its really interesting to read the conversation and watch thoughts unfold over the course of the day.  Some do TA, some long/short, some general commentaries, lots of different angles.

And lots of them talk about the huge "rally" we've had recently, how the sock market has been soaring like a rocketship, how wall street is getting looney with optimism, and so on.  And talk like that isn't uncommon here on TMF either. 

I would just like to shed some perspective on the "rocket ride" that stocks have taken.

1.  stocks aren't up in 12 years, and in many foreign currencies its longer than that

2.  stocks are 40% below their recent highs, thats pretty serious.  In fact 1974 and 1982ish are the only other time stocks have been 40% below recent highs since 1950 (from looking at a graph of the S&P on yahoo finance).

3.  stocks are now 40% below where they were over 9 years ago.  that hasn't happened since the great depression.

4.  stocks are now below historical averages for pribe/book, price/sales, price/gdp, mkt cap/gdp and more.  adjusted for interest rates they are lower than they have ever been.  (fed model, for whatever thats wroth, it worked pretty good until 2008)

5.  try as it may, the market has failed, and will probably continue to fail for some time to break out of what is in essence a trough of ~~~850-950 that it fell into after the collapse of Lehman Bros last fall. 

In light of those things I submit to the group, for your scrutiny, correction and commentary, that it is not really sensible to view stocks as on a "rocketride", or even to view the markety as rallying.  The market remains firmly entrenched in this trough, which is now 9 months and counting, by far the longest that stocks have remained this far below a previous peak since the Great Depression except in 2002/2003. 

So, recapping.  The only other times, since the Great Depression, that stocks have crashed this much (as in as far down as they are TODAY, not at the March lows) are 1974 (also a doomsday end of the western world environment) and 2002 (also part of this same massive secular bear market, which isn't hardly over yet, which was spawned by the epic preposerousness of the Nasdaq bubble).

We aren't in some wild bull market thats about to crash.  That was 1999.  We aren't about to enter a bear market. 

We are in (or in the middle of) the greatest bear market since the Great Depression, one that began in 2000, not one that began in 2007.  This is it, you're looking at it, soak it up, remember the pain and the joy and the opportunity and the risk.  We are almost 10 years into what may well be a 15 year secular bear market.  Yes, stocks are up considerably from S&P 670, but they are down 40% from 9 years ago, in the NASDAQs case, they are down 60+% from 9 years ago.  The NAS's #'s outright rival those from the great depression and exceed any other bear market in US history.

Its horrible out there, savings are shattered, blood is in the streets, the markets aren't up, they aren't exhuberant, tehre is no bull market.  Stocks are firmly in the toilet.

This blog doesn't have much investment advice, other than I guess I could reiterate my view that if your time horizon is long, stocks are still cheap.  Its just to say that the market as a whole, and all of these vaunted professionals that comprise the bulk of it, and many in the blogosphere...

All have amazingly short time horizons.  If the market had spun sideways, fluttering up and down from 850-950...  these would probably all be true:

1.  nobody would be mentioning a rally

2.  nobody would say wall street is exhuberant

3.  nobody would have a positive headline, rather

4.  people would be posting headlines about how wall street remains stuck in its horrible dip, no mercy and no end in sight

But instead, with stocks still 40% off their levels from 9 years ago, people are screaming that its a bull market, yapping about rocketships and how stocks are way high and rocketing higher.

And, meaning no disrespect to anybody - in fact lets just assume that everybody everywhere is smarter, better looking, and has better hair than I do -  I disagree, and I'm genuinely flabbergasted by it all.

Stocks are in the toilet is and remains my outlook.  We have not had a rally, we have had a dip/bounce from/to the trough we've been in for 9 months and counting.

The question isn't when the rally will end or begin again, its when will the markets break out of the trough?  For a bear, perhaps, the question is one of breaking out to the downside, for a bull, perhaps, theq uestion is to the upside.

And, happily, i'm up a tiny amount today in real life.  :)

30 Comments – Post Your Own

#1) On June 30, 2009 at 3:48 PM, anticitrade (98.51) wrote:

I couldn't agree with you more...  We are all smarter, better looking and have better hair than you do.  (Thats just a joke).  In all honesty, I am glad to see this blog, it took the words right out of my mouth.  Sometimes I want to yell "CONTEXT PEOPLE"!  Yes we have come up a lot since March, but look how far we were down!!  If you are looking long term, and I am, you would be crazy to ignore the hugely discounted stocks that exist right now.  The short term is anyones guess, but with a long enough time horizon, reality always has its way.

Good post Check!

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#2) On June 30, 2009 at 3:58 PM, Option1307 (30.58) wrote:

Excellent blog, thanks for the thoughts.

I really think it all comes down to own's time frame as you mentioned. In the longer term (10-20 yrs.), you are likely correct, stocks may very well be "cheap". However, I think many people here around the Fool are more focused on the short term trends. And I think even you would admit that a 40% rise in stocks in a matter of three months is a pretty massive rally. This is not something that occurs regularily as I'm sure you are well aware of. So in the end, it all comes down to your time frame.

Again, good thoughts and thanks for sharing your ideas.


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#3) On June 30, 2009 at 4:47 PM, checklist34 (98.57) wrote:


"CONTEXT PEOPLE" would have been the perfect subject for this blog, too bad I can't edit it. 

If we hadn't had a dramatic dip to the march lows and a bounce from them...  nobody would be hollering how stupid people are for buying into a rally, they'd be crying and complaining and wondering if stocks were ever going to move up again. 

And it is a fact that I really don't have good hair, or a good singing voice for that matter.

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#4) On June 30, 2009 at 4:52 PM, checklist34 (98.57) wrote:

hey option, I can't think of a move from a coma to near death as a rally.  If the patient gets up and walks around a little bit, we'll call that a rally.  lol

but you are right, it all comes down to your time frame and how far forward and back you are looking.  Good call. 

And i'm still somewhat, and somewhat often, surprised by how short term alot of folk's outlook is.  I'm not meaning that to imply that a short term outlook is "wrong", i just mean to imply that I would have expected the historical volatility of the market and its historical tendency to go up over time, especially from big crashes, to have concentrated long term outlooks...  but such is not the case.

I think professionals tend to cocnentrate in short term outlooks because of the pressures they are under to report good numbers month by month or quarter by quarter...  which is an advantage to us individual investor types.

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#5) On June 30, 2009 at 5:30 PM, portefeuille (98.93) wrote:

i am officially bored for a month now.

there is really not much going on ...

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#6) On June 30, 2009 at 5:34 PM, cthomas1017 (98.78) wrote:

Going into the paragraph after your list of 5 persepctives, I was thinking you were nutz.  From there, you pulled it out and made a brilliant post.  One rec coming right up! :)

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#7) On June 30, 2009 at 5:43 PM, prose976 (< 20) wrote:

It's relative, my friend.  A rally is a rally, no matter where you start.  That doesn't mean it's going to go back to it's previous levels or continue on an upward trend indefinitely.  That's why I wrote my most recent blogpost.  Bull, Bears, Traders, Investors and Bull***.  It's all Bull***.  There is no "fair" play in the stock market.  It's a game.  A very high stakes game.  Have fun everyone!  :)

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#8) On June 30, 2009 at 5:46 PM, checklist34 (98.57) wrote:

thanks for the rec cthomas

hey porte, you may wind up owing whomever copyrighted "..." a nickel.  hee hee

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#9) On June 30, 2009 at 5:46 PM, ChannelDunlap (< 20) wrote:

Good article checklist.  Very similar to what I've been thinking.  I'm trying to get myself used to call the "rally" a "correction" because I really think what we saw in March was a panic.  We're roughly, give or take a few dozen points, back where we were in October/November of last year, and holding fairly steady.

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#10) On June 30, 2009 at 5:50 PM, checklist34 (98.57) wrote:

prose, in the short term its all, of course, a crapshoot, but over the long haul the market does definitely tend to oscillate to and from the mean.  I'll check out your blog.


And to add one point (no longer replying to Prose) to my blog: 

assuming ones time horizon isn't short, its not about momentum, its not about mood, its not about sentiment, its not about any of that, its all about fair value.  The market can price things wrongly (or, if you consider the adjustment for "zero risk" investments like Treasuries, i.e., the "fed model", it tends to not misprice things for all that long after all...) for a long time, but in the end today stocks are for the first time in 20 years below the long term trendline on the S&P (very below at the march lows), cheaper than the historical norms by appreciable amounts in many metrics (they weren't in 2002/2003), and so on.  And in the long run, eventually, the market will overshoot to the expensive side once again and the return from today will be lovely.  That's been my view in all fo 2009, provided, of course, that one picks proper stocks.

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#11) On June 30, 2009 at 5:51 PM, dividendhound (< 20) wrote:

Well, at least when it comes to international stocks, many were definitively horrifically oversold, especially small caps - take a look at FEED for example; hedge funds took it out to the woodshed - a "rally" was needed to correct the value of a lot of these companies, and a lot of them do business in countries that will be better off than us for a while. 

Speaking of context, last quarter was horrible.  If a company made money last quarter, with no restocking and very low capital expenditures, then I am more inclined to give them benefit of the doubt, notwithstanding consumer savings and job loss effects for the next quarter or two.  I am sure that there are many people eyeballing a 40 name watchlist waiting for the price to become attractive again. 

My main concern at this point is job losses.  If they don't start to show a sure trend of slowing down pretty soon, they will jeapordize stabilization.  I am more concerned about stabilization than recovery at this point. 

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#12) On June 30, 2009 at 5:55 PM, checklist34 (98.57) wrote:

Channel, thats perfect.  A correction from a panic.

We panicked over the fear that we were facing the end of days, armageddon.  When it became increasingly clear that society would go on, we're just in a really bad recession, the market "corrected" from armageddon to the toilet bowl. 


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#13) On June 30, 2009 at 6:01 PM, checklist34 (98.57) wrote:

hey samosa, I bought FEED in January myself.

I agree about job losses, they are quite possibly the economic indicator I watch and take into account most closely.  The 4 week moving average of new claims peaked, which has historically been a very good leading indicator of economic recovery.

I have considered it a very not good thing to see initial claims creep up for the last 2 weeks.


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#14) On June 30, 2009 at 9:48 PM, russiangambit (28.71) wrote:

The last year when we were at this level, pre-Lehman, people were debating whether we are in the recession and thinking that the whole Bear Sterns thing is done and over with. Is it done and over with now, are we in the recession or not? You decide.

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#15) On June 30, 2009 at 10:07 PM, goalie37 (88.83) wrote:

Great post.

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#16) On June 30, 2009 at 11:00 PM, checklist34 (98.57) wrote:

we weren't at this level pre-lehman, gambit.

thanks goalie, i appreciate it. 


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#17) On July 01, 2009 at 12:30 AM, JakilaTheHun (99.92) wrote:

Good blog. 

I posted a blog back in October about historical post-crash market returns.  While I've bought in based on valuation, that data has always stuck in the back of my head as an underlying reason to buy in. 

The people who bought in near the bottom of the worst bear markets in history were often the biggest winners long-term.  To call the bounce-back of '32 or '75 a "bull market" would be quite an exaggeration.  It was a "bounce back market" - no more, no less.  People were still incredibly bearish for years --- it's just that irrationality works in both directions with bullish market euphoria and bearish market fatalism.  

The only thing that has happened is that some of the fatalism has loosened up.  People have realized that the world is not coming to an end.  Things will still suck for a long while, but the market is still relatively cheap.  

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#18) On July 01, 2009 at 12:47 AM, checklist34 (98.57) wrote:

hey jakila, maybe even a bit better than relatively cheap.  I've been digging around some more on this and crunching numbers this evening while...


enjoying some Leinenkugel Summer Shandy, a tasty lemony beer, which, while tasty, is not as good as their Honey Weiss which is still my all time favorite beer that isn't served in Europe.  Europeans definitely have some excellent beer.  I will go to belgium one day just to get drunk.

AIG + Autos alone shift the p/e of the market enormously.  If it was 100 with them, it'd be 35 factoring them out.  15 to 12.5, 20 to 16.4, etc.

additionally, i've learned that mark to market accounting discounts sales at insurance companies and others...  which has marked down revenue by 12 figures, meaning that the p/s of the index is closer to 0.8 than 0.9, making it farther below the historical norm.

Additionally the historical average I quoted for price/book was a 30 year average, of about 2.4, the 50 average year is 10-15% higher.  


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#19) On July 01, 2009 at 12:50 AM, checklist34 (98.57) wrote:


the reaqson for my imbibement is OshKosh Truck winning the MATV contract.  I'm the only guy in america that owned no GD, no FRPT, no NAV, but a boat-load of OSK.  don't believe me?  check the call options for the others and compare them to OSK.  NOBODY was betting on OSK.

i love those big bad trucks, thats a fun stock to own.  when you see one of their military trucks roll by you almost have to salute it a bit while grinning.  

thats a hidden rewards of investing in equities:  you can own some really fun things.

long live Leinenkugel and big trucks

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#20) On July 01, 2009 at 4:00 AM, uclayoda87 (28.54) wrote:

Peter Schiff's Crash Proof (2007) has a similar long term view.  The only part that has not yet come to pass is the collapse of the US dollar.  Given the current government interventions, the last part of the predictions is probably not that far away.

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#21) On July 01, 2009 at 12:39 PM, checklist34 (98.57) wrote:

Mr. Schiff definitely made some good calls.  What I worry about when it comes to most of the prophetic permabears is that...  they can never quite convert their forseeing of a problem into a profit.

if you read you can see what are quite possibly some of the sharpest and longest-term-prophetic permabears around.  They have made a series of great calls over 10 years now, including the onset of a massive secular bear market, which they called in 1999, the real estate crash, the tech crash, and they even called ahead of time how low the S&P would have to go, saying 650-700.  The problem is that they never flopped.

They never turned bullish when their predictions came true.  And I think they are down like 60 or 70% over the last 14 years in their fund.

And my understanding is that Mr. Schiff is similarly very "righ", but losing alot of money in the process.

If you ever feel like it, google "cult of the permabear doug kass" and read his article on permabears, its fairly insightful.


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#22) On July 01, 2009 at 2:11 PM, darroj (28.16) wrote:

checklist - you get my rec! that was a great blog,!  I track my own performance in an excel sheet I made and compare to the S&P.  People seem to forget the S&P was up around 1500 less than 2 years ago, and it's still trading at a 40% discount to that.  Who knows when we'll really be going up again, but in the meantime, I'm loading up with high yield plays and looking to hold on.

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#23) On July 02, 2009 at 2:01 AM, uclayoda87 (28.54) wrote:


I don't know if Jim Rogers would be considered a perma-bear, but he also had similar conclusions to Peter Schiff, expecially with regard to China and commodities.  Jim Rogers retired at age 37 after creating enough wealth to travel around the world twice and never have to worry about working again.

I recommend Jim Rogers' short book:  A Gift to My Children

 Both this book and Schiff's book stress the importance of thinking for yourself and seeing beyond the accepted dogma, which is fed to us by the media and governments.

I believe that both these men have the right idea and it is likely that Rogers is a better investor than Schiff (Schiff is still working and Rogers is retired).

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#24) On July 02, 2009 at 12:45 PM, checklist34 (98.57) wrote:

thanks darroj

UCLA, for reasons I never began to understand, and perhaps those reasons are even more bizzare when you consider that i've enver been to UCLAs campus, as a high school kid I frequently had dreams where, in the dream, i knew that the setting was UCLAs campus.  Go figure.

UCLA, the variant view is usually the key to making money, I agree.

But I think where all the bears on this site have gone wrong in 2009 is not realizing that the variant view was bullish for basically all of this year.  In march of this year, I saw alot of bears being bearish, almost in a one-upmanship contest of bearishness, congratulating each other as they went and building a sort of frenzy of bearishness.  Bearishness was absolutely not the variant view, it was every bit as much the consensus view as "buy tech" was in 1999. 

And therein lies the conundrum.  The variant view has to shift gears alot, and practically all of the bears that I've seen saw their predictions come true (S&P 600) and then just stayed bearish. 

In 1999 I am sure that bulls fell into the same trap.  A man, wild-eyed with bullishness, quite likely predicted NASDAQ 4000 and then when 4000 came predicted 5000 and when 5000 came predicted 6000.  All the way up, all the way back down.

In early march, on the 4th or 5th, I had a conversation with a friend who is in part responsible for turning me onto the stock market.  In the late 90's he went 7x his money in tech, and then lost 85% in the crash, winding up even after a wild, wild ride. 

He said, in early march, that he wasn't buying yet "I can be pretty contrarian, checklist", said he, "i don't follow the crowd, I think for myself", said he, "i'm gonna get greedy in this market and let it get really, really low, then buy"

Except, you see, that wasn't contrarian, that was following the crowd.  My buddy that works at an aftermarket car shop knew the S&P was going to 500.  My dermatologist knew it was going to 500. 

The mainstream view was doomsday and a market crashing further.  The variant view was that stocks were cheap, a rally was coming, and that financials would lead it. 

One guy, right here on the CAPs game blogs, posted that variant view, about 1 week too early, in very early march.  Listing both tickers and sectors of stocks that were likely to move the most in the coming months and years, and an admittedly simplistic explanation of why.  The blog got 1 rec + 1 more rec from the poster himself (as he later admitted).  Any bearish blog at that time probably got dozens of rec's.  Anybody who would have followed the advice in that blog would now be at least 2x their money, perhaps 3x or more if they'd gone "all in" on that advice. 

Today the mainstream view is that the market has been on some unbelievable rally. 

I offer here what I think is a variant view that it isn't a rally, but rather just a return to the broad trading range fo 850-950 that has defined the market since Lehman. 

As for what comes next, a continued move up or a plunge back down, I really don't know, but in light of the fact that

A) stocks are cheap (see my recent blogs)

B) the enormity fo the correction from the march lows back to the trading range has left many jaws agape, and probably many people have some cash they'd love to put in lower...  which will ultimately build a bit of a floor and

C)  mark to market accounting is likely going to begin its process of shifting gears from destructive to constructive, a process that will leave hundreds of bloggers crying foul and hollering and screaming... and

D)  the credit markets are at least somewhat functional

essentially mitigates the risk of a re-test or another period of time wher epeople believe in an end-of-society doomsday scenario.

But all that noted, the extraordinarily short-term view taken by most will cause them to think that stocks are "too high" despite the fact that they remain firmly in this trenched trading range, and this time Wall Street won't live up to its hype of being a forward looking indicator.

This time, the markets will blow it, and we'll break out of the trading range only after clear signs of economic stability exist. 

I, of course, offer the above only as thoughts and absolutely cannot predict the future nor the actions of another much less the mob that is the minds behind the market.  Anything could happen. 


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#25) On July 02, 2009 at 2:56 PM, uclayoda87 (28.54) wrote:

MARCH 9, 2009

Dow 5000? There's a Case for It

 Strategists Still See Rally, but Earnings Point to 1995 Levels for Stocks




Just how low can stocks go?

Despite Friday's small gain, the Dow Jones Industrial Average marked its fourth consecutive week of losses as it tumbled through the 7000-point mark and spiraled to new 12-year lows. The Standard & Poor's 500-stock index is trading below 700 for the first time since 1996.

As earnings estimates are ratcheted down and hopes for a quick economic fix fade, the once-inconceivable notion of returning to Dow 5000 or S&P 500 at 500 looks a little less far-fetched. ...

 Your friend and the dermatologist probably read the WSJ (note the date of this article).  I did buy stocks after I read this article (energy and mining), which I still own.  Financials still don't make sense to me, so I don't own them.

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#26) On July 02, 2009 at 4:07 PM, checklist34 (98.57) wrote:

hey ucla, I can't read that one as i'm not a wsj subscriber. 

I remember Cramer wrote a piece talking about what it would take to get to dow 5000 and he basically concluded there was simply no way it could happen as most of the index would have to go to zip.  it was really a nice piece by ol' JC.

whatever the case, i'm not any richer today, even though i made some nice money on some SPY puts... as usual I sold them too early (this morning) and could have gotten more for them in the last 1/2 hour, but whatever.

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#27) On July 02, 2009 at 10:54 PM, checklist34 (98.57) wrote:

fwiw, todays dump on the markets puts us right smack int he middle of the trading range that has defined this trough. 

my commentary, at least today, is right on track.  :)

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#28) On July 03, 2009 at 9:56 PM, walt373 (99.86) wrote:

Here's some context... the recent rally follows (or is in the middle of) the bear market starting in 2001. But this bear market follows the unprecedented bull market starting in 1982. If you bought stocks in 1982 and got 8% returns per year, you would end up almost exactly where we are now. But the returns were actually much higher if you include dividends.

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#29) On July 06, 2009 at 7:44 PM, mustbepatient (< 20) wrote:

checklist, when you have stocks like DDRX putting in the performance they have, it's a rally.

I agree with you that there are still an awful lot of skeptics out there.

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#30) On March 16, 2010 at 12:16 AM, kenny1703 (< 20) wrote:

all about Futures Expiration Calendar 2010

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