The Dow Is Oversold I Tell Thee

[nohpc]

Thats how I see it also. The fundamentals arent there but its sort of .... well what else you gonna do.

Some of the bears dont seem to like the boot being on the other foot. I also think house prices have bottomed as near a dammit.

I think selling prices are near the bottom with possibly another 10 - 15 percent to go but asking prices are still stratospheric and need to come down.

[aa3]

I still think the major exchanges are going to basically 0.. but I believe that mainly because of corporate governance issues and such as opposed to economic reasons.

However I have to credit Mr. Grumpy with the great call, and hopefully he and others made money on this huge rally. Do that a couple times a year and you will make good return on the year! Super bear markets like this have super bear rallies. In fact I read that already a large percentage of the biggest up days in history have been over the last year!

I'm not very good at calling these kinds of reverse moves in stocks. Although I'm getting pretty good at it with currencies.

[Tiger Woods?]

Puzzled as to why so many here think that the stock market needs to fall considerably further. I thought consensus on HPC was that most assets were dramatically overpriced at the peak of the bubble, houses especially so. Majority perhaps predicting 50% to 55% fall from peak prices.

Shares have already had a close to 50% fall, and probably weren't viewed as so over-priced. Why should they lose another 1/3? They are a much more liquid market, so would be expected to fall faster, but not necessarily overshoot so far (again because more liquid).

With the government printing cash that has created a 3.5% immediate devaluation, and with sterling exacerbating that fall, why should the price of a BP share not rise when valued in the newly devalued sterling? If priced in euros the value of the FTSE has gone well below 50% drop from peak.

I'm keen on buying any sort of asset with a hope of surviving the devaluation of sterling and resulting inflation, BP shares (or FTSE trackers) seem more likely than most other assets to preserve some value in that scenario. Can't buy property (without seeing 20% per annum falls in value), can't hold cash (devaluation and inflation with no sensible interest rates), gold is possible (but very much a speculation tool, okay for some cash, not for all my savings), what other assets are out that worth holding at this stage of the cycle?

Optobear (Optobull for shares )

You have a number of points, all of which are fair, but the rally here is only a reflection of the US rally, so some of them (pertaining to sterling value) cannot be explaining factors. In particular, I have the same fear as you that inflation may take off, QE is certainly an unknown, and then there will be a scramble for assets (houses included). This is always in the back of my mind, however, I don't think it is now.

We are, at present at levels that are similar to March 2003 and the plateau in the middle of 1996 just before the credit binge really took off. The collapse has been much swifter than the 2003 crash, and I think the fundamentals are much worse, hence I believe that we should see a stronger correction. In 2003, when interest rates were dropped the credit markets were functioning and it all took off again - many annecdotes presented here and elsewhere suggests that they aren't now. The impetus for the bounce this week was amongst other things Citi's report on expected earnings...well, we've seen this before and from a CEO who, in some people's opinions, told porkies last quarter. I don't see an appetite for risk taking; what I see is the beginning of a long recession/depression...the real effects of this preternatural credit binge are only just beginning to be felt in my opinion. Yes, the stock market will recover before the actual economy, but I think there is a long time before that. Have a look at a graph of the FTSE since 1980 and see just how massive what has happened in the last 15 years has been.

[Sledgehead]

Bulkowksi however has a huge sample size in his books

I wouldn't say huge, but it's interesting to see somebody else has read B. He reckoned he used a program. I think that would have sold better than the books!

[Tiger Woods?]

If we get inflation then you need to have your money in property, gold or shares but not in cash. If we get deflation then you want your money in cash.

I think food is going to inflate but material possessions will deflate. Surely global appetite for new cars, TVs etc must evaporate now as nobody wants to spend the money on them? Unless very cheap credit starts flowing but even then the majoirty of the worlds consumers in the USA and UK are now sick of debt for a very long time. And wage rises are unlikely for the next 5 -10 years.

And this is the fundamental problem...there is a nasty feedback loop - increasing cost of basics means less to spend on consumer goods and services, means less employment etc. and it has only just begun. The boom feedback loop also works in reverse.

[Winston Wolf]

I have the same fear as you that inflation may take off, QE is certainly an unknown, and then there will be a scramble for assets (houses included). This is always in the back of my mind, however, I don't think it is now.

Youre thinking about it, Im thinking about it (scramble for assets). The only difference is im scrambling now and you might scramble later. Some people could be acting early? Plus as the pound devalues our assets become cheaper.. M&A etc etc

[Errol]

I have saved his post & it's gone into my temp hpc folder.

I will give it 2 weeks max & let's revisit this one.

Don't bother. There are only two possibilities - both of which I have already stated on other threads. Either this is a bear market rally (which could take us up as much as 40-50%), or we are entering a period of massive inflation - in which case the market could go to 20,000.

Either way, not good at all.

[R K]

What huge rally?

S&P is up 12% off its intra-day low last Friday, but only 3% up from Monday of last week and 20% below January's high.

It was oversold, that has unwound a tad.

It's a bit soon to be sucking each other's d1ck. Next week's low will be the important signal, not this week's short-covering bounce, in my very humble opinion.

[Optobear]

If we get inflation then you need to have your money in property, gold or shares but not in cash. If we get deflation then you want your money in cash.

I think food is going to inflate but material possessions will deflate. Surely global appetite for new cars, TVs etc must evaporate now as nobody wants to spend the money on them? Unless very cheap credit starts flowing but even then the majoirty of the worlds consumers in the USA and UK are now sick of debt for a very long time. And wage rises are unlikely for the next 5 -10 years.

For inflation I agree (except for residential property where the amount still to fall is scary), as to deflation, I go with what John Moulton said to the treasury select committee last autumn (to the effect that after two years of not allowing inflation to occur the debt burden will become just too painful for governments, and they'll inflate like mad. Remember that curbing inflation is very hard, preventing deflation seems to be simply a matter of starting the quantitative easing.

I see inflation in everything imported, but very little in salary settlements. That will cause rises in share prices, but further exacerbate the falls in house prices. Add to that the fact that once inflation is out in the economy the BoE will raise interest rates as their primary lever, they won't want to sell of the treasuries they're currently buying and realise a loss.

[Optobear]

I think the majority of under 40s have been so cluster ******ed by those over 40 that they're a bit more concerned with day to day investing in food, paying bills and paying down debt.

Where's the pay increases? Where's the job security? Where's the proof that this same dirty game of eroding freedoms, and real incomes is over?

The asset most of the population are attempting to hold is a job.

Why don't you nip down the CAB or job centre or housing association and try to drum up some share buying?

Agree that most younger people are just in debt (consequence is they won't riot to prevent inflation eroding the real value of their debt).

Agree that there will be no pay rises or job security (so most people will get poorer - which has already happened if you want to go and buy anything in euroland).

As to trying to drum up share buying - you're right that the people seeking advice from the CAB or attending the job centre won't be buying shares, but most wouldn't have done so anyway. Private share ownership is very minor part of the market. The really substantial share ownership is pension funds.

My scenario is lots of price inflation, low wage inflation, eroding the value of savings. My comment was about what to do with the few £k level of savings to try to protect their value. The ISA tax break is quite valuable, and you have to make the call on the share part before April, if you don't use it is gone.

[grumpy-old-man-returns]

I think the majority of under 40s have been so cluster ******ed by those over 40 that they're a bit more concerned with day to day investing in food, paying bills and paying down debt.

Where's the pay increases? Where's the job security? Where's the proof that this same dirty game of eroding freedoms, and real incomes is over?

The asset most of the population are attempting to hold is a job.

Why don't you nip down the CAB or job centre or housing association and try to drum up some share buying?

agreed.

[Winston Wolf]

If the illusion is real, let them give you a ride ....

Let the goodtimes roll

[Mr Nice]

Puzzled as to why so many here think that the stock market needs to fall considerably further. I thought consensus on HPC was that most assets were dramatically overpriced at the peak of the bubble, houses especially so. Majority perhaps predicting 50% to 55% fall from peak prices.

as with housing prices, there are long term means that we are reverting to.

with houses it was the earnings multiple that people were expecting prices to correct to, and that was about %50.

with stock it is the p/e ratio that things revert to, and after a major recession/depression, they tend to go down to about 7.

even though prices have fallen pretty severely lately, earnings have fallen drastically also, meaning there is still a ways to go before the p/e ration gets to a market bottom.

in fact, the p/e ratios is still pretty high.

historically a ratio of 16 are crazy bubble territory with 10-11 being "normal."

Edited March 16, 2009 by Mr Nice

[Winston Wolf]

The stock market has bottomed and so house prices are virtually there (but this is a shame personally I hoped they kept falling, not for personal gain but for all the young people out there)

[grumpy-old-man-returns]

The stock market has bottomed and so house prices are virtually there (but this is a shame personally I hoped they kept falling, not for personal gain but for all the young people out there)

coffee.....spit.......laptop........

[Winston Wolf]

DENIAL ....

refusal to acknowledge an unacceptable truth or emotion

Edited March 17, 2009 by Mr Grumpy

[bingobob777]

I think the majority of under 40s have been so cluster ******ed by those over 40 that they're a bit more concerned with day to day investing in food, paying bills and paying down debt.

Where's the pay increases? Where's the job security? Where's the proof that this same dirty game of eroding freedoms, and real incomes is over?

The asset most of the population are attempting to hold is a job.

Why don't you nip down the CAB or job centre or housing association and try to drum up some share buying?

If you put as much energy into improving your life as you do into whining on here your life would be a whole lot better. Just get on with it ya baby.

[Winston Wolf]

Feels to me the bears are hoping to re-take control this week, I wonder at the end of the week if they may concede a touch more ground to the fact this could be a bull market.

[Confounded]

Feels to me the bears are hoping to re-take control this week, I wonder at the end of the week if they may concede a touch more ground to the fact this could be a bull market.

I am with you, I am an uber bear and think they have managed to form a significant bottom at this point, we could see a strong rally until May.

Some people (mainly the older generation) have got cash stashes waiting to be deployed out of the low interest banks, you have had an orchestrated push by the mouth pieces (Mobious ' a Bull Market Rally') to call the bottom and the Obama administration announced this weekend that they are forming a bad bank. Today will be a green day and I think it may be enough to gain some traction at least until the end of the tax year and possible beyond into May.

A huge amount of money will be destroyed in this phase but I think there should be enough optimism to allow a fairly safe ride for a while.

Do I think this is the start of the next Bull market?

[drrayjo]

[Winston Wolf]

The thing is I have only ever owned tulip since the start of this thread.

[The Masked Tulip]

The thing is I have only ever owned tulip since the start of this thread.

I am not your gimp!

[mew too]

I am with you, I am an uber bear and think they have managed to form a significant bottom at this point, we could see a strong rally until May.

Some people (mainly the older generation) have got cash stashes waiting to be deployed out of the low interest banks, you have had an orchestrated push by the mouth pieces (Mobious ' a Bull Market Rally') to call the bottom and the Obama administration announced this weekend that they are forming a bad bank. Today will be a green day and I think it may be enough to gain some traction at least until the end of the tax year and possible beyond into May.

A huge amount of money will be destroyed in this phase but I think there should be enough optimism to allow a fairly safe ride for a while.

Do I think this is the start of the next Bull market?

not so sure about this rally going much further, the announcement at the weekend was an announcement about an annoncement! I think it's a futile attempt to support the market and is already priced. Seeing the way in which it was sold off at the close friday makes me think this gap up will exhaust. A little more short cover at the US open and then sell the news, many bears have covered and don't want back in yet for fear of a rally to May, its a perfect scenario to dump...

[Guest Steve Cook]

I cannot understand why some people actually think the housing market has found a bottom.

The majority of falls so far are based on the lack of available credit alone. This has happened despite ever more frantic attempts by the governments to reduce interest rates to virtually zero.

Unemployment is now rising inexorably and has been doing so for about 6 months. We are nowhere near the peak of unemployment. Also, those who have already been unemployed for some time will now be coming to the end of the "grace" period with their mortgage companies. Not only will they be hitting the market as forced sellers in ever greater number over the coming months, there will also be the growing tsunami of unemployed forced sellers following closely behind.

The market will hit complete capitulation sometime later this year.

You think prices have dropped a lot already?

The buggers will go into complete free-fall later this year.

Edited March 23, 2009 by Steve Cook

[Confounded]

not so sure about this rally going much further, the announcement at the weekend was an announcement about an annoncement! I think it's a futile attempt to support the market and is already priced. Seeing the way in which it was sold off at the close friday makes me think this gap up will exhaust. A little more short cover at the US open and then sell the news, many bears have covered and don't want back in yet for fear of a rally to May, its a perfect scenario to dump...

I would not disagree with you which is why I am still majority cash, I find it very hard to second guess what other investors and manipulators might do when fundamentally there is no reason for a rally. The recent decline was not as sharp and severe as it should have been once the Dot Com lows were breached so there is no vicious counter rally in the offing, that is why I believe with all the managing of the DOW they are likely to make if fall further in the long run. When the market falls by a thousand cuts you always end up in a place where people have slowly adjusted to the new prices. If you get sudden drops /proper crashes you often get a rapid counter rally because people can not believe the new prices.

I was trying to be positive in my earlier post and we could still get a rally to the end of the tax year as people lock into ISA's at what they think is the bottom for the FTSE. The DOW futures helped my positive view this morning but like you pointed out in your post what is the news? Its old news and does not sound that great either. So you are just trading people expectations for a rally and that is a hard thing to do, and as proven in previous bottom calls the rallies have been very disappointing.