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« Fed Repairing Its Balance Sheet: Not Inflationary | Main | Is The Stimulus Working? »

Friday, September 18, 2009

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Sherman McCoy

The market is grossly overvalued. Thanks for stating the obvious. So what?

All that matters is did you make money today. Did you?

Josef

Hi Yelnick,

I've been staring at the markets for over ten years, and both bubbles caught me off guard --- because I ignored the context in which finance operates, and because economics is not my field (though I now find the general area fascinating). Needless to say, both mistakes proved to be very expensive for me.

Dave gives a standard, rational thesis, with a subset of data. Ken Fisher (who has a good track record) feels this thing can go on up into March. People are divided, but in the end nobody really knows what is going on, and nobody seems to have an explanation that adequately captures the market's action.

The case for fear is easier to make (philanthropists are more than eager to donate negative data) than the case for greed. So an easy conclusion is that most are on the "out" or "short' side of the boat --- and this only suggests more up, based on the immediate past. This also further adds to the negativity, because people want to be in and not out, but safe and profitable.

Dave recognizes that nobody seems to know what is going on. I believe this statement has been true for hundreds of years. The point about a 60% vs. a 20% rally may overlook the fact that the Nov and Mar market cracks were less about economic cycles than people closing shop ("deleveraging") due to planning/risk blunders in a somewhat narrow area with broad impact. If it could be argued that those were fear-driven overshoots to the downside, then calling SPX 900/SPX 950 fair-valued now (instead of SPX 750, the point Dave sees as investment value) may be appropriate, if seemingly irrational. Words like "liquidity" and "deleveraging" only add to the general confusion, because nobody knows what those things truly mean in action.

Finally, I have a theory that volume as an indicator is meaningless, except perhaps in the 5% tails, or upper tail in particular. This is more true today than before. I say this because I suspect that much volume is or can be manufactured, with specific intent. Such things, I think, are possible with software under the cloak of anonymity.

From a novice of sorts,

~ Josef :)

Newbietrader

Toll sells a boat load of shares just as home builders get upgraded...........

Is it me or is this like coountrywide last year? Pump it to retail so the insiders can dump their shares.

Newbietrader

when I hear "liquidity", I think Fed injections, positive carry trade, high frequency pumping trading.

As long as that is "positive", we go higher. So as long as the dollar is going down, market up. If the dollar starts to go up, then the Fed is pulling QE, carry trade is unwinding, etc and that means market down

bach

The dollar was up a quarter so that hardly makes it a reversal. I don't think the dollar is low enough where it would cause a loss of confidence and stock market reversal to the downside. The fed is actually doing a good job in inching up inflation and I think the last thing we'll see is a strong turn down into deflation - that would mean that the government would have to raise taxes in the short term and many people would not stand for that. The best bet is slow and steady inflation that will help government and consumers alike pay-off debt, inspite of eroding the US standard of living a bit.

yelnick

Sherman, if it were obvious, why did the weekend WSj headline a whole piece on how the bear has turned to a bull, and we are all too pessimistic? Why is the bearish side of the market down to a pretty low level (8% - 92% are bullish on the S&P)? "We" are a pretty small minority, and shrinking.

vipul garg

yelnick,
the whole point of sherman mccoy in each and every post is to state the obvious though he thinks and assumes, that he is on the right side of trade everytime,he has made money and loads of it and the only one who has done it .
he in my memory has never posted a wave count or deliberated on one on a very specific elliot blog, nor has he ever in last few months enlightened us all with any of his real time trades or real time analysis.

in our mind , we all make millions in each and every trade and with correct analysis.

Newbietrader

"The fed is actually doing a good job in inching up inflation and I think the last thing we'll see is a strong turn down into deflation "

prices of just about everything are coming down, consumer credit is at record lows, unemployment is going up...that's deflation

the only thing that's "inflationary" is the price of stocks.

Sherm (not McCoy!)

Newbietrader... there are many things that have gone up in nominal terms over the past couple of years (gasoline the most conspicuous to me) and not very many that have gone down. I don't think deflation or inflation are especially clear, particularly from the average person's POV.

Yelnick, just because someone makes a case for the bull doesn't mean they believe stocks are undervalued by the measures you use. For one thing, they might expect psychology to keep the momentum going. For another, they might expect earnings trends to change in a year or so.

In my experience, high valuation is a poor reason to be bearish. (Then again, so are all the other reasons I've heard people postulate over the years! I have yet to meet someone with a consistently good record of picking tops and bottoms. I maintain that there are no tricks, no formulae. Why do I bother reading and posting on this site? You write well and I like to hear different views, especially bearish ones since they have been in the minority for a long time.)

Robert Mach

historically a 26 P/E is followed by a 60% decline in the following year

I read there is a 60% chance the market will be down, not that it will be down 60%.

rwm

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