let's revisit the bullish case

[TraderJoe]

Re: let's revisit the bullish case

Market up on less than average volume and then reversed.

Do you use a service to make volume determinations as to weak volume/strong volume relative to time of day? OR is it a "feel"/"eyeball" guesstimate on your part?

Thanks,

[Jim Nickerson]

Re: let's revisit the bullish case

Do you use a service to make volume determinations as to weak volume/strong volume relative to time of day? OR is it a "feel"/"eyeball" guesstimate on your part?

Thanks,

Using online.wsj.com (subscription), I download the Adv/Dec issues and volumes for NYSE and Nasdaq every 15 minutes on the quarter hours and in a spread sheet compare that volume to a database of average quarter hour volumes. I made my database from end-of-day data from same source which also breaks down the data to quarter hour periods for the NYSE. I have used those NYSE numbers to "fudge" similar numbers for quarter hour volumes for the Nasdaq data.

So it isn't exactly guessing, but neither is it really accurate, but it is way better than nothing.

Interesting for the moment, 11AM EDT, the NYSE volume thus far is below average by ~38M shares, and the NASDAQ is about 68M shares above average for 11AM. So certainly no frenzy in volume is being demonstrated even though the indices are up.

[fogger]

Re: let's revisit the bullish case

My Bearish Case would be, US pulls out of Iraq or Afghanistan before other Federal Spending/Borrowing is arranged ie Bolshevik Medicine. US Third Party candidates or fringe Federal Party candidates doing well in the election, especially Ron Paul. US gives up on Polish Missile Shield, Russia no longer distracted. If any of the above happens market heads to zero in 9 trading days.

Agreed. Ron Paul will quickly end the charade and bring instant pain, but his policies will likely pull us out more quickly and stronger for it. Of course, he will be blamed for the short-term pain which plays directly into globalists hands. So Ron Paul winning in 2008 is not without risk, but the rewards are great.

Alternatively, we accept the status quo and wait for the charade to end on its own. Then we rely on Hillary's policies to pull us out. FDR II.

[Tet]

Re: let's revisit the bullish case

Agreed. Ron Paul will quickly end the charade and bring instant pain, but his policies will likely pull us out more quickly and stronger for it. Of course, he will be blamed for the short-term pain which plays directly into globalists hands. So Ron Paul winning in 2008 is not without risk, but the rewards are great.

Alternatively, we accept the status quo and wait for the charade to end on its own. Then we rely on Hillary's policies to pull us out. FDR II.

Yep, FDR II or Lincoln II I really can't tell the difference anymore. Funny that we have Mr. Moore's Sicko on the front page this morning, who better pushing for Bolshevik medicine than Michael Moore, so no matter who wins in 2008 we know where the Federal borrowing is going to go and who's pockets are going to be lined. Place your bets in the casino accordingly.

[JayDee]

Re: let's revisit the bullish case

The bull case rests on relatively undemanding P/E ratios and scarce competition from other asset classes, given that real estate is overvalued and bond yields are unattractive. The skeptical answer to the bull case is that profit margins are unsustainably high and due for a big dose of mean regression.

Consider TXU, a regulated utility with an astonishing 34% pre-tax margin. Or Allstate with a 20% pre-tax margin. These kind of windfall margins in regulated industries can't possibly continue, unless regulators are a lot more corrupt than I give them credit for. Commodity producers also seem destined for some mean regression, even if it's a rising mean to which they regress.

I think the way to finess the bull vs. bear debate is to do as the smart empiricists like Buffett and Grantham are doing: buy the quality U.S. big caps that haven't participated much in the 2003-2007 bull run like JNJ, WMT, GE, PG, etc. They are priced for an unsexy 8-12% return, which looks very good indeed on a CAPM, risk-adjusted basis.

[Finster]

Re: let's revisit the bullish case

1. sovereign wealth funds investing in equities -- bullish for equities

2. the central banks inflating like crazy. Who's gonna stop 'em? How can equities and commodities fall for very long if this continues?

3. the US housing bust is soooooooo sloooooooooow. And it is based on middle and lower income houses, more than high end houses. The people who don't have the money are falling further behind, while the people with the money are doing just fine and, may I ask, why can't they continue doing so? And since they have the money, might not this prevent a genuine banking crisis/crash?

4. Booms go on a *lot* longer than anyone can dream.

Scenario: there is a 10% - 15% correction in equities this year, followed by relentless increases in equity prices. This continues into 2008. Meanwhile, bond yields rise but somehow, with massive central bank intervention, stocks don't fall. By 2009, it becomes common knowledge that inflation isn't under control. This continues to 2011 or so when fiat currencies finally crash and there is a crack up.

Is this any less or more plausible than any other scenario?

Might the bull case have a lot more legs to it than we believe?

Some might say it's picking nits, but it doesn't sound to me like a bullish case at all. Not that you haven't made a good argument, but the conclusion is not that stocks will rise, but rather that they will outperform the USD (and most UST). The popular stock averages are nothing more than stocks:dollar ratios, and all of them are a stock:some (usually depreciating) currency ratio. If the Dow Jones Industrials rise to 18,000, but you can buy less with it than you could at 12,000, I wouldn't say they went up. I'd simply say they went down less than the dollar!

It may be more to the point to ask whether stocks will outperform anything else you could invest in. That's a tougher Q to A. Over the next twenty years, I'd say probably stocks will be the best performing major asset class. Over the next five, however, when we talk about making a "bullish case", we won't just assume it's equities we're talking about ...

For some perspective, here is a chart showing the real price performance of stocks since about 1870. Over the long term, they've gone nowhere in real value; all of their real returns have come from dividends. Below that is a chart showing real total return performance on the same scale over the same time frame for comparison.

Message: An overall rise in stock prices is not returns, it's inflation. In the long run, investing in stocks gives you an inflation hedge and a real return in the form of a yield. In fact, it was only in the late 1950s that stock yields generally fell below bond yields for the first time - never to look back - as investors belatedly realized inflation was going to be a permanent fixture of the financial landscape. We have since become conditioned to expect our returns to come in the form of rising prices - but permanently rising stock prices are possible only through permanent depreciation of the currency.