And what exactly have we done since Monday to avert economic collapse? Has our debt vanished? Has our fork-force suddenly found functioning factories in which to work and make things? Is the dollar now stable and backed by an economy that encourages both savings as well as investment?
I could go with a zillion other rhetorical questions, but I think you see my point. The bottom will be the bottom due to real market fundamentals and not because we wish a recovery our of the very same thin air that props-up Wall Street.
When looking at a chart of any historic bear market lots of smaller and larger upward ‘bumps’ can be seen. Those are bear market rallies. Nothing more then consolidation phases caused by lower prices attracting new buyers. After the sharp fall of the past couple weeks, such a consolidation phase may now be upon us. But given the fundamentals it’s obvious the bear market is still alive and kicking.
This is yet another sucker’s rally. The market makers and hedge fund traders are driving the market this week. The fundamentals are still not sound.
Stocks? What is meant by “stocks”?
Some have bottomed and some have a ways to go. Those that are almost 100% export driven should do well from here.
The DOW will most likely reach 10,000 over the next 3 months as the reality of the Credit Crunch kicks in. Auto loans? Credit cards? These are all securitized just like mortgages. Mortgages are always the first to show the strain. The others will follow.
Paul, i said that the April rally is one of “fools” and more or less this one is a fools rally as well. However I intend to play the long leg as much as I can and then in 30 days or so get back into the shorts. It seems the market doesn’t understand banking fundamentals. The bottom is easily at Dow below 10,000 w/ financials valued at 50% of their original book value (before the rally on average financials were valued at 70% of bv). Most of the banks are at this point bankrupt so i think it is becoming increasingly obvious that we’ll have a national-level bail-out. Hopefully it won’t be too late for the gold bull but once we reach the above mentioned valuations look for the US government engaging in the biggest wave of money creation in history. At this point I am convinced that a fallout in financials fuels record inflation. 2000+ gold will be a reality and so would be $250 petroleum. Don’t recommend buying Tsy – short term they may rally but medium term they should get hammered by first-of-a-kind risk premium as the US government will register a record budget deficit and will no longer be AAA. Not sure about dollar / euro as the old continent is exposed to similar negatives but look for asian currencies and currencies of commodity-driven countries rallying sharply against the dollar (the chines e put will disappear as it will become cheaper for china to work on building internal middle class as opposed to continuing its US-bound export subsidy). The gold bull is what my ultimately save the day for the US – let’s hope the reserve in Fort Knox is plentiful. As to the stock market even if it doesn’t drop much below 10,000 don’t look for it to rally substantially. Stocks will continue to feel the pressure of skyrocketing inflation. Bernanke made a big mistake to cut rates – he should have stuck to the less obvious ways to print money, such as the TAF and all sorts of lines to Fannie, Fredie and other insolvent entities. Ultimately the market could bottom at much lower levels (refer to Jimmy Rogers and his prediction that inflationary policy could bring Dow in the 6000s) and Bernanke and Paulson are the culprits in creating such additional volatility. How can you say that the GSE are solvent – they have 75 bn of equity and close to 800 bn of subprime and alt-a exposure. A 20% loss of that bucket is 2X the equity size. Plus don’t count on the conforming prime credit to register just 75 bps of losses. Historically prime defaults have been say 30% of the Alt-A defaults, so if you are looking at 15% Alt-A losses a third of that is 5% – even if the conforming size limitation (vs. jumbo)further limits the loss we are still looking at perhaps 3%, which is the GSE equity. Without the subprime buckets there could have been a chance for private recapitalization. Not a chance now.
“It’s going to take more good news to convince the many bears still out there that the markdet really has bottomed.”
That is exactly backwards. It is going to take more and more HONEST bad news before we are going to be convinced of a market bottom. HONEST bad news from financial institution’s about their bad loans that have yet to be written down. HONEST bad news about the real unemployment rate which is being propped up by the Bureau of Labor Statistics so called “birth/death” model, which works horribly for months on end at turns (up or down) in the unemployment rate. HONEST bad news about the inability of oil suppliers to increase the rate of oil extraction from a rapidly depleting underground supply. And finally, HONEST bad news about business earnings that don’t back out “one time” losses, which generate a market P/E ratio of around 14, when the real P/E is around 22. Not exactly the P/E ratio that supports a bottom in the market, but then again neither is a 14!
It’s possible that we’ve seen the bottom in the panic sell-off on Tuesday. If the SEC squeezes out the naked shorts and earnings start to rise, we could see rising share prices from here. Many companies have been aggressive about controlling costs at the first sign of the slowdown, helping to prop up stock prices and earnings. It would be ideal if we can get some growth and avoid a double-dip economic slowdown that may otherwise occur later this year or early next year, but that’s asking for a lot.
The idea that a two day rally signals the end of the bear is silly.
When we see a reasonably extended period of stability followed by a slow and steady rise, (a rise at a pace that might mirror the pace of actual growth), THEN we are out of the bear market.
But, as Marcus in Vallejo pointed out, none of the fundamentals effecting main street have changed. Wall street often flurries about as if it is separate from main street. But in the end, that is just a game.