De Beursvloer #72: Faber's nieuwsbrief

quote:

Bear Market Rally Nearing Completion

In the March 9 issue of my weekly newsletter EPIC Insights, I indicated the markets were extremely oversold and preparing to rally. On that day, the Dow bottomed at 6,547 and has since rallied 17%. In the March 16 newsletter, I stated that the Dow would approach 8,000 during the current bear market rally. On March 26, the Dow closed at 7,924 and traded as high as 7,969. Obviously, investors who traded with these predictions did very well.

While it is always nice to reflect on correct market predictions, we must constantly focus our attention upon the future. After all, prior moves are in the book and the future is where we shall profit. Knowing this, we must reflect upon the rally that has been and the current state of the market.

As the Dow rallied 21% from the market lows to the March 26 high, calls of the bottom emerged from all corners. With prices pushing higher, fear, which had previously seeped in from every direction, quickly morphed into optimism. Having positioned for the transition and witnessed the change, we now ponder whether the mood has truly shifted and what the future may bring.

I hope this bear market and recession are approaching their end, but I fear they are not. The recent rally is the third time since the start of the bear market we have seen a fear-induced bear market low followed by a quick, sharp rally. As two prior 20% rallies failed, the current market is destined to travel in the same direction.

Measuring from the Dow's peak of 14,165 in October 2007 to each of the past three panic lows, we see ominous similarities. At the low of 8,175 on October 27, 2008, the Dow had fallen nearly 6,000 points or 42%. One week later the Dow was 18% higher and had erased nearly 24% of the prior year's loss. At the low of 7,552 on November 20, 2008, the Dow was down over 6,600 points (47%) from the peak it achieved 13 months earlier. One week later, the Dow was 17% higher and had erased 17% of the bear market's decline. Looking at the recent low of 6,547 recorded on March 9, 2009, the total bear market decline was 7,616 points (54%) over 17 months. One week later, the Dow was 18% higher and had eliminated nearly 14% of the bear market decline.

Throughout history, such sharp rallies signify bounces within an existing trend. New bull markets are not created by sharp rallies that eliminate 14% of a 17-month decline in one week. Instead, these movements are indicative of continuing bear markets that attempt to draw a frustrated public back in before prices collapse. This time will be no different. While the rally has lightened spirits and returned hope, the respite will be short lived. Prices will once again decline and we will eventually find ourselves becoming less exposed to equities. For now it is a question of when, not if. Knowing massive amounts of money are lost by investors lured back into the market by false rallies, we must remain cautious.

Looking at the current state of affairs, I see more risk than reward. After being severely oversold at the beginning of March, markets have now moved to an overbought condition. The typical bounce off government intervention has occurred, but will also fade. As we prepare for what should be a horrific employment report this Friday, we must also look toward earnings season. With the market extended and bad news looming, the market will retest recent lows. Investors are well served to treat the recent advance as a respite in an ongoing bear market.

This bear market will eventually end. However, it will not occur with 18% moves in one week. Instead, it will limp to a close when investors have abandoned hope and stocks are universally cheap, yet the economy finally rests on solid footing. At the moment, those days remain well into the future.

quote:

Op donderdag 2 april 2009 13:49 schreef edwinh het volgende:

[..]

je kunt het je kunt het beiden als positief beschouwen haha

quote:

Light At The End Of The Tunnel ...



By Nouriel Roubini, 04.02.09, 12:01 AM EDT

Dim and distant, but a glimmer nonetheless!

I was interviewed on Tuesday on CNBC's "Squawk Box" on my views on the economy, the stock market, the problems with the banks, the Geithner plan and whether there's light at the end of the tunnel.

As I pointed out in the interview, the rate of economic contraction will slow from the -6% of the first quarter to a figure closer to -2%. And next year the economic recovery will be so weak--growth below 1% and the unemployment rate peaking at 10%--that it will still feel like a recession even if we may be technically out of it. So, compared with the bullish consensus that sees positive growth at 2% by the third and fourth quarters of this year and a return to potential growth by 2010, my views are consistently more bearish.

Still, compared with the sharp contraction in U.S. and global growth in the first quarter of this year, the rate of economic contraction will slow down for the U.S. and other advanced economies by year-end. That is only a mild improvement in what is still a severe U-shaped recession, with a very weak and tentative recovery by 2010.

I also pointed out on CNBC that the stock market has predicted six out of the last zero economic recoveries. For the last 18 months, we've had six bear market rallies, and at the beginning of each one of these suckers' rallies the delusional perma-bulls repeated that this was the beginning of a bull market rally. And for six times these perma-bulls were totally wrong as the rally fizzled and new lows were reached. And for six times I correctly pointed out that these were bear market rallies.

But such perma-bulls have no shame in showing up over and over again on CNBC and talking up their books and being proved wrong over and over again. As I have never been a "perma-bear," in spite of the "Dr. Doom" nickname, I will be the first one to call the bottom of this severe recession and the bottom of the bear market when I see sustained evidence of robust and consistent economic recovery.

I see the latest rally as another bear market rally, as over the next few months, the news--macro news, earnings news, financial news, corporate default news, financial firms insolvency news and so on--will be worse than expected by the consensus. Look how wobbly the stock market was on Monday when the expected news that the Big Three are in Big Trouble led to a 3% to 4% market fall. Do you listen to Tim Geithner, who says that some banks need "large amounts of assistance," and who is now pushing--like Bernanke--for fast-track Congressional approval of a law that will allow the takeover of systemically important financial institutions and bank holding companies? This market recovery has still very shaky legs, and it will continue to lurch until the U.S. and global economic recovery does occur and is more robust and sustained.

The global economic contraction is still very severe: In the Eurozone and Japan there is no evidence of "green shoots" or positive second derivatives; and in the U.S. and China such evidence is still very, very weak. So investors and markets are way ahead of actual improvements in economic data. And the idea that stock prices are forward-looking and bottom out six to nine months before the end of a recession is incorrect.

First, we've already had six bear market rallies and, despite the "prediction" of stock prices, not a single economic recovery. Second, in 2001 a short and shallow eight-month recession was over by November, but stock prices kept falling for another 16 months until March 2003. This time around, the recession will be of at least 24 months duration--three times as long and five times as deep, in terms of GDP contraction, as the one in 2001. This time the deflationary forces are global, not just in the U.S. and Japan. This time we have the worst financial and banking crisis since the Great Depression, while in 2001 there was no banking crisis. This time we've got the worst housing recession since the Great Depression, with home prices still bound to fall another 15% to 20% for a cumulative fall of 40% to 45%. This time corporate default rates on junk bonds are predicted by Moody's to peak at 20%, not the 13% of the previous recession.

quote:

Op donderdag 2 april 2009 15:08 schreef Dutchguy het volgende:

[..]

Dat gevoel heb ik nou juist helemaal niet. Ik maak me enorm zorgen om het feit dat de Duitse economie ingeklapt is wetende dat dat onze grote handelspartner is. Ik maak me zorgen om het grote aantal faillisementen. Ik maak me zorgen om de enorme Amerikaanse staatsschuld die de volgende generaties weer terug moeten zien te brengen naar enigszins normale niveaus. Ik maak me zorgen om wat er nog aan rotzooi bij grote banken op de balansen staat. Ik ben bezorgd omdat 'too big to fail' ook 'too big to save' zal kunnen blijken te zijn. Ik maak me zorgen om de druk die China met name uit kan oefenen op de VS als grootste schuldeiser en wat dat politiek gaat betekenen.

De beurs is voor mij alleen een graadmeter van het collectieve sentiment en als zodanig niet erg interessant. Het gaat mij om hoe verrot de fundamenten van de wereldeconomie zijn en dat lijkt niet mee te gaan vallen. Interessante maar spannende tijden.

quote:

Op donderdag 2 april 2009 15:35 schreef Oizno het volgende:
Wel zalig als je gister volop Océ ingekocht zou hebben.

quote:

Op donderdag 2 april 2009 15:42 schreef pberends het volgende:

[..]

http://money.cnn.com/gall(...)s.fortune/index.html
8 doemdenkers aan het woord.

quote:

In my view, U.S. stocks are still not attractive. Historically, you buy stocks when they're yielding 6% and selling at eight times earnings. You sell them when they're at 22 times earnings and yielding 2%. Right now U.S. stocks are down a lot, but they're still very expensive by that historical valuation method. The U.S. market is yielding 3% today. For stocks to go to a 6% yield without big dividend increases, the Dow will need to go below 4000. I'm not saying it will fall that far, but it could very well happen. And if it gets that low and I'm still solvent, I hope I'm smart enough to buy a lot. The key in times like these is to stay solvent so you can load up when opportunity comes.

quote:

In terms of the stock market, the price/earnings ratio is no longer high. I use a P/E ratio in which the price is divided by ten-year average earnings. It's a really conservative way of looking at it. That P/E ratio got up to 44 in the year 2000, which was a record high. Recently it was down to less than 13, which is below the average of around 15. But after the stock market crash of 1929, the price/earnings ratio got down to about six, which is less than half of where it is now. So that's the worry. Some people who are so inclined might go more into the market here because there's a real chance it will go up a lot. But that's very risky. It could easily fall by half again.