Open Thread: Beginning or the End?
Markets have been in what I call the "orderly whackage phase" over the past few weeks.
Off of the top, there's been some damage done:
• The Dow is down nearly 2,000 points or ~13% from the October highs.
• The S&P500, from its recent high of 1565, has given up almost 15%.
• The Nasdaq has shed 470 points from 2859, or nearly 17% lower.
• The Russell 2000 is down ~20%.
And thats before the disorderly whackage phase begins.
Question for the assembled multitudes: Are we closer to the beginning end of this correction, with an oversold bounce due (anyday now) or-- is this the start of something even uglier, with the market heading relentlessly down without interuption?
What say ye?
~~~
Thursday, January 17, 2008 | 06:00 PM | Permalink
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Think it's the start of a long road down- too many excesses have to be washed out and blaming only "sub-prime" is a gigantic ruse. Bad lending, fraud, and greed are leading to what they always do- a well deserved correction, now if only the ones truly deserving get the correction- which doesn't seem to be the case most times.
Posted by: alex108 | Jan 17, 2008 6:08:48 PM
By the time muni holders realize that their AAA bond is really a B rated bond, and all those banks and insurance companies realize that Fannie, Freddie, et al, are broke....and that those bonds have home loans in them that people can't pay......when all this comes out, then the whackage starts.
Posted by: bob lee | Jan 17, 2008 6:12:34 PM
everything I've read is pointing in a direction I've never seen before: Down. Further.
Several factors that don't lend themselves to optomism:
1. Increasing energy and food prices aren't freeing up any ability for the crucial American Consumer Spending Machine to operate.
2. Housing...
3. Credit card debt...
Quite frankly I'm having a hard time seeing many good elements of the economy right now. Perhaps I'm blind to the bright light at the end of the tunnel...
Posted by: college kid Ted | Jan 17, 2008 6:12:49 PM
I thought we might get a bounce but ever since AMEX came out with their numbers and that write-down....ouch. We might head all the way to 11500 before we see any relief.
Posted by: mino2126 | Jan 17, 2008 6:16:04 PM
short the next uptick...two days after the fed rally.
dow headed to 11200
here's my latest thesis: the bear market began in 2000.
it's comparable to the bear market that began in 1968.
that makes today comparable to 1975.
any thoughts?
Posted by: steve | Jan 17, 2008 6:16:06 PM
Suspect we'll get a bounce in the next few days.
I don't know that the whackage has been all that orderly, especially today. I got the feeling of everything being whacked and sold indiscriminately, because people need to sell.
That said, a very disorderly whackage (ie, crash) is not out of the question, especially if our supposed leaders keep shooting off their mouths and revelaling how clueless they all are.
I rarely commend Cramer, but "WE KNOW NOTHING!" seemed to be the operative message I got from both sides of the Bernake sideshow today.
-btc
Posted by: BelowTheCrowd | Jan 17, 2008 6:16:15 PM
Vote#1: beginning of the big D
Posted by: hidebound | Jan 17, 2008 6:17:08 PM
A bounce up in the very near future b/c people will think the markets oversold, but I agree with alex. Too many credit problems in too many places and popping up in new areas all the time. We're going to loose more ground as the employment numbers will start looking terrible soon.
Posted by: toady | Jan 17, 2008 6:18:43 PM
Another real good whack ( VIX 35 ) and I'm in........
Posted by: Ross | Jan 17, 2008 6:19:04 PM
strange -- entered "hidebound" as the name and it was posted as BelowTheCrowd??
Posted by: hidebound | Jan 17, 2008 6:19:35 PM
I stick with what I said earlier Barry, there's a bunch of people that are just now starting to understand WTF has been going on (we're at the beginning stages of this). It's like these people have been sleep walking. I was watching CNBC and they had a Perma-Bull, money manger from Las Vegas, bragging about managing 2 billion. He was saying this correction was overdone, and pushing stocks. It was just hilarious. When these Perma-Fools start advising people to go into cash, I'll cover my short positions and go long.
I think the market is due to bounce, however, I see no sustainable strength. There's simply too much excess left to expose ... too many people still believe everything is okay. The markets will likely rollover into any bounce and head to new/nasty lows.
Posted by: Donny | Jan 17, 2008 6:19:46 PM
Impossible to answer. The pain needs to come, but it could come tomorrow or it could be drawn out over a period of years. And the closer we are to the point that it needs to go one way or the other, the indicators become more and more difficult to interpret. It's self-organized criticality, life at the "edge of chaos". Per Bak is smiling down on us from wherever he is now...
Posted by: Sherman McCoy | Jan 17, 2008 6:19:57 PM
Let me summarize what I have already stated:
My "BIG PICTURE" is that if Shiller is right, housing has to fall 40% just to get to pre-2000 highs using 120 years of data (not just bubble times). It will probably fall 60% and usher in something resembling a depression. Optimal portfolio is 1/3 cash, 1/3 very short term treasuries, 1/3 QID. Gold will tank with other commodities.
My "SMALLER PICTURE" is a very sharp sell off to DOW 11,300 or so in the next 2 weeks, then an oversold bounce while we await more data. The S&P should trade at 1 times sales of 900 per share (my estimate)before year-end, possibly breaking its worst calendar year ever (-43% in 1931).
Posted by: Steve Barry | Jan 17, 2008 6:25:28 PM
Credit is contracting in our credit-based economy. We are already in a recession and equities (a.k.a. options on profits) will be heading down...not in a straight line but still heading down.
Posted by: Will T | Jan 17, 2008 6:25:59 PM
We could bounce in the short term, but my guess is an all out crash (20%+ one day move) sometime within the next couple months....
Posted by: Bruce | Jan 17, 2008 6:28:04 PM
Steve,
I tend to agree. I would short the next bounce, but have in recent days cut back on shorts and even added some longs as I believe that the bounce could be sharp and vicious, especially if the Bernake looks at today's reactions to his comments and decides he has to move fast and quickly.
(Unlike some, I'm not convinced that he decides to cut right into options expiration in the morning, though it certainly couldn't happen. But I wouldn't be shocked if he lets everybody stew in their juices over a long weekend then cuts Tuesday morning.)
Even if we wait to the end of the month, we'll probably get a ripping bounce somewhere in here.
Then look out below.
As to the comparison, I think we might be more like 1974. That was the year that our oil dependence and corrupt leadership problems came home to roost, we had to figure out how to get the hell out of a disastrous foreign war and the DOW lost half its value.
In 1975, a DOW investor doubled his money. We're not there...
-btc
Posted by: BelowTheCrowd | Jan 17, 2008 6:29:07 PM
The VIX finally popped today. With expiration tomorrow it will be interesting. I wouldn't expect to see a multi-month bottom in the market until we see a VIX approaching 40 at the minimum. See past spikes earlier this decade. It took VIX readings well above the 35 level to signal at least an intermediate bottom.
Posted by: Raj B | Jan 17, 2008 6:30:18 PM
Hidebound,
Your name shows up under your comment, not above it.
-btc
Posted by: BelowTheCrowd | Jan 17, 2008 6:31:31 PM
11% and 12% corrections would only signify a bottom if this is a mid-cycle correction, and history argues against that. The bull market was long in the tooth so to think this is a correction for a continuation is problematic.
Bear markets typically range from 6 month to 18 months, so looking at this as a bear market means it is still early - I wouldn't start looking for a bottom until we are in the 25-30% fall from the highs.
If Nouriel Roubini is correct that a recoupling will occur, the U.S. could well lead the world into recession, in which case a drop of 40-60% can't be ruled out.
I remember Barry asking about this very thing some time ago under "American Flu?"
Roubini was a little early in his prediction, but his hypothesis so far has been dead on - a little frightening.
Posted by: Winston Munn | Jan 17, 2008 6:35:03 PM
I think the markets are due to go down further still. We are talking deep recession down.
11,000 or less would not surprise me.
Posted by: Jonathan | Jan 17, 2008 6:36:20 PM
i think we will get a big bounce....due to FED rate cut and some talk about stimulus...
but i think i am pretty convinced that most people will start to short the rally...
now i am not sure how long that rally will lost if everyone is shorting it.
Posted by: techy | Jan 17, 2008 6:37:21 PM
I say a 2-3 day bounce sometime next week (definitely if we get a rate cut). Then down again until $SPX 1275-ish. MAYBE we make a stand there.
Posted by: Mike | Jan 17, 2008 6:38:45 PM
Barry - Remember the Dennis Neil top you called at 14,000 when he was super bullish and ridiculed you for being bearish. You have to bring that back up next time you are on air with him on Kudlow.
VIX needs to pop before we bottom.
Posted by: JonW | Jan 17, 2008 6:46:19 PM
Remember in the summer of '98 when those of us who knew *so much* about stock market history assumed the mini-bear was the beginning of the end for the Naz bubble?
Now, like then, we are well-into one of the longest bull markets in history and a mini-panic caused by financial shenanigans. But '98 was just a warmup, as was '87.
Unless someone is willing to go WAY out on a limb and suggest that we are headed towards the next Great Depression, I think we get one of two scenarios:
1) The market gets whacked mercilessly, we bottom over a few months and then head back up for another blow-off top well above the October highs, or;
2) we stabilize soon, churn around for a few weeks, maybe even fake enough people into going long again, then start a fairly orderly descent for the balance of the year.
Again, the potential for a Black Swan (the book is so full of sophistry I wasn't sure whether it needed to be flushed down the toilet when I was done reading it, but I love the term) event is ever present, but if any of us could predict it it wouldn't be a Black Swan
Posted by: Byno | Jan 17, 2008 6:48:00 PM
Remember in the summer of '98 when those of us who knew *so much* about stock market history assumed the mini-bear was the beginning of the end for the Naz bubble?
Now, like then, we are well-into one of the longest bull markets in history and a mini-panic caused by financial shenanigans. But '98 was just a warmup, as was '87.
Unless someone is willing to go WAY out on a limb and suggest that we are headed towards the next Great Depression, I think we get one of two scenarios:
1) The market gets whacked mercilessly, we bottom over a few months and then head back up for another blow-off top well above the October highs, or;
2) we stabilize soon, churn around for a few weeks, maybe even fake enough people into going long again, then start a fairly orderly descent for the balance of the year.
Again, the potential for a Black Swan (the book is so full of sophistry I wasn't sure whether it needed to be flushed down the toilet when I was done reading it, but I love the term) event is ever present, but if any of us could predict it it wouldn't be a Black Swan
Posted by: Byno | Jan 17, 2008 6:49:22 PM
