Whither the Stock Market? - Page 2 - U.S. Politics Online: A Political Discussion Forum

Tim · #16 (**permalink**) 10-05-2009

Quote:

Originally Posted by Imperator

true Tim but in the end once those are snapped up and they settle they still need to make money. The service sector, weak retail, low manufac. demand ( this last month was horrid), industries and fast food chains etc. cannot keep the dow at 9500 and expanding, that rope will run itself out.

PEs for larger co.'s are still over estimated I read I think on Warrens websie a few weeks ago. he took a bath for 09 as well btw. yes a lot of these stocks he bought etc. will turn up, they will in the end be real bargains buying in at the low point but again, without a real recovery, which can take years there you are....I forgot the guys name, but he snapped up lots of co's during the depressioin and said it took till the mid 50s for him to show real gains after costs, interest lost for the cash he spent for them over the years etc.

looking at the chart of the market from say 30-45, you'll see lots of stagnation and fluctuations...and this gov. I beleive is just as harsh and will get harsher regards bus. climate etc.

I am in full agreement with you that stock prices must reflect earnings and I would say that the current levels are too high, assuming growth of about 4% in GDP net year. But again - I don't think that prices are extremely high, and there are many high-quality companies with very low debt and international exposure that are attractively priced.

One of the ironic facts about the economy is that much of corporate America is in excellent shape with very high productivity, strong cash flow and low debt.

bg85 · #17 (**permalink**) 10-05-2009

Quote:

Originally Posted by Tim

The idea for this thread came from a comment made by Smurf in the Dems/Unemployment thread in this section. It was in regards to the direction of the stock market from here. I think it is interesting, so I am running this as a separate topic.

The issue was whether we would see another meltdown that would erase the market run-up since march and not only test the March lows but push through them into even lower territory.

My opinion is: I doubt we will see another meltdown. The hysterics necessary are not there now in market psychology. Rushing for the exits without considering the consequences or as a desperate attempt to salvage something are unique to crashes. We just had as severe and traumatic a crash as any in the history of capitalism. It is unlikely we will see another stampede.

But I certainly do agree that we may well test the lows. We are still in a secular bear that started in March of 2000. I can see a period where the S&P index drifts within a trading range of 750 to 1050 looking for a bottom. That can last for years. Secular cycles last between 15 and 20 years.

Secular bears do not end until market valuations (current p/e ratios) fall into the 7-10 category and stay there for a while. We are now at about 18 on that measure and we were at 12 in March.

Of course if the second crash theory is correct, that sort of dramatic crash would trigger a real depression across the board - not just in the housing and auto markets. If the markets plunge through the lows of March without resistance, then it does become like a runaway train (again). Fund managers are forced to sell. automatic "sell" triggers kick in and this simply feeds on itself.

I don't see it happening as so many of the air has gone out of so many bubbles and it is the collapse of bubbles that presage crashes.

Rather, I think we will see the sort of flat, listless market that we had in the late 70s and before that, in the late 40s, which in both cases marked the end of the secular bear cycles as equity prices drifted towards a bottom and equities fell out of fashion. This "giving up" on equities combined with low p/e ratios always mark the end of a secular bear market cycle.

Of course, then - it's off to the races as a new secular bull starts up again.

Thoughts?

you know....

i think you nailed it

stillalive · #18 (**permalink**) 10-05-2009

Quote:

Originally Posted by Norrin Radd

The stock market is artificial now. We have millions of Americans putting money into the market, directly from their paychecks, many of whom not even knowing where that money is going.

Thanks to government regulations which encourage people to put money in IRA's and 401'S, the market is no longer real. It is a flipping illusion, like has been pointed out by others. I predict the market will eventually run up one more time and then the rich will sell off all their stock, taking what little remaining wealth which has been left to the people.

That is precicely what I have reason to fear will happen.

Norrin Radd · #19 (**permalink**) 10-06-2009

Quote:

Originally Posted by stillalive

That is precicely what I have reason to fear will happen.

Well, no one can predict the future and be 100% sure they will be right. Predicting the future value of air power in war is one thing, predicting anything to do with the economy is whole other animal. There is so much manipulation going on, so many fuzzy numbers, so much insider information, so many secret deals, unless you are an international banker, it is hard to be "in the loop."

There is a great story in FDR's son in laws book, My Exploited Father-In-Law, when the author, Curtis Dall, met Bernard Baruch at the White House while Baruch was waiting to see the president. The story is one of my favorites of all time, as it illustrates how things really work.

(after an exchange of pleasantries........)

Dall: What do you think of Dupont as a company?

Again, the same fatherly smile and same general type of reply. "Very fine company, diversifying nicely,
splendid management, should continue to do very well indeed, as an investment stock."

His two well-worded tailored replies subdued me and so I sat back in my chair with a feeling that I was
merely talking with the experienced writer of a "market letter" for the "whosis" firm, written for the boys west
of the Hudson River.
So I subsided on all matters pertaining to Wall Street and recall that he then seemed to be eyeing me,
alertly, but with not quite so extensive a smile.

After a silence, he calmly said, "Mr. Dall, I think well of silver. "
For a moment, I felt floored, decidedly off-base. I managed to say, "You do, Mr. Baruch?"
74
"Yes", he replied, "I do! In fact, I own about 5/16ths of the world's visible supply of silver."
I struggled to come up for air, as it were, and managed to blurt out, "That certainly is a lot of silver, Mr.
Baruch!"
He replied, in his strong, affirmative way, "Yes, that is a lot of silver, Mr. Dall!"
Before I could collect my scattered thoughts about "silver", Reynolds entered the room and announced, "Mr.
Baruch, the Boss is waitin' to see you, upstairs, and he's mixin' up something."
Both of us then arose and shook hands cordially. Mr. Baruch entered the elevator as Reynolds held its door
and departed upstairs to see FDR, where I am sure an excellent martini, made in the small, familiar shaker,
was being prepared for the distinguished caller.
As Mr. Baruch disappeared, I sat down abruptly to ponder the swift, unexpected turn of events.
Silver! What the devil did he mean? What did I know about "silver"—almost nothing, except that it could
be bought on a 10% margin.
Well, I certainly didn't do so well, I mused; I could have learned more by reading a financial column in one
of the afternoon newspapers!
The measure of just how little I comprehended about that conversation was that I forgot all about it the next
day.
However, a few months later, most startling news about silver did break in the press in a rather casual
manner! The news about it was released over a weekend, when our financial markets were closed. In order to
extend a friendly, political gesture, as it were, to our western silver mining states' Congress authorized the U.
S. Treasury to double the price it would pay for silver in the open market

Franklin Delano ROOSEVELT My Exploited Father-in-Law

I assume the meeting between FDR and Baruch went well.

Yes, very well indeed.

EagleTed · #20 (**permalink**) 10-06-2009

Here's my analysis of the stock market:

It's October, anything can happen.

Hope that helps. LOL

EagleTed · #21 (**permalink**) 10-06-2009

Quote:

Originally Posted by Tim

Well, there is an illusory quality to the expansion, but the rally is not really that out-of-line as the markets were very beaten down and there are several stocks that are still quite cheap based on their quality and history.

An average p/e ratio of 18 is not that high, and earnings have been very depressed; many of these companies have forward p/e's (prediction of future earnings) that are much higher. The average over the last century for current p/e is 15-16.

So yes - it is a bit high, but it is much less than the 23-28 average of a full-throttle bull at its peak (or the crazy p/e of 44 in 1999)

I agree there are a few company stocks that look "cheap" but without growth in earnings they may be very expensive. If we head into Stagflation similar to the 70's it may be tough for any company to eke out acceptable growth. And if growth loses it's appeal the stock market becomes a dividend producer, competing with Treasuries and CD's, therefore, more P/E compression is possible, perhaps likely. OTOH, dividends will become more fashionable, despite the Buffett's who don't like the taxes associated. Some companies, lacking growth may increase buy-backs instead of divs keeping stocks somewhat artificially high.

Nonetheless, I'm 90% in. I'm confident some companies can maintain and grow profits faster than inflation. And btw, I'm not an indexer so Mr. Market's averages don't bother me.

Tim · #22 (**permalink**) 10-06-2009

Quote:

Originally Posted by bg85

you know....

i think you nailed it

Well, we'll soon know.

There is a growing group who are predicting that the recovery will be much stronger than is generlly expected. I just don't see it, with the huge deficit, the continued rise in unemployment and the dramatic change in spending and saving habits.

But it's always possible. Hundreds of billions of dollars from the government are pouring into the economy. I don't believe it will offset the negative factors. But I certainly may be wrong.

Tim · #23 (**permalink**) 10-07-2009

'Show-Me' Earnings Season May Be Make-or-Break for Stocks - Markets * US * News * Story - CNBC.com

We're into the beginning of earnings season again, and Alcoa (almost always the first to report) is out of the gate with a better than expected result: aluminums has been benefiting from the commodity upswing.

So we shall see. It's a positive start but only one company.

http://www.cnbc.com/id/33213464

mwollstonecraft · #24 (**permalink**) 10-07-2009

Very interesting - based on what I have seen I suspect it will continue to be shaky for the remainder of this year and at least halfway into the next. The stock market "jitters" are not over by any means.

It seems to me unlikely that we will double dip - so I don't believe we will head down.

Its not so much that people will be doing the big sell off, as others will continue to be wary about buying until there are definite signs of a sustained recovery. In the long haul it will turn up.

Daddio's comments re job creation are spot on. Better to employ people than give handouts, and now is as good a time as any to build and repair infrastructure.

If these projects can provide guaranteed employment for a period of 12months both businesses and individuals will begin to gain more confidence in their economic futures, and that whats needed to get the economy over this bump.

Melanie · #25 (**permalink**) 10-07-2009

How does our monetizing of our debt effect all of this?

Where does that fit into the equation?

mwollstonecraft · #26 (**permalink**) 10-07-2009

Quote:

Originally Posted by Tim

I am in full agreement with you that stock prices must reflect earnings and I would say that the current levels are too high, assuming growth of about 4% in GDP net year. But again - I don't think that prices are extremely high, and there are many high-quality companies with very low debt and international exposure that are attractively priced.

One of the ironic facts about the economy is that much of corporate America is in excellent shape with very high productivity, strong cash flow and low debt.

This is something that is often overlooked in media reports. Like many other areas decisions are made on generalizations rather than taking a case by case approach.

Tim · #27 (**permalink**) 10-08-2009

Quote:

Originally Posted by EagleTed

I agree there are a few company stocks that look "cheap" but without growth in earnings they may be very expensive. If we head into Stagflation similar to the 70's it may be tough for any company to eke out acceptable growth. And if growth loses it's appeal the stock market becomes a dividend producer, competing with Treasuries and CD's, therefore, more P/E compression is possible, perhaps likely. OTOH, dividends will become more fashionable, despite the Buffett's who don't like the taxes associated. Some companies, lacking growth may increase buy-backs instead of divs keeping stocks somewhat artificially high.

Nonetheless, I'm 90% in. I'm confident some companies can maintain and grow profits faster than inflation. And btw, I'm not an indexer so Mr. Market's averages don't bother me.

I agree about the dividends. They are already becoming more 'fashionable', although the whole concept of investing for dividends took a hit in the past year as even a few of the 'dividend aristocrats' cut their dividends dramatically.

On the other hand, there were quite a few companies that have done remarkably well maintaining low debt, strong cash flow and increasing their dividends.

On an interesting side note: the dividend levels of the early to mid 1930s were extraordinarily high. We may indeed be looking at a repeat of that if the current cyclical bull runs out of steam soon.

Disillusioned_1 · #28 (**permalink**) 10-08-2009

Quote:

Originally Posted by Tim

My opinion is: I doubt we will see another meltdown.

..snip..

Secular bears do not end until market valuations (current p/e ratios) fall into the 7-10 category and stay there for a while. We are now at about 18 on that measure and we were at 12 in March.

I think you mostly nailed it too. However you seem to be simultaneously saying that another meltdown isn't likely while saying that we can expect a market lower than we've seen yet as part of this process (I would refer to that as another meltdown). Which is it?

P/E ratios of anywhere near 20 simply don't make sense economically. Its not until the P/E ratio is ~7-10 that it makes sense to buy a typical company's stock.

The problem is what happens when P/E ratios are 20+ for a decade or two. What are the rational investors supposed to do? Put their money in bonds? Its not like our individual lives are long enough to lose out on 10-15 years of stockmarket growth on the assumption that stocks are 'too costly'.

Tim · #29 (**permalink**) 10-08-2009

[QUOTE]

Quote:

Originally Posted by mwollstonecraft

Very interesting - based on what I have seen I suspect it will continue to be shaky for the remainder of this year and at least halfway into the next. The stock market "jitters" are not over by any means.

It seems to me unlikely that we will double dip - so I don't believe we will head down.

Its not so much that people will be doing the big sell off, as others will continue to be wary about buying until there are definite signs of a sustained recovery. In the long haul it will turn up.

Hello mwollstonecraft. A belated welcome to the forum.

I quite agree about the wariness about buying. Much of the trading has been focused on relatively few stocks until recent weeks and the bue chips have no kept up with the more risky investments.

The blue chips always catch up in a true Bull - and this reflects more mainstream investing.

Quote:

Daddio's comments re job creation are spot on. Better to employ people than give handouts, and now is as good a time as any to build and repair infrastructure.

If these projects can provide guaranteed employment for a period of 12months both businesses and individuals will begin to gain more confidence in their economic futures, and that whats needed to get the economy over this bump.

Well, I agree that infrastructure is needed in most parts of the US. But government spending cannot be a substitute for the private sector and cannot provide guaranteed employment.

But it does provide a much needed cusion at the beginning.

EagleTed · #30 (**permalink**) 10-08-2009

Quote:

Originally Posted by Melanie

How does our monetizing of our debt effect all of this?

Where does that fit into the equation?

Inflation. And unless employment really takes off (no evidence it will), Stagflation. That beats Depression, but not by a whole lot.

I'm not a top-down investor, so I look for strong companies with little debt, high Returns On Equity and Assets, and an historic ability to maintain or grow profits faster than inflation. A couple of my companies have only been around since the 80's, so I'm risking that they can do that.

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