Down goes the Dow

Wow, ONE POSTER here actually gets something.This is from Schwab Active Trader Market Outlook/Review on 9/13:

This is from Liz Ann Sonders comments after the FED notaper:

These are reasons why many on Wall Street (including those advising high net-worth individuals) are cautious in the near term (remember what happened in the market mid-2011). Lazlo Birinyi is suggesting that the S&P may get over 2000 before this cycle ends, but is also cautious in the near term.

Longer term, the buy-and-holders appear to need a reality check. As a number of analysts have pointed up, we are in the midst of the stimulus bubble. This IS a bubble. It WILL end badly, just like the last two. The reason for the Fed not tapering is not good news for either the economy or the market longer-term: The guidance was reduced and the inflation level is approaching the Fed's discomfort zone on the low side. As I said in my post on May 22 discussing the Key Reversal in the market:

D-E-F-L-A-T-I-O-N

Either the bubble since 2009 dies in the the next few months as the economy weakens further (more stress coming soon from more of the Sequester) or we have a blowoff top (what I really think and hope).

My own trend following indicators are nowhere near a sell mode and it may take a year or more to turn them around. But the length of this present bull market is approaching historical maximums as Birinyi has pointed out. This is the time when wealthy people tend to emphasize security of principal and not just sit there taking crazy risks and hope that the market bails them out....someday. The people offering advice above in this thread are largely the ones who rode the sharpest bear market we have had (the last one) all the way to the bottom. Keep that in mind before taking any kind of investment advice here. Join AAII instead.

I'm quite comfortable sitting there until Halloween (yes, I do play the seasonal tendencies) and see how this all plays out.

Real Klondike5 wrote:

I am sure it seems that way to you.

It does because you keep bringing them up.

My decision to bail out of equities market @ the end of June has not paid off to date.

But I am good with it.

I suspect it will pay off in the next few months

We will see.

I do know that, while we have seen drops of 30%, 40%, 50% in a matter of weeks, we never see gains anywhere near those numbers. I want to be pout when the next big drop hits -- which occurs with some regularity under our current fiscal policy that produces these bubbles.

It has been over 4 years since the last one. It was 5 years between the 2003 and 2008 disasters. It seems we always shed 50% of the market before it turns. I definitely don't want to be on that ride

After the Fed decided not to taper, defying all but the most dovish economists' expectations, I was actually surprised the market rallied, because the Fed was essentially acknowledging that the economy (and employment) remains very weak and vulnerable to shocks. To the extent that we did rally, it wasn't very strong and we have given it all back, not a good sign as the market remains short-term overbought. We are nowhere nearing escape velocity (organic growth) and the Fed is a huge reason for this - so shocking that they revised growth projections down yet again (note -sarcasm).

Deflation or more likely, disinflation - I agree here and was probably the first to ever mention it on these boards post-2007. Bonds likely will catch a bid (helped by anemic output), but the Fed has likely lost control of the bond market, and it remains to be seen with the stock market. As the European crises reemerges, Japan flounders, and sovereign debt is sold off, money could seek "safety" in high quality US stocks. Keep in mind, Liz Ann, while a wealth of knowledge and good advice, tends to rely heavily on historical and sentiment indicators. These are great for six-twelve month outlooks, but not so great at capturing major inflection points. If I had to make a call (I'm not), I think there is risk to the downside before we get upside traction again which may be your blow off top, unless, like the Great Depression, there is simply nowhere else to safely put money.

Klondike5 wrote:

I do know that, while we have seen drops of 30%, 40%, 50% in a matter of weeks, we never see gains anywhere near those numbers.

History tells a different story.

A couple more things I'll throw out there:

(1) Related to Lazlo Bininyi's contention that it's 1999 all over again, I noticed that gold had a major collapse starting in early 1996. The market did the same 4 years later. This cycle, we had the actual top in gold in late 2011. Connect the dots.

(2) I made the money to retire (13 years ago) by buying MSFT, INTC, CSCO, and ORCL and holding them for almost all of the 1990's. I started to pull out in the fall of 1998 after Warren Buffett said that he had stopped buying stocks because he couldn't find anything worth buying, and I phased out gradually between October 1998 and April 2000 (generally sold too soon). I am a quant on pickinbg stocks and I mostly screen for companies with sustained eps growth over different time frames (i.e., I don't want hot and cold stocks). At the time that Buffett had said he couldn't find anything worth buying, my stock universe had declined to 13 stocks, and in the last year I went for a couple of Mary Meeker stocks (CMGI and @HOME) because I couldn't find anything worth buying either.

Using the same screen that I used back then, my universe of stocks is now 10 stocks.

I see plenty of anecdotal evidence for Birinyi's contention that we are in the beginning of the end and it's 1999 all over again. The market might go up another 25% or even more, but after that comes the time when the deleveraging phase comes and you are going to say you were right all along. It's just that we had to avoid the second Great Depression before then.

Mohamed El-Erian's paper on the end of the New Normal (El-Erian is CEO of PIMCO for people who don't already know. Full disclosure: I am a PIMCO client):

http://www.pimco.com/EN/Insights/Pages/Secular-Outlook-El-Erian-2013.aspx

Say wha? wrote:

Klondike5 wrote:

I do know that, while we have seen drops of 30%, 40%, 50% in a matter of weeks, we never see gains anywhere near those numbers.

History tells a different story.

That is not my impression from being in the market and watching closely for the past 15 years or so.

Any data for your assertion?

I'll chip in here - I don't see the end of the bull market - there has to be a catalyst to end a bull market - what is the catalyst here? The housing bubble collapse pricked the last one and the tech stock bubble's collapse pricked the one before that.

The only bubblish thing we have now is bonds. So maybe the question is if long term interest rates moved up to a more normal range would that prick this stock market?

I doubt it - the Fed doesn't have any inflation to worry about, so they aren't going to jack up rates violently. But anyway, if interest rates moved to simply historical levels would everyone dump stocks? Why would they do that?

So what is left? Slightly expensive valuations, the sheer weight of a 4-5 year bull market? but 2011 was a flat year - so maybe this isn't such a momentum driven market.

These are not seriously weighty problems anyway.

If credit spreads widen, if the bond curve inverts, if deflation starts to happen, if small caps start to sag...then I'll be worried.

For now, I am holding my buy and hold core, and buying cheap countries like Argentina, Greece, Austria, Ireland and Italy. Cheap is usually good.

Agip.

Do yourself a favor and don't try to sound like you know what you are talking about.

You really are a buffoon

a stimulus bubble ending will be the catalyst? hmm...85 billion per month in a $16 billion dollar gdp economy? Does that really create a bubble? If so, where are the stretched valuations?

Just staying afloat is a bubble, I suppose, for the pessimists. end the stimulus and the economy sinks, they say. well, maybe. That would be an unusual outcome.

Klondike5 wrote:

Agip.

Do yourself a favor and don't try to sound like you know what you are talking about.

You really are a buffoon

one of the zillion differences between me and you is that I am trying to learn. So pick apart what I said so I can learn. Honestly.

Your post is filled with meaningless and nonsensical assertions.

You are the guy who talks to hear the sound of his own voice.

The guy who tries to appear to be knowledgeable -- in fact may think himself to be knowledgeable -- on a topic that ke knows nothing about.

"I'll chip in here - I don't see the end of the bull market - there has to be a catalyst to end a bull market - what is the catalyst here? The housing bubble collapse pricked the last one and the tech stock bubble's collapse pricked the one before that."

In hindsight you have identified these bubbles that crashed the market. You are now presumably claiming no such bubble currently exists -- you assert you see no end to the bull market and the end needs a catalyst and bubbles were the previous catalyst. One can only conclude that you are representing that you knew of those earlier bubbles before they burst. I mean, how else can you now know no such bubble exists. Hence, we can assume you either bet against the market or got out of the market before those earlier bubbles went pop. Are you going to now claim that you did? In complete contradiction to the stay in the market philosophy you have been espousing for the past several weeks?

"The only bubblish thing we have now is bonds. So maybe the question is if long term interest rates moved up to a more normal range would that prick this stock market?"

Let's see if I have this right. There is no current bubble but bonds are "bubblish". Seems like the language of someone covering his a$$, doesn't it?

"I doubt it - the Fed doesn't have any inflation to worry about, so they aren't going to jack up rates violently. But anyway, if interest rates moved to simply historical levels would everyone dump stocks? Why would they do that?"

Okay. So long term rates moving up might "prick this stock market". You then immediately contradict that assertion by stating if rates went up, why would everyone dump stocks?" I am not sure of this is more covering of a$$, or maybe you got so confused by your own BS that you did a 180? You tell me.

"So what is left? Slightly expensive valuations, the sheer weight of a 4-5 year bull market? but 2011 was a flat year - so maybe this isn't such a momentum driven market."

What kind of BS is that? Not a momentum driven market? The sheer weight of a bull market? My God. What a pretentious load of drivel.

"If credit spreads widen, if the bond curve inverts, if deflation starts to happen, if small caps start to sag...then I'll be worried."

See my previous comment.

"For now, I am holding my buy and hold core, and buying cheap countries like Argentina, Greece, Austria, Ireland and Italy. Cheap is usually good."

You really lost me here. Buy and hold "core"? Buy cheap countries? You mean the bonds in certain countries? By cheap, you mean underpriced? How did you arrive at the conclusion Austria, as an example, has bonds that are underpriced? And what are you doing in bonds anyway -- if indeed that is what you mean? I thought my holding bonds was the dumbest thing an investor could do.

I know you are dedicated to learning.

Hope that helps

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http://www.letsrun.com/forum/flat_read.php?thread=5369837&page=21#ixzz2fZXAe0uY

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I did not imply that I spotted and reacted to the tech bubble and the real estate bubble. Nothing I said implies I did. Why would you write that? Maybe I made a mistake as a younger man in 2000 by not identifying the tech bubble but now, as an older and more experienced man, I have better judgment. You know, learning.

I never said that there was no categorically no bubble. I identified bonds as bubblish and then discussed the likelihood of a bond price fall hurting stocks badly. I said 'maybe, but probably not.'

Really, klondike, your reading comprehension is utterly terrible. You can't insist I say things when I haven't said them. Well, you can and do, but that would be dishonest.

Bonds are bubblish but not clearly a bubble when you take inflation into the calculation. Expensive but not a clear, indisputable bubble. Hence 'bubblish' For example, if you see deflation coming, then a 10 year yielding 2.8% is fantastically cheap and the opposite of bubblish.

Your listing of what I write and then calling it drivel is not an argument. It is a list of what I wrote, followed by the word 'drivel.'

You seem to have given up at this point.

I'm buying stocks in those countries, not bonds. One way I judge cheapness is by 10 year cyclically adjusted PEs. In the US that number is a highish 22. In the countries I mentioned, the number is 8 or lower. That makes them cheap by this measure.

really, K...coach d, sagarin and bigfoot, flagpole and others post great stuff. I may disagree with them sometimes. But you really don't post anything interesting on economics and you certainly have not taught me anything on this.

Klondike5 wrote:

That is not my impression from being in the market and watching closely for the past 15 years or so.

Any data for your assertion?

Yes, of course there's data. Your time in the market is just a drop in the bucket. Come back when you know what you're talking about, noob.

agip wrote:

My guess would be that in a bull market like now, the best days might not be clustered around the worst days. But in a bear market, probably the best days do come near the worst days.

I know you said you conceded the point, but I gotta correct this assertion.

We're obviously talking about the best days overall. Not within a particular bull or bear market.

The best days overwhelmingly occur in clusters with the worst days (60-80% of the time), and occur when the market is in a tailspin/bear market. This is simply because markets are more volatile when in decline.

Look at the years for the best days (and worst days) in the wikipedia link below. Most of the best days are in the 1929-1933 time frame. Most of the others are late 2008-early 2009. October 1987 also has a "best" day.

1929-1933

2008-2009

1987

For best days. Those are crash time periods.

One example:

Oct 19, 1987: -22.61% (worst day #1)

Oct 21, 1987: +10.15% (best day #7)

Oct 26, 1987: -8.04% (worst day #8)

Obviously one would have rather been out of the market during October of 1987... even though that meant missing best day #7.

Check it out.

Mebane Faber has also done some research on the topic.

The only thing that's consistent about the market is its inconsistency

Say wha? wrote:

[quote]Klondike5 wrote:

That is not my impression from being in the market and watching closely for the past 15 years or so.

Any data for your assertion?

Yes, of course there's data.

When I asked if there is any data for an assertion it was not a yes or not question. I was asking for the data -- which I think that anyone without extreme intelligence deficit would know.

Now do you have any data or not?

"I did not imply that I spotted and reacted to the tech bubble and the real estate bubble. Nothing I said implies I did"

Then why in God's name would you think that we should listen to you now when you say there is no bubble that you can identify? You didn't know about those earlier ones.

The following is an example of drivel.

"Bonds are bubblish but not clearly a bubble when you take inflation into the calculation. Expensive but not a clear, indisputable bubble. Hence 'bubblish' For example, if you see deflation coming, then a 10 year yielding 2.8% is fantastically cheap and the opposite of bubblish."

I mean, WTF is that drivel? No word better describes it.

And yet another example -- which also mixes in some numbers to present a false image of some actual knowledge.

"One way I judge cheapness is by 10 year cyclically adjusted PEs. In the US that number is a highish 22. In the countries I mentioned, the number is 8 or lower. That makes them cheap by this measure."

WTF does this mean? IN the US the number is "highish" (there is that soft language again) 22. For what? All stocks? A certain sector?

Pure nonsense with a healthy does of defensiveness is what I have come to expect from you