Current stock market (Nov. 2010) not reflecting reality

No there aren't. The bull market (as defined by the Dow)started when the Dow was at 6,500 in March 2009. It can't start now by definition because we are either already in one it ended on November 5 when the Dow closed at 11,444 and we are in the early stages of a bear market (and we'll only know in retrospect). The general consensus is that a bull market is a 20%+ gain in the stock market.

Flagpole wrote:

There are plenty of "experts" who are calling for a bull market to start right now,

Flagpole wrote:

I get my news from many sources, and the only one still harping on the bad is Fox News, and there's only one reason why they do that...a Democrat President.

, you MSM media consuming zombie.

Corrected

Bulls and Bears wrote:

No there aren't. The bull market (as defined by the Dow)started when the Dow was at 6,500 in March 2009. It can't start now by definition because we are either already in one OR it ended on November 5 when the Dow closed at 11,444 and we are in the early stages of a bear market (and we'll only know in retrospect). The general consensus is that a bull market is a 20%+ gain in the stock market.

Flagpole wrote:

There are plenty of "experts" who are calling for a bull market to start right now,

Flagpole's Smarter Twin wrote:

Incorrect. The stock market will drop back below 10,000 by mid-March.

.

I wonder how low it will go when Lieberman and his fellow warmongers get their Iranian war? I fear a tremendous drop

Some questions for you Flagpole. How are companies reporting big earnings? Are they significantly increasing revenue or is it mainly based off of reducing expenses? If its the latter, than it may be good for that company now but its not a good sign for the economy as a whole and for the future.

Are you or anybody accounting for a possible glut in people invested in the stock market? For many years now there have been government policies in place that amount to government subsidies for putting money in the stock market. Examples are IRAs, 401Ks, Stock Options, etc. I'm afraid we are starting to see a long downside in these policies where corporate earnings look great, but the P/E ratios aren't that great. And I don't trust P/E ratios anyway.

I have other questions but that will suffice for now.

To put things in perspective, the market is about 3,000 points off of its record high of about 3 years ago (actually 37 1/2 months ago). Compare the economic picture today 11/30/10 vs 10/9/07 when the market peaked.* Unemployment is 9.5% today vs 4.8% then.*The deficit is well over a $1 trillion higher*We had a huge crisis in the financial system and although a collapse was averted and the worst is behind, confidence in the financial system is nowhere near where it was 3 years ago.* Consumer sentiment (take whichever index you'd like) is way below where it was three years ago.* Corporate earnings still have not recovered to where they were three years ago.* Home prices are 20%+ lower than they were three years ago.* Corporate and consumer delevereging was just beginning in late 2007While the economy is clearly on the mend and the worst is behind us, we are a far cry from where we were 3 years ago. Why you would expect the market to be any higher (its already within 25% of its peak) is beyond me....

Flagpole wrote:

1) Consumer confidence is higher than it has been in 5 months with projections to get higher still.

2) Companies are reporting big earnings and have been for months.

3) Voters should be happy as they just put in place what they want (not started yet, but the market is forward looking).

4) Employment numbers are improving ever so slowly...but at least it's going in the right direction.

5) Manufacturing has grown for 15 straight months (will be 16 including November).

6) All projections are that this Holiday season is going to be huge.

A Dow that is continuing to hover at 11,000 is not reflecting reality. Even with some of the global concerns, this market is lower than it should be.

the election put a damper on the stimulus that would have helped the economy. you're right about corporate profits. the market's been cranky about ireland/portugal, but that is overblown and will all be over soon. The shopping season may not be great, because sales were only up marginally for last Friday.

A market is the sum total of EXPECTATIONS, not reality. It never reflects current conditions.

Flagpole EXPECTS the current market expectations to be too pessimistic, and is placing his bets accordingly.

The January barometer was negative this year. That forecasts that the DOW will not close high enough to outperform a similar investment in Treasury bonds for the year. The Jan barometer forecast the DOW will close below ~10,900 and about a 50/50 probability that it will close below 10,500.

I posted this back in September on another thread. It will be interesting to see how close it comes to the DOW at year end.

The Real UncleB wrote:

I wonder how low it will go when Lieberman and his fellow warmongers get their Iranian war? I fear a tremendous drop

After an initial sell off, it will go up on this news.

1) The market IS reality, you can live in a fantasy world if you like.

2) The DOW is not relevant anymore.

3) World events exacerbated by a weak and befuddled U.S. leadership.

No, no, no Flagpole, I can not see how any attempt at understanding, let alone forecasting what the market will be or should be on any basis of general semantic reasoning can hold solid.

With total respect to you, I believe any individual or collection of individuals "narrative" will satisfy the illusion of reality. Sometimes, we can approach a general understanding of situations, but the stock market if far to complex to be described in conventions.

Perhaps, in very specific cases, one may have a basis for a probable short term outcomes, but as it is, opportunities are not born from conjecture alone, one must understand that the basis of plausibility is based in observation of frequency in the relationships of variables.

Sound trading is based on "empirical", or observational probabilities. Analysis, even by academic macro economists fail to miss the mark as their personal bias and world view that build the models conveys what may seem persuasive, but in retrospect is as solid chance alone could predict.

I suggest you read through some economist blog sites through say 2006 through today. After reading through text articles, papers and theories to describe and forecast, one would see that what one might think was good science, academics with Nobel prizes shouting policy change and so on,

Is really describing fiction. IMHO.

Is the market efficient?

The stock market is in the short term. The distribution of returns is not normal and so not random. the tails are fat, meaning that there are occasional changes in short term returns that chance would not suggest.

Data mining, processing speed and very smart people at the hedge funds who run most of the flows of volume are making the distribution approach " efficient"' or true random walks, but that has not happened yet.

I try to ignore the narrative, not you Flagpole, just generally, as much as I can. I'm sorry to sound brash if it comes across this way, but this is what I do for a living and part of being successful is learning what to focus on, but more importantly, what to ignore.

...and we all know how much alpha HFs have generated in the past 24 months...

Silly Flag wrote:

Its funny how you never start threads predicting that the market will go down in the short-term. Only up.

Yeah, Saturday Night Live did a character like that...Debbie Downer. I'm a positive person brother and like to focus on the positives. I did say on many occasions though that the market would likely go lower...I just don't harp on that when I think that's true. Right now though, there is every reason to believe that we are sitting at the bottom of another bull market. Whether it starts to chug along before the end of 2010, I don't know...just made the prediction it would for fun. Seems to have gotten you all worked up. If that was my goal (it wasn't) then the joke would be on you my brother.

xlev2 wrote:

Guys if you really wanted to know whether FP knows the first thing about equities markets you would ask him why the markets crashed in April, were flat through summer until Labor Day weekend, and why sold off the last 3 trading sessions, before you listen to his predictions about 2011. OMG..

FP, you should know better than to suggest a recovery will occur and remain without the housing sector recovering in lockstep. I mean by that you should know better if you are going to present yourself to this board as a finance guy. you are a damn joke.

But the housing recovery has started. When I made that prediction, housing prices had gone up 5 months in a row brother. They've now pulled back, but housing isn't still in a death spiral.

Yeah, we were in one and now we've been stagnant and a little down...that's how a NEW bull market can begin. I'm just passing on the info brother. If you don't think others are calling for one beginning now, then you aren't doing enough reading.

Bulls and Bears wrote:

No there aren't. The bull market (as defined by the Dow)started when the Dow was at 6,500 in March 2009. It can't start now by definition because we are either already in one it ended on November 5 when the Dow closed at 11,444 and we are in the early stages of a bear market (and we'll only know in retrospect). The general consensus is that a bull market is a 20%+ gain in the stock market.

Flagpole wrote:

There are plenty of "experts" who are calling for a bull market to start right now,

ryan foreman wrote:

Some questions for you Flagpole. How are companies reporting big earnings? Are they significantly increasing revenue or is it mainly based off of reducing expenses? If its the latter, than it may be good for that company now but its not a good sign for the economy as a whole and for the future.

Are you or anybody accounting for a possible glut in people invested in the stock market? For many years now there have been government policies in place that amount to government subsidies for putting money in the stock market. Examples are IRAs, 401Ks, Stock Options, etc. I'm afraid we are starting to see a long downside in these policies where corporate earnings look great, but the P/E ratios aren't that great. And I don't trust P/E ratios anyway.

I have other questions but that will suffice for now.

I don't mean to rip on you here brother, because your question is ONE of the reasons why I believe we will have a decent bull market, but the cutting costs thing is past. What companies are reporting now are REAL earnings, not just better balance sheets based on cost cutting (mainly layoffs).

There is not a glut of "people" or money in the market now. Still MUCH money sitting on the sidelines either in bonds or cash or commodities like Gold. Stocks are always favored, and when the time seems right, people will always go back to stocks in droves. Unfortunately for many of those people, they will make the switch after they've lost money instead of early enough for the move to have made a big difference.

You're right. The stock market is not reflecting reality. It's reflecting the Fed's POMOs which are coercing the risk trade. All of this data you list is already baked. But I'm afraid we are all underestimating the audacity of the Fed, and the nuclear option has already been played, which means we will likely see QE 3,4,5 and so on.

Only Joe Q. Public follows the Dow. Measured against any REAL proxy of wealth and purchasing power, your dollar-denominated assets will actually be worth less, despite some nominal number of an index.

If O is foolish enough to not extend all tax cuts, we still risk a major fall off in output, though the Fed will do its damndest to fend off deflation. The credit morass is far from resolved and unemployment will remain stubbornly high for some time to come. However, things seem to be improving for now (not among small business) on a YOY basis, though still negative and much of it is on the basis of stimulus, the Fed's counterfeiting operation, and major cutbacks at corporations.

My wife is laying off some big shots this week, and they don't plan on hiring because of all of this opaque regulation. And she is in one of the most recession-proof and durable industries. I suspect we will see some wild swings in a big range in 2011.