The Big Picture

Economic Witch Hunt

Sunday, July 20, 2008 | 03:30 AM

Interesting discussion:

"The political establishment is embracing a time-honored response to the nation's economic turmoil. It's going on a witch hunt.Politicians of all stripes worry that improper trading by short sellers has contributed to turmoil in the stock markets. And "excessive" oil traders have replaced oil-company executives -- themselves twice keelhauled by congressional committees this year -- as the bogeymen behind the run-up in gas prices. For Washington veterans, the sharpened attacks are the incarnation of a standard political trope, one found especially in election years"

Source:
Economic Woes Get a Fix: Witch Hunt
GREG HITT
WSJ, July 19, 2008; Page A3
http://online.wsj.com/article/SB121642556479566791.html

A Nation of Whiners? No, Just Wall Street Beggars

Friday, July 18, 2008 | 07:00 AM

in Bailouts | Credit | Derivatives | Markets | Taxes and Policy

Pathetic, but all too true:

"Phil Gramm, the senator-banker who until recently advised John McCain's campaign, did get it right about a "nation of whiners," but he misidentified the faint-hearted. It's not the people or even the politicians. It is Wall Street--the financial titans and big-money bankers, the most important investors and worldwide creditors who are scared witless by events. These folks are in full-flight panic and screaming for mercy from Washington. Their cries were answered by the massive federal bailout of Fannie Mae and Freddy Mac, the endangered mortgage companies.

When the monied interests whined, they made themselves heard by dumping the stocks of these two quasi-public private corporations, threatening to collapse the two financial firms like the investor "run" that wiped out Bear Stearns in March. The real distress of the banks and brokerages and major investors is that they cannot unload the rotten mortgage securities packaged by Fannie Mae and banks sold worldwide. Wall Street's preferred solution: dump the bad paper on the rest of us, the unwitting American taxpayers." (emphasis added)

-William Greider, Wall Street's Great Deflation

The once great Street of dreams has been reduced to beggering for handouts.

~~~

In a truly disturbing sign of our times, I am adding the category "Bailouts" to our list . . .

Previously:
Idiots Fiddle While Rome Burns (July 2008)
http://bigpicture.typepad.com/comments/2008/07/idiots-fiddle-w.html

Amity Shlaes Does Not Know What a Recession Is (July 2008)
http://bigpicture.typepad.com/comments/2008/07/amity-shlaes-do.html
>
Source:
Wall Street's Great Deflation
William Greider
The Nation, 07/14/2008 @ 12:38pm
http://www.thenation.com/blogs/notion/336722/

~~~

Pakistani Investors Stone Stock Exchange

Thursday, July 17, 2008 | 09:43 PM

in Markets | Psychology/Sentiment

"There has been some level of mismanagement by the authorities,'' said Habib-ur-Rehman, who manages the equivalent of 6.5 billion rupees in Pakistani stocks and bonds at Atlas Asset Management Ltd. in Karachi. "This may be due to their misperception that they can prevent the market from falling. Investors have to learn to bear losses as they do gains.''
(emphasis added)

This looks like an Onion parody -- but its not!

Surprisingly, no one in Karachi blamed short sellers or rumors . . .

Pakistan investors stormed out of the Karachi Stock Exchange, smashed windows and cursed regulators after the benchmark index fell for a 15th day, the worst losing streak in at least 18 years.

"I have lost my life savings in the last 15 days and no one in the government or regulators came to help us,'' said Imran Inayat, 45, a protester and a former banker who retired early and said he lost 300,000 rupees ($4,175) on the market.

Police surrounded the exchange after hundreds of investors stoned the building and shouted anti-government slogans. Securities and Exchange Commission of Pakistan, which imposed and then removed a 1 percent daily limit on price declines this week, had attempted to halt a slide that wiped out $30 billion of market value in three months, threatening to undo a 14-fold rally since 2001.

We better send SEC Chairman Cox to Karachi -- he'll stop the rumors and short selling pronto!

>

UPDATE: July 18, 2008 5:46am

More photos, via the NYT

Investors destroyed a door at the Karachi Stock Exchange in Pakistan on Thursday to protest slumping share prices.

Tires burned Thursday in front of the stock exchange in Islamabad, Pakistan, as protesters vented anger over a two-week plunge in share prices. While Wall Street prices rose, Pakistani shares fell over concern about handling of the ailing economy.

Sources:
Pakistani Investors Stone Exchange as Stocks Plunge
Farhan Sharif
Bloomberg, July 17 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aVZ47MTtPsPY&

Furious investors trash Karachi stock exchange
Farhan Bokhari in Islamabad
Published: July 18 2008 03:00 | Last updated: July 18 2008 03:00
http://www.ft.com/cms/s/0/e6504c8e-5460-11dd-aa78-000077b07658.html

Pakistani investors attack bourses after share collapse
Rhys Blakely
The Times, July 18, 2008
http://business.tim esonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4354306.ece

Pakistani Bear Market Has Investors Raging in the Streets
JANE PERLEZ
NYT July 18, 2008
http://www.nytimes.com/2008/07/18/world/asia/18pstan.html

~~~

In Defense Of Speculators

Thursday, July 17, 2008 | 09:00 AM

in Markets | Short Selling | Trading

This morning's Ahead of the Tape column in the WSJ discusses the absurdity of targeting short-sellers during downturns.

"Some free markets are apparently freer than others: The price of oil is free to fall, while the stock price of a bank is free to rise.

That is one takeaway from Washington's recent response to market turmoil. By singling out "speculators" who want to push bank stocks down and oil prices up, lawmakers and policy makers reinforce a message that the free market is a wonderful thing as long as it isn't going against you.

It is a potentially slippery slope."

Apparently, Free markets means free to go up only . . .

Source:
Easy Targets: In Defense Of Speculators
MARK GONGLOFF
WSJ, July 17, 2008; Page C1
http://online.wsj.com/article/SB121625520953660253.html

~~~

The Psychology of Selling

Thursday, July 17, 2008 | 06:54 AM

in Apprenticed Investor | Markets | Psychology/Sentiment | Real Estate | Trading

Whenever we discuss sentiment concepts like capitulation or exuberance, we get email asking why. "What's with the touchy-feely crap?" writes a new reader.

One comment summed up this line of thinking perfectly:

"Remember when trading was not all "up in your head"? We've all switched to the marriage counselor's version of investing. Crap."

Actually, trading is always "up in your head" -- but ordinary market conditions mask it. A day like yesterday -- a classic Bear Market rally, with the Dow up 276.74 points, and the Nasdaq gaining more than 3% in the session -- can only occur when sentiment extremes are reached.

Anytime there is a long stretch of asset price depreciation, be it the past 9 months in US equities, or the past 3 years in real estate, the sentiment factors often move to the fore. Consider several psychological factors of sellers: There is remorse for missing highers prices, and a significant price anchoring that occurs with that.

Equity and Housing sellers are similar in that respect. When they miss a given price, all they want to do is get back to it to sell (or buy). How many times have you heard someone say "If only I can get back to break even..." This psychological element of missed opportunity is what underlies the concept of support and resistance lines.

Anchoring plays a big role in the refusal to sell stocks that have fallen. In 2001 and '02, I can't count how many times I heard "I'll sell my Yahoo when it gets back to $200."

In Housing, anchoring its even worse. Without a daily price print, homeowners tend to be even more anchored in past prices. Add in tract developments were homes aree so similar, and its a recipe for the following: "My neighbor got $XYZ last year, and our house is nicer -- we have a new kitchen and a bigger back yard. So we should get at $X plus $50k."

That sort of mental selling analysis is a large part of the reason why there is so much home inventory available for sale. It also explains why prices seem to s l o w l y chase markets down.

Consider the following article about Florida Real Estate auctions. Pay attention to the elements of psychology impacting selling prices:

"Despite the standing-room-only crowd and live music, a recent auction of 22 properties in Port St. Lucie's tony Tesoro community didn't yield a single sale.

It's not that no bids emerged at the June 28 event - it's just that none of them were high enough for the owners of the 16 lots and six homes.

Call it a sign of the times.

One four-bedroom home listed for sale at $3.75 million attracted a high bid of only $1.2 million. Another, a three-bedroom, fetched a $450,000 high bid, though it's on the market for $2.15 million, according to Scott Powell, a Stuart-based appraiser who attended the auction...

What happened at the Tesoro auction is consistent with what agents are seeing around Florida, Boza said.

"Buyers are continuing to look for steep discounts, and sellers are looking for top dollar," he said. "Until sellers readjust their asking prices, there will continue to be an overhang of properties in Florida."

The sellers are stuck in a 2005 or '06 mindset; They are failing to recognize the change in psychology from a period of frantic bidding; they are ignoring the price depreciation, the rise in interest rates and the lack of easy credit.

These are the people who want to sell; The owners who have to sell are a different story.

Source:
Property owners balk at low bids at Tesoro auction
EVE SAMPLES
Palm Beach Post, Sunday, July 06, 2008
http://www.palmbeachpost.com/business/content/business/epaper/2008/07/06/m1bz_samplescol_0707.html

~~~

Wild Times on Wall Street

Wednesday, July 16, 2008 | 02:00 PM

in Contrary Indicators | Markets | Trading | Video

I did three segments Tuesday on Yahoo Tech Ticker at the Nasdaq:

Here is the first, on closing shorts and getting a bounce:

Click for video

We ran out of time, but I was going to discuss the infrastructure plays also . . .

Source:
Wild Times on Wall Street: What Now for Investors?
Aaron Task
Yahoo Tech Ticker, Jul 15, 2008 07:00am EDT
http://finance.yahoo.com/tech-ticker/article/39407/Wild-Times-on-Wall-Street-What-Now-for-Investors

10962.54: Lowest Dow Close Since July 2006

Tuesday, July 15, 2008 | 09:00 PM

in Markets

Well, that was interesting.

Today had something for everyone -- or perhaps nothing for anyone is more accurate?

• Volatility returned in force (Finally!) today, with the VIX climbing over 30.

• Fannie (FNM) and Freddie (FRE) fell more than 25% each, as the bailout plan makes it clear that shareholders are not going to be rewarded for showing such bad judgment as to own this crap. They closed at $7.07 and $5.26 respectively -- possibly on the way to zero.

So, what happens next? Where does this market take us on its wild ride?

What say ye?

~~~

Dow

Nasdaq

SPX

Headline of the Day: Recession-Plagued Nation Demands New Bubble To Invest In

Monday, July 14, 2008 | 02:30 PM

in Markets | Psychology/Sentiment

Fortunately, its from the Onion -- but it sounds way too real!

Recession-Plagued Nation Demands New Bubble To Invest In

A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.

"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."

The current economic woes, brought on by the collapse of the so-called "housing bubble," are considered the worst to hit investors since the equally untenable dot-com bubble burst in 2001. According to investment experts, now that the option of making millions of dollars in a short time with imaginary profits from bad real-estate deals has disappeared, the need for another spontaneous make-believe source of wealth has never been more urgent.

If it wasn't so sad, it would be hysterical . . .

Source:
Recession-Plagued Nation Demands New Bubble To Invest In
July 14, 2008 | Issue 44•29
http://www.theonion.com/content/news/recession_plagued_nation_demands

"You Can't Fight the Fed"

Monday, July 14, 2008 | 07:00 AM

And another cliché dies a well deserved death . . .

"In 2001, stocks kept falling even as the Fed cut interest rates heavily. The stock market recovered briefly after the Sept. 11 attacks, but fell to new lows in 2002. This time, the problems are very different, but they once again appear to be too numerous and too diverse. Since last summer, every stock rebound has proved temporary.

Investors are coming to the realization that, despite all the Fed's efforts, the combination of deteriorating home prices, a beleaguered consumer and rising oil prices is going to bedevil the economy, stock prices and banks for months to come. That is one reason the recent selling has been so persistent."

Sources:
Are the Hunters Low On Magic Bullets?
Investors Are Grappling With the Fear That Regulators Can't Slay This Bear
E.S. BROWNING
WSJ July 14, 2008
http://online.wsj.com/article/SB121599133160949379.html

~~~

It's a Great Time to Be an Investor !

Sunday, July 13, 2008 | 09:15 AM

in Apprenticed Investor | Investing | Markets | Psychology/Sentiment | Trading

Jeff Saut recently quoted a WSJ article:

Memo to investors: This is what you get paid for.

Volatility. Stomach-churning drops. Watching your paper wealth evaporate.

Stock market profits aren't free.

Garbage collectors (at least, in non-union towns) know they have to turn up in the morning and pick up people's trash in order to get paid. Piano teachers know they have to teach piano to pay the rent. Shop keepers have to tend to a shop.

Only investors in the stock market expect to be like the lilies of the field. They toil not, neither do they spin. Could Wall Street just send us the checks every month please?

The reality is that investors have to earn their money, through brains and nerves. The brains can mean doing smart things – like buying Apple when it started to turn around. More often they simply not doing dumb things, like buying Pets.com.

The nerves mean not panicking or getting swayed by fear, at the bottom, or greed, at the top.

I cannot disagree with the concepts expressed here -- investing ain't easy, and once it gets shaky, markets separate the Men from the Boys.

There is much to be said for recognizing the myriad difficulties associated with deploying cash, managing risk, allocating assets and preserving capital.

However, I am rather uncomfortable with that title: Why It's a Great Time to Be an Investor.

Why?

'Cause it reminds me way too much of the NAR campaign It's a great time to buy or sell a home!

That was from 2006 -- how do did THAT work out?

Previously:
It's a great time to buy or sell a home! (November 2006)
http://bigpicture.typepad.com/comments/2006/11/its_a_great_tim.html

Analyzing why "It's a great time to buy or sell a home!" (November 2006)
http://bigpicture.typepad.com/comments/2006/11/analyzing_why_i.html

Source:
Why It's a Great Time to Be an Investor
BRETT ARENDS
WSJ, July 2, 2008 10:38 a.m.
http://online.wsj.com/article/SB121500722208222939.html

~~~

Soft Furry Landing

Friday, July 11, 2008 | 02:30 PM

in Markets | Psychology/Sentiment

This is my favorite cartoon in a long time:

Dow 10,980.37 !

Friday, July 11, 2008 | 11:32 AM

in Markets

Just cracked under Dow 11,000 -- more later . . .

~~~

Mid-day Open Thread!

Feel free to add your market-related thoughts below

S&P500 vs AAII Bullish Index

Friday, July 11, 2008 | 11:00 AM

in Contrary Indicators | Markets | Psychology/Sentiment | Trading

My pal Mike Panzner sends along this chart showing that we are getting to an extreme in sentiment:

Chart courtesy of Mike Panzner's Armageddonomics

That suggests a bounce, and I cannot say I disagree. Where I may be more circumspect then some of my more bullish brethren is what you should do with that bounce . . .

UPDATE: July 11, 2008 1:04pm

Here's the UoM Sentiment read:

~~~

David Tice: S&P500 Below 800 ?

Thursday, July 10, 2008 | 03:00 AM

in Economy | Markets | Video

Not my favorite Bear -- but give credit to Bloomberg for the timing of this interview:

David Tice, founder of the $1.2 billion Prudent Bear Fund in St. Thomas, Virgin Islands, discusses the U.S. equity market. The Standard & Poor's 500 Index may drop below 800 as the economy slows, he said. The benchmark for U.S. stocks fell 2.3 percent today to 1,244.69, sending the index into its first so- called bear market since 2002.

On the market's decline: "We sometimes we use the word `depression' because a recession connotes really just an inventory adjustment, etc. What we're talking about doesn't have to be as bad as the Great Depression, but it's a major long-term readjustment of the economy.''

click for video

Sources:
Prudent Bear Founder Tice Says S&P 500 Will Fall Below 800
Michael McKee and Katherine Greene
Bloomberg, July 9 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aMmJcRGfAmRo

Do parties matter in Presidential economics?

Wednesday, July 09, 2008 | 04:00 PM

in Data Analysis | Economy | Markets | Politics

The well regarded Liscio report is now blogging.

They did a very nice job analyzing the various economic and market results under all of the Presidents since FDR.

Of course, it is arguable as to how much impact any President has on the economy in general.

However, I think we can all agree that certain presidents who made major policy changes -- think Roosevelt and Reagan -- had major impacts on the economy. Other Presidents -- like Clinton and Bush -- also had a major impact through their actions and inactions.

The entire piece is worth a look . . .

GDP by Party

CPI by Party

Source:
Presidential economics: Do parties matter?
July 07, 2008
http://tlrii.typepad.com/theliscioreport/2008/07/presidential-ec.html

The End of a 20-Year Energy Cycle

Tuesday, July 08, 2008 | 02:30 PM

in Commodities | Energy | Markets | Politics | Psychology/Sentiment

Following up on our Polyanna post last week, here's some more Leonhardt:

While Congress is barking up the wrong tree -- blaming speculators for high Oil prices -- consider this simpler explanation for $100+ Crude Oil:

"The world is now at the end of a 20-year energy cycle. From the mid-1980s to the middle of this decade, oil prices fell even as the world economy grew. A barrel of crude cost $68 in 1983 (adjusted for inflation) — and just $33 in 2003.

How did this happen? The high prices of the early 1980s gave producers an incentive to take more oil out of the ground and also gave consumers reason to use less of it. With supply growing quickly and demand growing less quickly, prices plummeted.

The low prices of the 1990s reversed those incentives. Americans fell in love with Hummers and pickup trucks, and the Chinese and Indian booms were fueled by cheap energy. Oil supplies, meanwhile, weren’t growing so quickly. To top it off, the decline of the dollar since 2001 has reduced Americans’ purchasing power. Without that fall, a barrel of oil would cost less than $110 today, rather than $141, according to Stephen P. A. Brown at the Federal Reserve Bank of Dallas."

Oil will stay expensive until two things happen: the fundamentals of the supply and demand equation changes, and the scarcity psychology around crude oil shifts.

Bottom line: Oil prices will eventually fall as the global economy cools off. But you can forget very cheap oil -- under $30 or even $40 dollars a barrel -- until we find a cheaper adequate replacement.

Previously:
The Costanza Energy Policy: 25 Ways to Drive Oil to $150 (May 29, 2008)
http://bigpicture.typepad.com/comments/2008/05/how-to-drive-oi.html

Source:
Dispelling the Myths of Summer
DAVID LEONHARDT
NYT, July 2, 2008
http://www.nytimes.com/2008/07/02/business/02leonhardt.html

~~~

Pricing in a Bush Presidency

Tuesday, July 08, 2008 | 07:08 AM

in Markets | Politics | Psychology/Sentiment | Trading

We continue to hear a steady drumbeat of partisan political market commentary from all the usual quarters. Their claim -- stunningly ignorant in its naïveté -- is that the current market selloff has nothing to do with the Housing debacle or the credit collapse, $145 Oil, six consecutive months of negative employment data, nearly $5 per gallon gasoline, a 40% devaluing of the US Dollar, an exhausted US consumer, and massive financial sector write offs.

No, those are irrelevant to the market. Instead, we get an explanation that the market weakness is due to . . . Obama's lead in the polls.

I have previously criticized this poor form of analysis as one that confuses Cause & Effect. It is a classic error of misunderstanding causation versus correlation.

Whenever a challenger is winning in a national election, it is most often because the current economy is so weak that it gets reflected in market conditions. That negative backdrop is also why the party that is not in possession of the White House outpolls the incumbent party. The SAME FACTORS -- a punk economy, high inflation and weak employment -- are causative of both the market selloff and the challenger's lead.

Those who do not understand the difference between Causation & Correlation blame the market on the challenger, rather than recognize the reality. The same economic forces driving the market down are what also drive the challenger up.

Thus, these market based political comments end up being a Rorschach test, revealing nothing about equities, and everything about the speaker's partisan leanings.

Remember the following article, circa Summer 2,000? It also wrongly blames the Nasdaq crash on the challenger's rise in the polls -- then Governor Bush.

Pricing in a Bush Presidency?
New York Times, July 9th 2000
(insert link)

"Stocks sold off again today as the markets is pricing in the likely impact of a George W. Bush presidency.

Since Bush has emerged as the polling leader in March, stocks have been hit hard. The NASDAQ has fallen 37%, while the S&P500 and the Dow are both down 20%, placing equities squarely in bear market territory.

Various Wall Street strategists have expressed concern regarding how a new set of Bush monetary and overseas policies could impact equities.

"My biggest concern is that the promised Bush tax cuts will be in extremely expensive. That would create huge deficits and be extremely inflationary" said Peter Leslie, a trader on the CBOT floor." Governor Bush has promised to reduce captial gains and dividend taxes, and lower the marginal rates on the nation's biggest earners. He has not explained how these tax cuts will be funded.

Maverick Capital fund manager Henry Carlyle is more concerned with government spending than Tax cuts. The Dallas resident stated "I have followed Governor Bush in Texas, and fiscal discipline is not his strong suit." Cabot expects a big increase in federal spending and budget deficits that will have ramifications for both inflation and an interest rates.

Vanguard chief John Bogle is more concerned with a lax regulatory environment: "A return to the sort of crony capitalism that we've seen in the past would wreak havoc with investor confidence. We need a strong SEC to make sure companies are transparent, and report their accounting fully and fairly. We should not throw the individual investor to a wild and woolly free market that is totally lacking in supervision." The Vanguard chief has long been a proponent of a strong regulatory environment for the protection of individual investors. "I do not see that sort of regime under a President Bush."

Robert Rubin, the Treasury Secretary under Presdient Clinton who retired last year to join the Board of Citigroup, focused on the Federal Reserve. "The next president needs to make sure that the Federal Reserve fulfills its obligations as bank supervisor. I am concerned that Governor Bush, as President, would move away from strict regulation of markets for ideological reasons." Rubin, a Democrat, warned of negative repercussions for the housing and financial sectors. "[Since joining Citigroup], I have been looking into the issue of derivatives. This is another area that requires close scrutiny from both the Treasury Department and the Federal Reserve. I see Bush lacking expertise in this crucial area."

Goldman Sachs chief investment strategist Robert Hormat, was even blunter in his assessment of a Bush Presidency: "I am looking for a market crash as a reaction to the election of George W. Bush. Investors should brace themselves for losses of 50% or more -- and even worse in the Tech sector -- should he be elected."

Legendary legendary oil trader T. Boone Pickens is more optimistic. "We should expect several military conflicts in the Middle East under President Bush, and while this may not be great for the economy it will be terrific for my energy holdings." If Bush gets elected, Pickens plans on opening a new oil based hedge fund, and is forecasting 100% increase in the price of oil to $40. "I'm an Oil, George is an Oil man, and his VP DIck Cheney is an Oil man. I expect energy returns to significantly outperform equity markets over the next eight years" he said."

For some strange satirical reason, I cannot seem to find the URL for this specific article . . .

Previously:
Confusing Cause & Effect: Elections and Markets (January 2008)
http://bigpicture.typepad.com/comments/2008/01/confusing-cause.html

The John McCain Market Selloff (March 2008)
http://bigpicture.typepad.com/comments/2008/03/the-john-mccain.html

Stock Market Politics & the McCain Market Rally (March 2008)
http://bigpicture.typepad.com/comments/2008/03/mccain-market-r.html

Related:
Dow Jones Returns by President Since 1929
http://paul.kedrosky.com/archives/2008/07/04/dow_jones_retur.html

Stocks point to Bush loss?
Mark Gongloff
CNN/Money, June 23, 2004: 4:55 PM EDT
http://money.cnn.com/2004/06/23/markets/election_stocks_bush/index.htm

~~~

Markets After Big One Month Declines

Monday, July 07, 2008 | 06:53 AM

in Earnings | Markets | Psychology/Sentiment | Trading

Welcome to a new quarter, back from the long holiday weekend, and to the start of another earnings season.

There are many cross currents going on, and today, we want to review one in particular. What happens after Markets suffer very large 1 month declines.

Several words of caution are due first: Traders can get into trouble when extrapolating. This is especially true when dealing with relatively small data sets, and fifteen examples over 2/3rds of a century certainly qualifies as small. Additionally, the causation/correlation issue arises especially in small samples (random or truly causative?)

Caveats aside, let's have a look at the 15 prior biggest one month Dow selloffs. As the chart below shows, we often see a healthy snap-back after significant one month sell offs 6 and 12 months later. Except when we don't, such as 1973 and 2001, where we see even larger losses one year later.

via Jake

What does this mean for traders? Well, if 13 out of 15 sounds like good odds to you, then you will be tempted to play this sell off for a bounce.

Perhaps adding another layer of questions to your analysis might be helpful. Is the current environment -- high inflation and oil prices, modest growth, large write-downs and profits declining from a peak measure, and relatively low fear levels -- more similar to 1973 and/or 2000, or is it closer to the other 13 periods?

Answer that question and you have your trade.

And speaking of fear: A recent Bloomberg survey of Wall Street strategists shows they have little or none. Instead, for the second half of 2008, they are forecasting the best S&P 500 since 1982.

Whether their analysis is similar to the chart we shown above, or is simply more of their institutional tendencies towards perma-bullishness, we cannot say.

Regardless, here is a quick excerpt (note the unusually skeptical tone of the Bloomberg piece).:

"Deutsche Bank AG, Lehman Brothers Holdings Inc. and UBS AG say the Standard & Poor's 500 Index will gain the most in 26 years during this year's second half. That isn't going to happen, if history is any guide.

The S&P 500 will rise 18 percent by January, according to the consensus projection of 10 U.S. strategists surveyed by Bloomberg. The forecasts are based partly on estimates that profits will jump 50 percent in the fourth quarter after falling for the past year.

Even if that happens, it may not be enough. In 2001, the last time profits fell as much, they then had to climb for three straight quarters before stocks rebounded. Analysts' earnings estimates for this year still represent a decline from 2006 levels, making the strategists' optimism harder to justify, investors say."

There verywellmight be an 18% bounce out there somewhere, but I suspect it come from lower prices, more deeply oversold conditions, showing greater levels of fear and panic.

Source:
Deutsche, UBS Fight History Forecasting Best S&P 500 Since 1982
Eric Martin and Michael Tsang
Bloomberg, July 7 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aTjWQbjpkpxk&

The Bear is Back, Part II

Sunday, July 06, 2008 | 10:30 AM

in Data Analysis | Markets | Trading

Yesterday's Bear is Back table was re-envisioned and reformatted as a chart by Jake:

via Jake

I don't really buy breaking the 2000 Crash into 2 pieces, but that's how it was done in the table . . .

Barron's: Back in the Pool

Saturday, July 05, 2008 | 12:00 PM

in Contrary Indicators | Financial Press | Markets | Psychology/Sentiment

Regarding the prior post (Barron's: The Bear's Back), Jason writes in to remind us that: "Barrons had a bull at the pool, on the Cover a few months ago and almost 2000 points ago too." Then the Bear this week...holy moly...who's zooming who?"

We noted the article that Jason was referencing back in April: Professional Money Managers Are Bullish. The most interesting part of the survey was that 74% of find managers claimed to be beating the S&P500. (Perhaps only the outperformers responded).

Regardless, here's an excerpt:

"AND NOW, FOR SOME GOOD NEWS: THE OTHER SHOE isn't going to drop. After a winter of discontent marked by massive write-offs on Wall Street and a wilting economy on Main, America's portfolio managers have declared that the worst is over. More than half of the institutional investors participating in our latest Big Money poll say they're bullish or very bullish about the prospects for stocks through the end of 2008. Their forecasts suggest they're even more upbeat about the first half of 2009.

Graphic caption: More than 55% of pros think stocks are undervalued, and most plan to boost their holdings in coming months. Why financials could rally.

Much has changed since we took the pros' pulse last October, little for the better. Oil is up, profits are down, credit's constrained and a major brokerage is kaput. As for stocks, the Dow Jones Industrial Average peaked Oct. 9 at 14,164, only to plummet to 11,740 before regaining enough ground to land at 12,892.

As a result, our Big Money respondents say, bargains now abound. More than 55% of poll participants think the market is undervalued, while just 10% say it's overvalued. Eighty-seven percent expect to be net buyers in the next three to six months; only 13% intend to sell more shares than they buy."

Buy Stocks! Buy Financials! turned out to be less than fabulous advice . . .

Whoops! Same author, too. But to be fair, that column was a wrap up of what the professional investors who were surveyed in Barron's Big Money Poll had to say.

At least this week's cover piece is co-written by Randall Forsyth, who is no cheerleader and tends to be more skeptical than most.

Previously:
Professional Money Managers Are Bullish (April 2008)
http://bigpicture.typepad.com/comments/2008/04/too-much-bearis.html

Source:
Back in the Pool
JACK WILLOUGHBY
BARRON'S COVER, MONDAY, APRIL 28, 2008
http://online.barrons.com/article/SB120916344041346031.html

Barron's: The Bear's Back

Saturday, July 05, 2008 | 08:00 AM

in Markets | Psychology/Sentiment | Trading

This week's cover story has a nice wrap up of the current market, along with some good research from the boys at the Bespoke Group:

And a video discussion of the same:

Source:
The Bear's Back
RANDALL W. FORSYTH and VITO RACANELLI
BARRON'S COVER, MONDAY, JULY 7, 2008
http://online.barrons.com/article/SB121512473043028031.html

Markets Closing Early Today

Thursday, July 03, 2008 | 12:30 PM

in Markets

If you were unaware, today is half day in the markets -- NYSE closes at 1 p.m., and Bond trading stops at 2.

On the upcoming 3 day weekend, posting will be light, but there are a few interesting things that are likely to show up.

Have a great Fourth of July Holiday Weekend!

John Stossel is Utterly Clueless

Wednesday, July 02, 2008 | 10:30 PM

in Financial Press | Markets | Psychology/Sentiment

John Stossel is another Pervasive Pollyanna of Prosperity.

Read his most recent bensteinery called Dire News from My Colleagues:

"BMI took a novel approach. It compared the economic-news coverage by the New York Times, Wall Street Journal and Washington Post from Oct. 28 to Nov. 3, 1929, around the time of the stock market crash, with the coverage by ABC, CBS and NBC from March 13 to 19 of this year.

"The difference between how the 1929 and 2008 media handled a crisis was profound -- with modern journalists hyping every event." Today's coverage is much more alarmist. In 2008, few reporters pointed out "the differences between today's economy and the nation's darkest economic years, or bothered to note that America is not in a depression."

Here's a newsflash, John: We had a crash equivalent to back then -- the 1929 Dow and the 2000 Nasdaq each lost ~80%. The most recent crash started more than eight years ago, and ended about 5 years ago.

BMI's comparison is is a foolish and ignorant. If you want to compare news coverage, try 1933/34 rather than these two totally incongruous periods.

Stick to exposés of organic vegetables. Markets, media and economics are not your forté . . .

Source:
Dire News from My Coll