This Is The Bottom For Stocks

[forestfire]

The S&Ps have been in a bear market since 2000???

I have never encountered this argument before, and I find it absolutely bizarre.

Can you quote one estimable reference to your cause, and preferably not from SeekingAlpha?

[R K]

The S&Ps have been in a bear market since 2000???

I have never encountered this argument before, and I find it absolutely bizarre.

Can you quote one estimable reference to your cause, and preferably not from SeekingAlpha?

Oh, do a search on the zealllc.com site or similar where they look at multidecade stock/commodity trends. We've been in a stock downtrend since the 2000 dotcom crash - it's just not been apparent. What's wrong with the charts Carseller has posted by the way?

This analysis looks fairly decent looking at '09. It chimes with my sense of what we're likely to see at least which is a basing/consolidation phase for most of '09 before a transition to a new bull - even if that bull happens to be a long-term bear market counter-trend bull.

That would suggest we're going to continue to see a sideways trending market for '09 with the next shortable rally "top" perhaps late Jan/Feb before a re-test of the Nov lows. I don't support the theory that we're now in a long-term bull. Price is still below long term moving averages so it's too early to call imho, although I realise why some people are calling it.

http://www.marketoracle.co.uk/Article8022.html

This Zeal article covers it I think -

http://www.zealllc.com/2007/longwave3.htm

The latest Dow 30 highs happened 7.5 years after the 2000 highs. Is a 19% total gain over 7.5 years acceptable to long-term investors? No way. It represents a compound annual gain in the Dow 30 of just 2.4%. A mere 2.4% a year is unacceptable for all the considerable risks inherent in investing in stocks. A bank savings account would have done much better at a fraction of the risk. And 2.4% is well below the real rate of monetary inflation in the US so investors have suffered real purchasing-power losses.

So a 19.4% higher high 7.5 years deep into an LVW ebbing definitely doesn’t invalidate this thesis. At best it is a double top representing a trivial rate of return. The S&P 500’s 1.7% gain over this same period of time supports this idea of a double top in early 2000 and mid-2007. Marginally-higher highs deep within a secular bear do not change the fact that it is still a secular bear and that an LVW is still flowing out today

Edit: Just noticed that article was written Aug 17th '07 - Interesting timing!

Edited January 3, 2009 by Red Kharma

[Converted Lurker]

Some stocks I bought earlier this year, fishing for a bottom is down more than 90 %, and nothing fundamentally have changed. I think this is the bottom. In these stocks I am going to double up, so I get twice as many shares as I already had.

Lower short term rates (not central bank, but market rate), and higher long term yields, double bottom in 10 year treasuries, double bottom in the dow.

This is the bottom, nothing to discuss.

Blimey, are you FP in disguise?

[R K]

Just been having a look around the market stats. on stockcharts.

Nasdaq bullish % - 75% very bullish/overbought

DOW - 73% very bullish/overbought

SPX - 64% so not as bullish as the other two - lagging somewhat.

They could run for a while at these 70-80 levels but imho I'd be easing out of longs from the Nov lows the longer they stay at these levels.

Also, gold turned away from a key resistance area around 885/890.

VIX has dropped right off from the 80s in Oct/Nov down to 39. It's still relatively high by historic standards (could drop to 20s) but has dropped very quickly from the "fear" levels of Oct/Nov. Looks a tad overdone to me. Where did the fear go?

All of this is clearly reflecting a more positive short-term outlook and it could continue for several weeks particularly with the Obama thing due 21st Jan, but my sense is that it won't last. I think the key may be what happens to gold (and thus USD/EURO) at this resistance level, and if it breaks and holds, the one after that at around 935.

Anyone else have a view how much longer the rally will last and why it is apparently so strong? Is it just a normal bear counter-trend bounce? Could it continue much longer - months?

[carseller]

This is similar to the rally from 1975-1977

It's probably going to be a strong bull market for 1 year, where the dow hit like 12000-13000, with the market lasting strong for 2 years, the first being the phase when the dow goes into the 12000, that is like dow 1000 in the seventies. then I think inflation will seriously heat up, and damage the up trend. It's so meaningless to say from 8000-12000 as that sound so little, but many beaten down stocks will double and increase 10 fold.

Another view I have is that we are in a serial bubble enviroment that goes like this. First dotcom, then housing, then anything connected to commodities/china, fertilizer and agriculture, that trend started in 2005. That would mean an end already in 2010, with very high interest rates.

http://finance.yahoo.com/echarts?s=%5EIXIC...ource=undefined

The fertilizer thing, is probably going into the sky, even higher than the wild top in 2008 if this plays out. I think it's quite likely that if this is it, that the trend have a couple of years to go. This beeing a sell off like in 98 with nasdaq.

Please note that is takes some good faith. But it could very well, that whatever bubble started blowing up when homebuilders

cooled off, is still on the wings. The bubble expert is george soros. and from his investments, I think it's the fertilizer thing that's big. Each bubble tend to end with higher interest rates. Home builders and dotcom were killed by higher interest rates. It have not happened with commodities so far. A bubble needs higher rates to ***** it. The bernanke reasoning towards the bubble, in the sense that it will burn itself out on it's own due to recession, is only a short term solution as the real solution is to take money out of circulation, through raising rates. Right now, raising rates don't seem smart, but when treasury bonds sells off (all the money in treasury bonds just doing nothing is similar to as if they are taken out by raising interest rates / deleting money, but these money will go out from treasuries, and when they do, they will create an inflation problem. Some experts (those that always are wrong), are calling for an L shaped recovery. If treasuries don't sell off, the US face a liquidity trap that last for years, so on, then it will be L shaped .But I think treasuries will sell off fast

and that is a thing that will create a v shaped recovery.

Edited January 4, 2009 by carseller

[R K]

Thanks CS, but what keeps puzzling me is how we are going to get from the position we are in now, with 20 years more or less or declining interest rates, with lower highs and lower lows, right up to zero we have now, to having an economy where higher rates are supportable?

I mean, they have been re-inflating at least since '01 and still we have had the deflationary/disinflationary bust (or it appears that way), so, ok, they pump all this liquidity into the system over the coming 12 months, lower taxes, deficit spending, zero rates, and so on, but when they are done with that and Larry Summers needs to start raising rates and taxes, where is the ability within the economy to support the higher rates/taxes? If the problem now is that nobody can afford their sub-prime and AltA resets, then how are they going to be able to afford them when the rates go up - particularly if they need to go up quite substantially to counter the treasury sell off that you envisage?

Imagine that the low rates here in the UK start to suck new buyers into mortgages at the bottom (09/10) of the rate cycle - then rates start to rise along with taxes.......the only way this can happen surely, is if wage inflation matches it - is this really possible?

[Converted Lurker]

"But I think treasuries will sell off fast and that is a thing that will create a v shaped recovery."

Really?

[forestfire]

Carseller, you said

"let me add that treasuries have sold off 13 % in 2 trading days now".

Now I will repeat the question -can you substantiate this statement as I believe it is false.

Here is some data from the CME GROUP for the last two trading sessions.

Closing price US 30yr future (ZBH9)

Tues 30th Dec 141135

Wed 31st Dec 138015

Fri 2nd Jan 135150

Change over the last 2 trading days -4.3%

Closing price US 2yr future (ZTH9)

Tues 30th Dec 1090150

Wed 31st Dec 1090100

Fri 2nd Jan 1082475

Change over the last 2 trading days -.06%

I have made the assumption that there were no big moves in the basis.

Please feel free to dispute these figures. I believe them to be correct. I have used the closing price to give you a chance. The official settlements on Friday, two hours before the close were actually higher and would have shown a smaller decline in bonds and notes.

What I am asserting here is that you do not have a grip on the most basic facts. Therefore, what are your arguments worth?

Edited January 4, 2009 by forestfire

[carseller]

First. I am talking about 10 year treasuries. That's the bond the market mostly refer when talking about inflation. You could say the 10 year is the benchmark.

Second. In the last two trading days, the yield have increased from 2,09 to 2,41 , if you know your math, it's a 13 % loss.

The futures you refer to are not very interesting. What's interesting is the price of the actual bonds, especially the 10 year.

[forestfire]

Thank you for the reply Carseller

First. I am talking about 10 year treasuries. That's the bond the market mostly refer when talking about inflation. You could say the 10 year is the benchmark.

The Ten Year treasury is a NOTE, not a BOND, I repeat, not a BOND. That really is a basic error.

Second. In the last two trading days, the yield have increased from 2,09 to 2,41 , if you know your math, it's a 13 % loss."

Closing price US 10yr future (ZNH9)

Tues 30th Dec 127095

Wed 31st Dec 125245

Fri 2nd Jan 124095

Change over the last 2 trading days -2.4%

A move from 2.09 to 2.41 is a GAIN in yield. That translates to a 2.4% drop in the price of the instrument.

I haven't currently got access to yield levels so I'm not checking your figures, but to say that because the yield rose by .32 (unverified) that "bonds" sold off by 13% is wrong on many levels.

"The futures you refer to are not very interesting. What's interesting is the price of the actual bonds, especially the 10 year."

I made the assumption that there was no big move in the basis. That being the case then the futures market accurately reflects the cash market. Moreover, the 10yr future is massively relevant to the cash market. To even argue that it is not of interest is beyond belief.

Carseller, you are way out of your depth making such references to the bond market. It was very easy to expose your lack of knowledge of even the most basic concepts. I entertained your bizarre arguments for a while -now I see them for what they are -those of an amateur punter. I won't engage in argument any more, but I do wish you good luck in your investing.

[carseller]

Sure, I'm a car salesman in a non native english speaking country, not a bond expert, but this note, bill bond difference does not matter that much, as it's all about maturity, I refer to it as the bond market, not the note, or the bill market, as it's really all bonds, anyway, you are right that a 13 % increase in yield does not correspond to a 13 % drop in the value of the security, that was never my intension to create that impression as that's not something I think, but what's happening now, is that these market in my opinion, is that the bond market is selling off, inflation expectation's are coming back fast, and the bond market will develop in my opinion in a way that makes this graph return to the 103 level in a relatively short period of time, and probably drop even further.

http://finance.yahoo.com/echarts?s=TLH#cha...ource=undefined

[carseller]

Let me also add that you are somehow trying to make me look like an idiot, rather than making a case for your story that there is no bottom for stocks in place. I was writing about deflation 9 months ago. By now, I think it's only the late to the party people that still worries about deflation. The same people that were worried about inflation when I was writing about deflation when oil were going crazy. I was worried about deflation, but by now, it's clear that the market have overshot, and that the "wrong people" with poor track records are now worried about deflation, and those with good track records are worried about inflation, meaning that the fear is rather unfounded, and that the bond market will sell off. Atleast that is what I think, that inflation is down the road.

[carseller]

http://www.bloomberg.com/apps/chart?type=c...23|||-0.0000898

This is the yield curve.

I think it will steepen a lot.

The 10 year up to 3,5 % ,the long 30 year, more than 4 %, perhaps 4,5 % or so, and I guess that is when we get a new inflationary boom...

[forestfire]

Hello Carseller.

First of all, I did not resort to name calling and did not mean to offend.

I am not questioning your intelligence. If I was forced to make statements and theories about the world of car selling I'm sure that you would find it easy to pick faults due to my lack of knowledge.

Similarly, I questioned your basic knowledge of the financial markets and found it lacking. When you make wildly inaccurate statements, you call into judgment your theories and open yourself up to criticism.

You make bold and provocative statements and I was interested to know why you thought that way. I am no longer interested.

All the best,

Forest.

[Te Mata]

The 10 year up to 3,5 % ,the long 30 year, more than 4 %, perhaps 4,5 % or so, and I guess that is when we get a new inflationary boom...

Well, I wouldn't imagine that those yields would signal an inflationary boom... but stranger things have happened.

[R K]

I think we're more or less done on the rally for now. SPX may wander a tad higher, up to the 1000 perhaps, but it's been a decent run up from the lows. MISH sees resistance at 1008 and then next up 1100 with a possible wave 5 low down to around 600. Others see a January sell off and new low. I'm not big on Elliot waves but I can see an argument for selling into good news in the short-term then wait and see what happens.

[carseller]

I really think all of you should look up stocks, not just look at the indexes, and see the price to earnings ratio, return on equity, the peg ratio, etc, that is why I don't think the market will go any lower, stocks are to cheap already. In the computer age we live, I think stocks will be priced a bit higher, than in the pre computer age. The stocks that are in the right trends, are now often between P/E of 6 -8, while it was even lower just a couple months ago.

I think waiting for lower prices, is simply asking to much or being to greedy.

[carseller]

Well, I wouldn't imagine that those yields would signal an inflationary boom... but stranger things have happened.

Actually it would. Because the difference between the 0 % at the short end and above 4 % at the long end would be extremely stimulative. Booms with 0 % interest rates have happened before.

[Converted Lurker]

I really think all of you should look up stocks, not just look at the indexes, and see the price to earnings ratio, return on equity, the peg ratio, etc, that is why I don't think the market will go any lower, stocks are to cheap already. In the computer age we live, I think stocks will be priced a bit higher, than in the pre computer age. The stocks that are in the right trends, are now often between P/E of 6 -8, while it was even lower just a couple months ago.

I think waiting for lower prices, is simply asking to much or being to greedy.

This could be a valid point.

[R K]

I think waiting for lower prices, is simply asking to much or being to greedy.

Depends on your timeframe CS. I went long near the lows when VIX was screaming buy, so I'm not being greedy closing here. I'd be greedy staying long. I suspect you are talking about a general "bottom" around here over a multi-year period. I think there's still a likelihood that we'll revisit last year's lows this year. It needs to build a base for a decent bull market run and I think it is unlikely to have been November. I agree some sectors/stocks may not go lower.

[carseller]

Depends on your timeframe CS. I went long near the lows when VIX was screaming buy, so I'm not being greedy closing here. I'd be greedy staying long. I suspect you are talking about a general "bottom" around here over a multi-year period. I think there's still a likelihood that we'll revisit last year's lows this year. It needs to build a base for a decent bull market run and I think it is unlikely to have been November. I agree some sectors/stocks may not go lower.

What I mean, is that this have been a bottom in a rather swift and brutal correction in an inflationary market, like in 1974 or 1938. It's nothing like deflationary market in 1929-1932, because of the huge difference when entering the crisis. That deflationary dynamic played itself out between 2000-2003. That's why I think it's good time to enter the market. Those mistaking this for like 1930 in relation to a 1929-1932 scenario, or even a longer deflation scenario like japan, will completly loose out.

I have analysed it rather careful. US stocks and Japanese stocks, is now identical in price. It's not like in 1989, when japanese stocks were in the sky, even higher than US stocks in 2000. And it's not like 1929.

The housing bubble in june 2005 was like the dotcom in march 2000, took 3 years to work itself out. I think the housing correction in the US are around finished. It's just this stupid notions I think, that made people forever think that house prices would go up, that are causing people to be skeptical about the stock market. I am very wary about the psychology in all this, that's my field of excellence, and I can tell that this have felt like a bottom, not only because of behavior in the market, but because of who thinks and behaves in this or that fashion. It's like if this or that person thinks whatever that person thinks it's bound to be wrong, simply because that person is never right. It's not any different at bottoms or tops, it's the same people, and the same psychology, doing the same mistakes, just at other extremes. Those who managed to sell out when things were high, are the same that manages to buy and not sell when things are low.

Edited January 5, 2009 by carseller

[silver surfer]

The dow is not that expensive, when it was at 800 in 1982, it was extremely cheap, extremely cheap, a more right price at that time, would be around the 3000 level. And now it's around 8500, and trading at a 40 % discount.

I agree that the DOW is relatively good value, but so is the FTSE. And buying UK stocks avoids using an undervalued currency to buy assets in an overvalued currency. Buying US stocks at the current exchange rate gives a 15-20% hurdle to overcome before making any returns.

[carseller]

I don't actually look or care about the earnings estimates at all, that's really not important what some analyst thinks. What is important is a grasp about the future cashflow over a number of years, and getting a good entry point towards that trend. The reason P/E's on many stocks are low, is because earnings will disappoint, or the market think it will, I'd say it's fully discounted into the market. The time when P/E's are very low, and earnings estimats are going to miss, that's actually the time to buy stocks, as it's much smarter to buy a stock in a company on a strong long term trend, when company's suffer earnings setbacks than buying during boom years. Times like these are opportunities and the friend of the long term investor. The norm is around 12 % return on book value over time, but opportunities to buy at book value is normally rare. Now we are at valuations that are historically low. It's hard mentally to do so. But this is the time to be buying, it's right, because it feels wrong. It seems right to me, but that is because I'm just a bit odd, a thinker. For most people the only time it feels right to buy a stock is at the wrong time.

Like COP, an oil company , P/E at 4,5, less than book value to and the oil price more or less certainly set for a rebound. I can't see how it can go wrong.

Another company I like is general electric. They have tons of debt, and they are not likely to do anything more than double during the next year. and then probably trade at that level for 3-4 years, but they will pay a good dividend, in weaker dollars, until finally, there probably is a new bull market. When adding it all up then, in that bull market, adding the dividends, and reinvestment of those, it will probably be a good investment, even if things look bad right now. I mean, buy when things look bad. A company like Dow Chemical, and Dupont, is also in the same group of companies as GE, but I like GE better because they are on a stronger growth path.

COP and GE are not in the same trend I think. COP are good in the inflationary enviroment, and GE is good when inflation peaks, however it's good having a mix of companies that are in a growth trend with the oil price, and those that are solid dividend payers, and have debt that are eroded away by inflation, but also at the same time are getting their margins squeezed from inflation like GE. In 30 years, the stock price of GE is probably 100 times what it is now. And the debt distort the book value figures in a way, that is very benificial after 5-6 more years of inflation, and is really great after inflation peaks. It's difficult to time those events, or trade in or out, that's why companies like GE is best to buy when inflation is high and the economy in a tank.

Edited January 5, 2009 by carseller

[Te Mata]

I don't actually look or care about the earnings estimates at all, that's really not important what some analyst thinks. What is important is a grasp about the future cashflow over a number of years, and getting a good entry point towards that trend. The reason P/E's on many stocks are low, is because earnings will disappoint, or the market think it will, I'd say it's fully discounted into the market. The time when P/E's are very low, and earnings estimats are going to miss, that's actually the time to buy stocks, as it's much smarter to buy a stock in a company on a strong long term trend, when company's suffer earnings setbacks than buying during boom years. Times like these are opportunities and the friend of the long term investor. The norm is around 12 % return on book value over time, but opportunities to buy at book value is normally rare. Now we are at valuations that are historically low. It's hard mentally to do so. But this is the time to be buying, it's right, because it feels wrong. It feels right to me, but that is because I'm just a bit odd.

Like COP, an oil company , P/E at 4,5, less than book value to and the oil price more or less certainly set for a rebound. I can't see how it can go wrong.

Another company I like is general electric. They have tons of debt, and they are not likely to do anything more than double during the next year. and then probably trade at that level for 3-4 years, but they will pay a good dividend, in weaker dollars, until finally, there probably is a new bull market. When adding it all up then, in that bull market, adding the dividends, and reinvestment of those, it will probably be a good investment, even if things look bad right now. I mean, buy when things look bad.

Yes a lot depends on your time frame. Long term investors can no doubt find some bargains (I mean real bargains, not what most people call bargains), the oil sector probably being one of those where the long view will pay dividends at these prices.

GE I don't like right now, because I think this is more than a normal blip.

[carseller]

Yes a lot depends on your time frame. Long term investors can no doubt find some bargains (I mean real bargains, not what most people call bargains), the oil sector probably being one of those where the long view will pay dividends at these prices.

GE I don't like right now, because I think this is more than a normal blip.

It have been more than a normal blip, it's the 2 worst bear market of the last 100 years. I think that's as bad as it get's ,as things were far less overpriced leading into this than in 1929. The market was neutrally priced like before the 73-74 bear market leading into this mess, and at the bottom in nov, the market was at the exact same level in terms of valuation that were reached in that bear market. in 1929, stocks were at extremes, much more than in 2007, more than double that level, and then the federal did tons of mistakes to, that caused the market to overshoot very bad. In other countries, non USA countries, the stock indexes fell like 50 % from 1929 to 1932, but people think's that every stock index should fall 89 % now, because that's what happened after 1929 in the US, and it's just in my opionion kind of insane.

Edited January 5, 2009 by carseller