Wall Street Rug
Good sentiment read . . .
Friday, October 17, 2008 | 05:30 PM | Permalink
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that is BR smoking a pipe at home.
Keep up the good work
Posted by: rickrude | Oct 17, 2008 5:48:54 PM
Late afternoon sell-off was right on schedule. I am not trading that, but from shat I understand it is mutual fund redemptions being tallied and executed every day.
I guess when we have a couple of days with not late day sell-off the mutual funds will be done-that being Mom & Pop of course.
The hedge funds? Who knows... Anybody hear about any real blow-ups?
Posted by: Rich Shinnick | Oct 17, 2008 5:49:27 PM
Looks like my 401K and my son's 529 in the fireplace. Or is that in the pipe?
Posted by: NiNM | Oct 17, 2008 5:56:24 PM
With the audio off and given the hour by hour volatility today, I have noticed that whenever an hour show on CNBC ends, there are notable differences in the facial expressions on the hosts depending on how the Dow Jones False Prophet Index is doing at that particular moment. These differences remind me of shoe store salespeople. When the Dow (no one cares about the S&P or NASDAQ, or anything else much for that matter, on CNBC) is up, the staff looks proud and happy that they were able to sell you some nice shoes that fit and send you on your way. When the Dow is down, the staff looks embarrassed and sad that they couldn't put you in a good stock today (Cramer's or Pisani's actual words one time). CNBC really is a 24x7 infomercial channel.
And I still don't buy your bearish sentiment observations, Barry. This market remains bullish and still bubbliciously overvalued if you follow Shiller.
Posted by: CNBC Sucks | Oct 17, 2008 5:57:51 PM
Underneath that guy flat on the rug is goldilocks.
Posted by: AGG | Oct 17, 2008 5:59:38 PM
CNBC Sucks: I take issue with your Shiller comment. I said it before on this site: I study Shiller's data religiously. Just today, I did a study on CAGR for the 5 years, 10 years, and indefinite periods following points in the last century when the market was similarly at a P/E(10YrMA) of approx. 15.5x. Basically, if you invested at similar valuations in 1927 or 1931, your results were not great (but also not disastrous). 1958 was a great time to inest at 15.5x. 1970 and 1973 were not great - it took about a decade to make decent gains. But God help you if you missed 15.5x in 1987, 89, or 90.
But it is absolutely untrue to say the market is overvalued. If the Depression or 1970's inflation is around the corner, yes, it will take approx. a decade to see good returns. But if something like the tech revolution is around the corner, to miss these valuations would be foolish.
Posted by: Adam | Oct 17, 2008 6:23:05 PM
Rich,
I think hedge funds are getting crushed, based on such a ridiculously low Short Interest on Nasdaq. Another reason why sentiment is not too bearish. Hedge funds played with borrowed money and the banks are clamping down. So hedge funds cannot carry their shorts. It is a shorter's paradise...declining market and little short interest.
BTW, bookmark my link...use the dropdown list I populated to see the short interest, or lack thereof, on the big QQQQ names. This is updated twice a month now, around the 23rd and the 8th.
Posted by: Steve Barry | Oct 17, 2008 6:27:47 PM
Adam,
The market troughs historically at .7 times sales or less, which would be S&P at 700...the worst crisis since the Depression will see that or lower. If sales drop, which they will, that number drops accordingly. I see minimum fiurther downside of 25%. And since you cited PE, Nasdaq trades at whopping 28 times current earnings, just as the rising dollar will now be a drag on earnings instead of a boost.
Posted by: Steve Barry | Oct 17, 2008 6:34:46 PM
The way things are going we'll have a P/E of 10 next Monday and back up to 15 the day after.
But my little finger tells me a lot of the bears on this board are too chicken to even put limit orders at a P/E of 5.
Posted by: Muzie | Oct 17, 2008 7:12:43 PM
Steve Barry, are you trying to claim that the market always troughs in all bear markets at 0.7x sales? What if it doesn't this time? I'm not saying I think you're wrong. I'm not saying the odds don't favor you being right. However, you may be wrong, and the market may skyrocket from here. As an investor, and not a speculator, I believe that these are reasonable valuations to be buying at. That said, I am only at 65% equities, and I'll be happy to increase that % if you are right about further downside. I'm only 29 years old, and I figure I have plenty of time to ride out the storm, which, as I see it, is already 8.5 years old.
Posted by: Adam | Oct 17, 2008 7:16:07 PM
Adam,
I agree with you that Shiller's data indicates that we are at about fair value if you look at the real P/E based on 10-year trailing real earnings ($60 real trailing earnings and a 15x median multiple gives S&P at 900). However, if we are in a major down cycle then we could very possibly bottom with the P/E in the single digits. Shiller's data indicates that the real P/E bottomed at around 5.5 in 1921 and 1932, and at around 6.5 in 1982. Even taking a less extreme multiple of 8x that would imply an S&P value of 480, 10x a value of 600, etc...
Another interesting thing to look at is Shiller's data on real dividends. Some consider P/D ratios to be superior to P/E ratios. As they say, there is no EBITDA for dividends... either you paid the cash dividend or you didn't. If we construct the price/dividend ratio in the same way (ie: using 10-year trailing real dividends), we see that the median real P/D ratio is about 24, and the 10-year trailing average dividend is presently at about 23. This implies that fair value would be when the S&P is around 550. In 1982, the real P/D reached 16x, and in 1932 it reached single digits. Even if we assume that we only slightly overshoot to the downside, a P/D multiple of 20 would still imply an S&P value of 460.
These values are obviously a bit extreme, but a similar analysis holds up using 1-year trailing dividends, with more sensible values for the S&P. In particular, the median real P/D when using the 1-year average is 23, and the 1-year average is presently about 29, which implies fair value when the S&P is at around 667. Bottoming at 20x would imply a value of 580. In both cases (10-year or 1-year trailing real dividends), the real P/D ratios appear to indicate that the market is still substantially overpriced relative to fair value.
Posted by: MDB | Oct 17, 2008 7:18:44 PM
With the audio off and given the hour by hour volatility today, I have noticed that whenever an hour show on CNBC ends, there are notable differences in the facial expressions on the hosts depending on how the Dow Jones False Prophet Index is doing at that particular moment. These differences remind me of shoe store salespeople. When the Dow (no one cares about the S&P or NASDAQ, or anything else much for that matter, on CNBC) is up, the staff looks proud and happy that they were able to sell you some nice shoes that fit and send you on your way. When the Dow is down, the staff looks embarrassed and sad that they couldn't put you in a good stock today (Cramer's or Pisani's actual words one time). CNBC really is a 24x7 infomercial channel.
And I still don't buy your bearish sentiment observations, Barry. This market remains bullish and still bubbliciously overvalued if you follow Shiller.
Posted by: CNBC Sucks | Oct 17, 2008 5:57:51 PM
CNBC S,
nice observation, though, what you're really is but one facet(channel) of a highly weaponized mind-control media aka yon' flickerin' box..
you should look into it, the topic, not the box, you'd be fascinated, again, by the topic.. )
Posted by: Mark E Hoffer | Oct 17, 2008 7:44:22 PM
O, about the Cartoon, is that a Telescreen, above the Fireplace? And, any guesses what he won that trophy for?
Posted by: Mark E Hoffer | Oct 17, 2008 7:47:31 PM
“When you look at the mistakes of the 1920s and 1930s, they were clearly amateurish. It is hard to imagine that happening again—we understand the business cycle much better.”
– Greg Mankiw, Harvard economist and textbook author,
Wall Street Journal, February 1, 2000
The Prudent Bear website.
Posted by: AGG | Oct 17, 2008 8:06:47 PM
Hey Barry,
Matt Miller just gave you a shout out on KCRW's radio show Left, Right & Center. He said The Big Picture had the litany of Hank Paulson quotes up on the website and read some on the air.
.
Posted by: VJ | Oct 17, 2008 8:09:10 PM
Mark - thats not a trophy. its the urn for the bulls ashes.
Posted by: brent | Oct 17, 2008 8:15:47 PM
Steve Barry,
Kudos to you for your accurate and tmely predictions.
It's just a matter of curiosity but if no one could borrow to buy and no buying or selling leverage (call and put futures) was allowed, what would stocks' selling price be? Is this like the Clinton thing where we have to decide what "is" is? You know, I just read that between 1997 and 2000 Microsoft and Intel made more money selling puts which closed out of the money than from their business model. Is this what's behind Microsoft's stock buybacks? Are they selling puts and sweating that this time around they will close in the money? I wonder what exposure these guys have to derivatives that they are not being up front about.
Posted by: AGG | Oct 17, 2008 8:22:26 PM
Mark E. Hoffer,
I wondered about the trophy but I got a kick out of seeing the "rug" with his feet to the fire.
Posted by: AGG | Oct 17, 2008 8:27:09 PM
Really, a 'five year low' it not such a big deal especially when those five years are known to be one of the biggest credit bubbles in modern times. This just puts us where we ought to be based on the underlying business strength - and not accounting for the recession or for the collapse of all major US investment banks, etc., etc.
Posted by: wally | Oct 17, 2008 8:54:15 PM
brent,
that's too funny, that never even crossed my mind
AGG, see above, re: feet to the fire..
Also, those are nice pick-ups re: MSFT INTC.
it is so amazing, to me, that so many are buying, everyday, something they know, vitually, nothing about..
Posted by: Mark E Hoffer | Oct 17, 2008 9:04:17 PM
@AGG,
I remember reading that Dell got slammed once with a huge loss selling puts on their stock...I doubt that is still going on, what with Sarbox rules...but I could be wrong.
@Adam,
Of course the market doesn't always trough at .7 times sales...in the 70s and 80s, it would trough at .4 - .5. I always err on the side of caution when I am betting against the market. I could actually make a good argument that sales will drop 5% and the P/S should be .5 and the S&P should bottom at 470. BTW, the Nikkei in Japan topped at 40,000 in 1990 and is now under 9000 almost 20 years later, so I don't necessarily buy into the "I have time" style of investing.
Posted by: Steve Barry | Oct 17, 2008 9:07:25 PM
About a year ago, Warren Buffet started to appear on CNBC quite often, usually with Becky Quick. Very recently, he pumped a huge chunk of cash into CNBC's parent, GE. I said awhile back he had "jumped the shark" and now that he and CNBC are so intertwined, it's time to fade Warren.
Posted by: Steve Barry | Oct 17, 2008 9:12:51 PM
you are obviously very long
Posted by: Frank | Oct 17, 2008 9:45:15 PM
I haven't seen anybody throwing up yet, when i see that I ll know a tradable bottem is near.
Posted by: Frank | Oct 17, 2008 9:46:38 PM
Go long when Cramer is cancelled and Erin Burnett cries in the air.
Posted by: Steve Barry | Oct 17, 2008 9:52:00 PM
