Quote of the Day: Pundits
My friend Helene (a well regarded technician) had an interesting quote yesterday on pundits:
Clearly, the recession that hasn't begun yet is over. At least, that's what all the folks who never saw the recession coming, then decided we were going to have one, and who now say it's over, believe. I know because I heard them say so on TV, time and again.
-Helene Meisler
>
Nicely stated, Helene. The only thing you may have missed is that therecessionthathasn'tbegunyetisover is already priced into the market.
You may now return to your originally scheduled inanity . . .
>
Source:
The Case for Higher Interest Rates
Helene Meisler
RealMoney.com 4/3/2008 8:37 AM EDT
http://www.thestreet.com/p/_rms/rmoney/technicalanalysis/10410487.html
Friday, April 04, 2008 | 01:15 PM | Permalink
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As Mark Haines anchor of CNBC’s "Squawk on the Street said two days ago on MSNBC, it's time to look across the valley and start concentrating on the recovery.
that's just awesome.
Posted by: Michael Donnelly | Apr 4, 2008 1:20:33 PM
It's true, and she'd be the one to say it. Am I the only one who started reading Helene (ten years ago) at the TheStreet.com for the charts but kept reading her for the words?
Posted by: Jim M | Apr 4, 2008 1:27:26 PM
Ah, it is one thing to look across the slough of despond only to find out the name on your driver's license reads SISYPHUS.
Posted by: Ross | Apr 4, 2008 1:40:26 PM
Complacent Bear Fund:
All that money the Fed is pumping into the system has to go somewhere since the banks aren't lending.
Posted by: Joe Klein's conscience | Apr 4, 2008 1:41:55 PM
Mr. Complacent Bear
In all seriousness, I'm interested in hearing the fundamental reason why the SPX should rise and keep any material gains over the next 3-12 months (material meaning up 5-15% form here and, more importantly, maintain it). What EPS and PE are you estimating that lead the SPX to gain and sustain in value from here? I always want to hear both sides of the story and see which is more convincing. Thanks in advance.
Posted by: craig | Apr 4, 2008 1:42:51 PM
I guess if next month's unemployment rate jumps to 5.5% we can expect the Dow Jones to jump to 14,000. It's simply wondrous how the stock market can magically see thru the unknowable future 6 to 18 months and see the pot of gold at the end of the rainbow.
"Fairy tales can come true, it can happen to you, if you believe what your stock brokers tells you."
Posted by: tom a taxpayer | Apr 4, 2008 1:48:24 PM
Eventually, the optimists will be correct. But we may have to get to S&P 1150 first.
Posted by: DL | Apr 4, 2008 1:50:58 PM
It is obvious that you (B.R.) and your Helen do not get it.
THERE IS NO RECESSION!
P.S. There is no two back to back quarters of negative growth.
Posted by: what a bearish idiot!!!! | Apr 4, 2008 2:03:43 PM
Don't you luv it when the technician's start talking about fundamentals such as the economy? The WSJ wrote an interesting article the other day that the market's biggest gains are usually made during the last two months of a recession.
Posted by: alain prost | Apr 4, 2008 2:05:39 PM
Funny watching Bill Gross talk out of both sides of his mouth right now. What a clown!
Posted by: SPECTRE of Deflation | Apr 4, 2008 2:06:37 PM
Larry, how can you seriously state the recession has already been priced into the market? During the last recession the S&P had lost half of it's value, we are now down what 13/14%? with a situation that everyone considers as worst than the early 2000's. I usually found your blog so instructive and reason driven that I was amazed at reading this!
Posted by: Richard | Apr 4, 2008 2:21:31 PM
Richard,
You need to compare apples to apples.
In the 2000's S&P 500 P/E was above 30.
When we started this recent 2007 hysteria driven market selloff, S&P 500 P/E was 17.
I hope it helps
Posted by: what a bearish idiot!!!! | Apr 4, 2008 2:40:39 PM
To me, the commentary on the recession is reminiscent of when "subprime" reared its head.
During Feb 2007, "subprime" became the new buzz word and everyone started spazzing out. After the initial market gyrations, the markets started to recover and all of the talking heads on CNBC et al declared the subprime issue to be history. I remember hosts rolling their eyes when a guest would want to discuss the housing market. The would usually follow with "Subprime?! That's old news. Over! Done with! Finito!! Let's move on."
Nobody seemed to take the issue seriously until the credit markets started to freeze up in July.
It feels like deja vu to me!
Posted by: wedwards | Apr 4, 2008 2:52:01 PM
Focus on the consumer:
1. $2 trillion in home equity withdrawls in 5 years now NOT GONNA HAPPEN AGAIN.
2. Real wages REALLY ARE DOWN. Inflation REALLY is up.
3. Home prices are going down and that really does matter to the average consumer.
4. Jobs are disappearing and government is only now just STARTING to cut-hard to cut dem gubbmit jobs as tax revneues really are declining and BILLIONS in property taxes that local governments counted on are not gonna come in-yeah, they spent it forward and now are going to have to cut what they never should have spent-typical!
The last two major economic cycles were driven by productivity gains due to the internet and then housing\credit bubbles. Riddle me this, what will this one be driven by? Exports to China? Auto sales? Return of manufacturing jobs? Healthcare jobs? Ipods? Help me out here someone....
Oh yeah, those stimulus checks, I forgot..what is that like .0005% of GDP.
Sorry, I am just not convinced. The CNBC talking heads are simply being too clever with no substance to their claims.
Somebody please give me some hard facts on this recovery thing.
Posted by: Rich Shinnick | Apr 4, 2008 2:56:16 PM
exactly right bearish idiot. starting valuation matters a ton. last correction we were at extremely high LTM PE ratios, this correction we started at much lower PE ratios. That said, we didn't get anywhere near the normal lows of bear market PE ratios (about 8x LTM PE), ...will we get there this time? Not sure, but remember the last great bull market started in the early 1980's and the SPX was trading under 10x LTM PE.
If we want to get another nice bull market one has to believe that PE ratios will expand materially from here, or earnings growth will be materially higher for the next several years, or a combination of those two things.
I don't find those things highly likely given the fundamental macro-economic conditions that probably persist for the next 1-2 yrs. Not saying I think we get a major crash either, rather I think a sideways market with several 10-20% moves up and down (but no lasting gains) for a couple years is plausible. Just my two cents worth. invest accordingly.
Posted by: craig | Apr 4, 2008 2:57:07 PM
Some good snark there from Helene (with a nice addition from BR but then the idea of markets predicting anything was always risible).
The thing that I've been struggling with is that while I believe the "muddle through" hypothesis presented by John Mauldin (e.g., http://tinyurl.com/5s6x3m)and others remains the most probable course of market and world economic events -- I've commented elsewhere that working this market feels like having my face pushed through oatmeal; there are no hard boundaries and it's getting harder to breath too! -- it still seems to me that on one side there is this really thin tail that says "no recession, don't worry be happy" and there is this fat tail on the other side that just says "Armageddon" (with a subtitle: "Lasciate ogne speranza, voi ch'intrate").
With each convulsive financial spasm and central bank response I can't help thinking, is this going to be "the one?"
Posted by: RW | Apr 4, 2008 2:57:45 PM
Pearlstein (at the Washington Post) made an insightful observation - that the stock markets disconnect from the economy at the moment is what you would predict from "moral hazard" - the notion that the Fed will provide a security blanket blocking any downward move. Since Pearlstein supported the bailout of Bear Stearns, this disturbs him. He thinks that the Fed should do something to signal that it won't be the ultimate sucker in a financial daisy chain. Myself, I don't think you can have it both ways. The Fed can't be both the stern parent and the parent that allows its kid to steal cars and go out on hit and run expeditions. As it says in gospels, no man can serve two masters.
It will be a month or more before it kicks in on Wall Street that, although the oligarchs in the government would like to direct all tax receipts directly into the profit columns of banks and hedge funds, they are rather limited by law. Their hands are tied by the pesky electorate - can you imagine?
At the moment, though, just dreaming of another shot of point medicine from the Fed has to bring out the bull in the market.
Posted by: roger | Apr 4, 2008 3:05:58 PM
WABI,
The thing that you should remember is that over the last century, the average S&P P/E ratio is right around the 16 range. The ratio of 30 was exceptionally abnormal!
I believe that the forward-looking S&P earnings estimate for 2008 is around 67 which would indicate that the S&P is running at around a P/E of 20 right now which is still a relatively high number. Remember as well that the earnings view is based on the assumption of 2nd half rebound in the economy. If this fails to materialize, the market still remains over-priced.
Posted by: wedwards | Apr 4, 2008 3:07:52 PM
Craig,
Excellent points all. My 2 cents is that we are entering a period of rapidly rising wage increases and that is a margin killer for many corporations. I know others will argue that the circumstances are different this time but cycles take a LONG time to play out.
Stupid to predict but I will. Overall inflation will peak 8 to 10 years from now in the mid to high teens and profit margins will be cut in half. Taxes will be high and regulations will be stifling. Stocks will on average trade at 8 to 10X and the death of the stock market will make the cover of some MSM.
Some son of Volker/Thacher will rise up with political will and all will be right with the world again.
I think the British disease of the 60's and 70's needs to be studied. Not an exact parallel but close enough.
Posted by: Ross | Apr 4, 2008 3:14:33 PM
"THERE IS NO RECESSION!"
Where do you get your drugs. I want some.
Posted by: Bob A | Apr 4, 2008 3:28:55 PM
I think the pundits have learned an important lesson when visiting the outhouse:
"This sh*t won't drop. Never. And it's already contained...in me!"
Posted by: Shilly pundit | Apr 4, 2008 4:14:50 PM
Just moving to the top of the upper channel on that nice little chart you posted below... the long downward trend will continue and the drop back to the bottom of the channel looks to be soonish.
Ride is not yet over, we are just at the top of a curve at the moment. Get ready to scream again....
Posted by: donna | Apr 4, 2008 4:19:19 PM
"It is obvious that you (B.R.) and your Helen do not get it.
THERE IS NO RECESSION!
P.S. There is no two back to back quarters of negative growth."
LOL!!!
P.S.S. Two consecutive qtrs. of negative GDP is NOT the official NBER definition of a recession. But I wouldn't expect bullish morons to understand that concept.
Posted by: what a bullish moron! | Apr 4, 2008 4:27:05 PM
The interest rates going up is one big headwind for the market.... but I expect that jobs will get to Negative 200K+ and people will realize that there are no more cuts comming, that is when the trouble will start.
Normaly at the "stock market recovery" phase of the short recession, we have 3-4 more bullets in the gun, instead of being in negative real rates. cutting till employment starts rising.
Other thing, that should stop the run when it occures is credit crunch number 3.
Posted by: Eric Davis | Apr 4, 2008 4:40:45 PM
"Pearlstein (at the Washington Post) made an insightful observation - that the stock markets disconnect from the economy at the moment is what you would predict from "moral hazard" - the notion that the Fed will provide a security blanket blocking any downward move."
The 64 trillion dollars question is: Will it work the next time?
What if it doesn't?
Then what?
Posted by: Francois | Apr 4, 2008 4:46:45 PM
