Bearish Information

[Jim Nickerson]

Re: Bearish Information Re. Consumer stock rally, spurious sign?

http://www.bloomberg.com/apps/news?p...vCY&refer=home

Consumer Stock Rally Doesn't Signal Economic Recovery (Update3)

By Fabio Alves and Michael Tsang
Aug. 25 (Bloomberg) --

Just because consumer stocks are staging the biggest rally in five years doesn't mean the economy is about to recover.

As Lowe's Cos., Wendy's International Inc. and Starwood Hotels & Resorts Worldwide Inc. led a 7.6 percent advance in consumer stocks this month as of last week, the extra yield bond investors demanded to own the industry's debt rose to 2.5 percentage points over U.S. Treasuries. Every time bondholders sought that much compensation to guard against default, shares of retailers, restaurants, and hotels slumped an average 16 percent, according to data compiled by Bloomberg.

Standard Life Investments, Harvard University's endowment and hedge fund Appaloosa Management LP, which manage almost $300 billion, are avoiding the shares as Americans rein in spending to cope with the highest unemployment rate in four years and faster inflation. Profits at consumer discretionary companies are forecast to be the worst since 2001, Bloomberg data show.

``It's a rally that we think will inevitably roll over,'' said Andrew Milligan, the Edinburgh-based head of global strategy at Standard Life Investments, which oversees about $242 billion. ``Investor confidence has started to ease back and earnings numbers have generally been negative. The credit side just reinforces our downbeat views.''

[Jim Nickerson]

Re: Bearish Information Re. Too much bullishness?

MARK HULBERT 8/26/08
Capitulation watch: Commentary: Contrarians are waiting for more bears to turn bullish

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But even if the midsummer sentiment low counted as sufficient capitulation, the rush back towards bullishness since then would go a long ways towards modulating its bullishness.

Bull markets, especially at their beginning stages, are typically met with skepticism, with a so-called wall of worry. The consensus view on such occasions is that the market's rise is nothing more than a bear-market rally, an opportunity to unload yet more stocks.

That is not how the average market timer has reacted to the rally over the past six weeks.

Could the stock market nevertheless rally from current levels? Of course it could, just as it could -- and did -- decline during the early part of the past year's bear market in the face of what I argued was a healthy dose of skepticism.

But, based on my 28 years of tracking investment newsletters, I'd have to say that any rally that begins from current levels is more likely to meet the same fate as the rallies that began in January and March.

[Jim Nickerson]

Re: Bearish Information RE. Four Horsemen of the Market

http://www.marketwatch.com/news/stor...6BCD94C6BF3%7D

SAN FRANCISCO (MarketWatch) -- As investors, they fly solo. As market observers, they don't lead or follow as much as go their own way. It's tempting to dismiss their Cassandra-like warnings as overly pessimistic and hopelessly out of step, but their track records show that can be a costly mistake.

Jeremy Grantham, Bob Rodriguez, John Hussman and Steve Leuthold are contrarian-minded investors and opinionated commentators who share one thing in common: Those who buy into their funds never know exactly where their money will be parked. It could be emerging markets or alternative energy, high-yield debt or Treasurys. And if these risk-conscious money managers don't see compelling values, they might hedge their portfolios against unruly markets or even stash a good chunk of shareholders' assets in cash until better bargains appear.


Grantham: Officially Scared.

• "I underestimated in almost every way how badly economic and financial fundamentals would turn out," Grantham wrote shareholders in a July letter. "Events must now be disturbing to everyone, and I for one am officially scared!"
• One of his biggest fears, he added in an interview, is that "the whole global economy will be weaker than the market expects for quite a considerable time." How long? "I would guess at least two years of sustained disappointment."
• Notably, just a few weeks ago Grantham turned negative on his "beloved" emerging markets, which had been a spot-on bullish call. "If the global economy is going to disappoint, the cost of holding them just seemed too high," he said.
• Grantham is particularly uneasy about China, a leading engine of world growth that seems to be sputtering. "I worry on behalf of the global economy at the consequences of China stumbling," he said. Without China's robust demand, he added, "the whole level of global imports and exports would start to drop."
• Don't hide under the mattress just yet. Grantham points out that many of the world's strongest companies are based in the U.S., which could help the U.S. market's relative performance. Moreover, he said, the weaker global picture will benefit the U.S. dollar, so the American market could turn out to be "a safe haven."

Rodriguez: Buyers Strike.

• Rodriguez believed then -- and is even more convinced now -- that longer-term Treasury yields aren't substantial enough to compensate investors for inflation's eroding impact on purchasing power. He wants to get 5% on 10-year Treasurys, which recently yielded 3.8%, before venturing back.
• Consequently, Rodriguez continues to focus on "caution and capital preservation," as he explained to fund shareholders in a June letter. More than 40% of Capital Fund, for example, is given to short-term government agency and Treasury notes and cash.
• "We will not provide long-term capital to borrowers with unsound and unwise business management practices at unattractive real yields," Rodriguez wrote. That includes the U.S. government, he noted. "We require a higher level of compensation -- i.e. more yield, for these potential risks."

Hussman: "Stay Defensive."

• For Hussman nowadays, risk-taking doesn't offer much reward. "We're fully hedged," the fund manager said, meaning that a portfolio won't be affected, positively or negatively, by market gyrations.
• The reason? Hussman said he's looking for another shoe to drop once investors recognize that the U.S. has not avoided recession.
• "The stock, bond and foreign-exchange markets continue to trade essentially on the theme that the global economy is weakening, but that the U.S. has dodged a recession," Hussman wrote in his weekly market commentary in late August.
• Investors' consensus is mistaken, Hussman contends. He said the U.S. is mired in recession, and once investors realize that earnings expectations are overblown, stocks will take another major hit.
• "The potential downside could be abrupt, leaving little opportunity to make defensive changes after the fact," Hussman wrote.

Leuthold: "Pretty Positive"

• Now Leuthold's allocation-driven portfolios are covering short positions and other hedges and moving from a neutral, 50-50 equity/bond allocation toward 60% stocks -- nearing their 70% maximum threshold.
• "Our whole office is surprised," Leuthold said in an interview "This is quite a departure for us. I don't believe I've ever seen such a dynamic change, going from mildly negative through neutral to pretty positive."
• Like Hussman, Leuthold is convinced that the U.S. economy is in recession. But he points out that the stock market typically bottoms around the midpoint of the downturn. By his reckoning, the economy entered recession toward the end of 2007, and the extensive valuation criteria he uses tell him there's now light at the end of the tunnel.
• "The bottom has been made," Leuthold said. "The economy is going to start showing some positive signs sometime in the first half of 2009."
• So he's getting in early, loading up on shares of biotechnology and alternative-energy companies in particular, and keeping a modest amount in oil drillers and natural gas producers.

Leuthold believes the July 15 lows were THE BOTTOM.

[Jim Nickerson]

Re: Bearish Information Re. I see no equity bulls, almost.

With the exception of Leuthold's opinion right above here, in the last 3-4 days at least and perhaps in the past week, I have not seen any comments by supposed pundits, gurus, prognosticators, soothsayers, etc. that the bounce up in the big equity indices since 15JUL is anything but a failing rally. Perhaps I don't read widely enough, but the opinions I see seem to suggest that there is nothing that will make the equity markets, US, go up here, and this seems not to be just a majority, but is rather an ubiquitous opinion. That is scary, particularly if one, as I am, is positioned hoping to make money from things going more down from last week's close vs. up.

http://www.investmentpostcards.com/2...008/#more-1990

Richard Russell (Dow Theory Letters): Lowry’s Index shows worst lies ahead
“On August 26, Lowry’s Selling Pressure Index reached its highest level ever – 756, while Lowry’s Buying Power Index dropped to a multi-year low of 210. On that day, the spread between the two indices reached a record 546 points. And I wonder whether the August 26 negative spread (with Selling Pressure dominating) might be the ultimate extreme spread between the two indices. I was thinking that at some point the Selling Pressure Index was simply going to head down while at the same time the Buying Power Index was going to turn up. And someplace in the future, the two indices would re-cross as Buying Power finally assumed the dominant position (above Selling Pressure).

“I just talked to Paul Desmond, who runs Lowry’s. I asked him why he was so sure that we were heading for 90% down-days. His answer was that this rally is so weak. Overall volume was only 3.7 billion today and today upside volume was only 62.8% of up + down volume. Furthermore, Paul noted that breadth is very weak – breadth should be exploding on the upside here, but that’s not happening. In all, this is a weak rally, suggesting that worse action lies ahead!”

Source: Richard Russell, Dow Theory Letters, August 28, 2008.


Hey, anybody, are you finding ANY articles that are bullish on US equities right now?

Don't include those that suggest that the US may just go down less than everything else. Such would not really be bullish.

[Jim Nickerson]

Re: Bearish Information Re. Equity Rally May End

http://www.bloomberg.com/apps/news?p...8Xo&refer=home


U.S. Stocks at 25.8 Times Profit Means Rally May End (Update2)

By Michael Tsang and Jeff Kearns
Sept. 2 (Bloomberg) -- The best already may be over for the U.S. stock market this year.

The Standard & Poor's 500 Index, which had the worst first half since 2002, added 0.2 percent this quarter, the only gain among the world's 10 biggest markets in dollar terms. Shares in the benchmark index for American equity climbed to an average 25.8 times reported profits, the highest valuation in five years. The last time that happened, the S&P 500 fell 38 percent.

[bart]

Re: Bearish Information Re. I see no equity bulls, almost.

Hey, anybody, are you finding ANY articles that are bullish on US equities right now?

There's a Cramer video "Fed's Destroying the Economy" wherein he mentions its just like 1932 now, and 1932 was the stock market bottom? It should come in handy for him to spin later... ;)

http://link.brightcove.com/services/...tid=1741168883

[EJ]

Re: Bearish Information Re. I see no equity bulls, almost.

There's a Cramer video "Fed's Destroying the Economy" wherein he mentions its just like 1932 now, and 1932 was the stock market bottom? It should come in handy for him to spin later... ;)

http://link.brightcove.com/services/...tid=1741168883

Maybe we'll add critical comments to the video and get threatened with a lawsuit by TheStreet.com again. Just kidding.

[bart]

Re: Bearish Information Re. I see no equity bulls, almost.

Maybe we'll add critical comments to the video and get threatened with a lawsuit by TheStreet.com again. Just kidding.

I think it is time to officially declare that we're having fun now.

[Jim Nickerson]

Re: Bearish Information Re. Tice 50-70% drop in share prices.

Tice: Huge Stock Decline Ahead

Tuesday, September 2, 2008 11:46 AM David Tice has made himself famous for successfully shorting stocks. Now the investment manager sees a bear market for the next five years, with share prices dropping 50 percent to 70 percent over the next 18 months. That would put the Dow Jones Industrial Average somewhere between 3,425 and 5,708. "We believe stocks have benefited from an unbelievable credit bubble" that is now bursting, Tice told Bloomberg TV. "Policymakers and central bankers have perpetuated a bubble like we've never seen before, with mortgage financing that has put government sponsored enterprises (Fannie Mae and Freddie Mac) in trouble," he says. "The whole structure of the financing mechanism, where foreigners bought all these [mortgage] securities, has broken down. Institutions and foreigners no long trust our structure, insurance, ratings, etc." As a result, Tice says, "We're in big trouble." Tice says it's difficult to predict when the market's plunge will begin. "Who knows what will happen to the market until the end of the year?" he asks rhetorically. "The market is like boiled frog. You drop a frog into pot of boiling water, and it jumps out. In this environment, he's staying in because the heat is gradually rising." Tice's Prudent Bear Fund returned 9.9 percent in the year ended July 31, compared to an 11.09 percent drop by the S&P 500 over that period. Technology stocks represent the next sector ready to plunge, according to Tice. "Tech is very dependent on the economy," he says. © 2008 Newsmax. All rights reserved.

[Jim Nickerson]

Re: Bearish Information Re. John Williams

Employment/Unemployment Data Confirm Deepening Recession

September 5, 2008

http://www.shadowstats.com/article/348

Summary:

General Outlook Remains Unchanged. As will be discussed in the next newsletter, some of the recent wild price swings seen in the U.S. dollar, oil and gold likely have been encouraged by very some large players in the market, some with actions taken or interests in tandem with certain central banks. The high volatility in the various markets likely will continue, with the gold and currency markets remaining subject to jawboning and both covert and overt central bank intervention. It remains unlikely that we have seen the near-term high in oil prices, and neither has gold topped nor the dollar bottomed.

All factors considered, the broad outlook remains the same: further intensification of the inflationary recession and a deepening systemic and banking solvency crisis. Fluctuating, near-term market recognition of these issues and mounting global political tensions intensify the risks for unstable market conditions.

Over the near-term, negative major market displacements likely will follow or be accompanied by intense, broad selling of the U.S. dollar. An eventual, increasing flight-to-safety outside of the U.S. dollar also should include flight-to-safety into gold. Despite continuing softness in oil prices, current levels (anything above $90 per barrel) remain highly inflationary. Over the longer term, U.S. equities, bonds and the greenback should suffer terribly, while gold and silver prices should boom.

[Jim Nickerson]

Re: Bearish Information Re. valuations at historical extremes

http://www.investmentpostcards.com/2...008/#more-2057

Bill King (The King Report): Merrill’s Bernstein – valuations at historical extremes
“When one accounts for the headline CPI, equity valuations appear at historical extremes. By historical extremes, we mean similar to those seen in August 1987 or March 2000. In fact, the present combination of 5.6% headline inflation and S&P 500 trailing PE of roughly 25 has NEVER before occurred in the 44-year history of our data …

“Inflation expectations are literally imploding, and that is good for equities. Unfortunately, earnings estimates have yet to react, and that is worrisome. Thus, unless one believes in an immense productivity miracle, the S&P 500’s PE multiple must substantially decrease because of rising inflation and nominal growth or earnings are likely to be very disappointing because of disinflation/deflation.”

Source: Bill King, The King Report, September 4, 2008.

[Jim Nickerson]

Re: Bearish Information Re. US stocks at 25.8 times profit means rally may end

http://www.investmentpostcards.com/2...008/#more-2057

Bloomberg: US stocks at 25.8 times profit means rally may end

“The best may already be over for the US stock market this year.

“The Standard & Poor’s 500 Index, which had the worst first half since 2002, added 0.2% this quarter, the only gain among the world’s 10 biggest markets in dollar terms. Shares in the benchmark index for American equity climbed to an average 25.8 times reported profits, the highest valuation in five years. The last time that happened, the S&P 500 fell 38%.

“Money managers at Federated Investors, Russell Investments and Morgan Asset Management, which oversee a combined $600 billion, said the gains won’t last because corporate profits will fail to meet analysts’ estimates. Wall Street forecasters, who were too optimistic about earnings for the past four quarters, predict income at America’s biggest companies will grow by a record 62% in the final three months of 2008, according to data compiled by S&P.

“‘The market is pricing in the expectation of a good quarter, but we just don’t see it,’ said Philip Orlando, who helps manage $350 billion as chief equity market strategist at Federated in New York. ‘The fundamentals are going to be poor, earnings are going to be bad, and there are going to be more huge writedowns. We think stocks probably need to work 5% to 10% lower over the next month or two.’

“The index’s price-earnings ratio rose above 25 three times in the last five decades, data compiled by Bloomberg show. The last was in 2001, during the bear market that followed the bursting of the dot-com bubble. The increase in valuations preceded a plunge that helped erase about half the market value of US companies.

“The ratio is being propped up now by analyst forecasts that call for the end of four quarters of slumping profits, the longest streak in seven years.”

Source: Michael Tsang and Jeff Kearns, Bloomberg, September 2, 2008.

10% lower would come close to a ~30% correction from last Fall.

[Jim Nickerson]

Re: Bearish Information Poor Breadth on 9/8/08 289 point up day.

http://www.marketwatch.com/news/stor...B73D4261CBD%7D

MARK HULBERT Bad breadth Commentary: Upside volume in Monday's rally was disappointing

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The DJI shot up an impressive 290 points.

And yet the volume statistics tell a story of a market whose sub-surface strength is a lot weaker.

In fact, of the total volume of NYSE shares that either rose or fell in price on Monday, just 64% was in shares that rose.

That's one of the lowest upside volumes in recent memory to accompany a big up day for the Dow. Consider, for example, the upside volume percentages for the several days since mid July in which the Dow rose by at least 200 points. None of those got below 71%.

So Monday's breadth was even more disappointing than it already had been during this two-month-old rally.

How bad an omen is this for the stock market?

Martin Zweig, who used to edit several investment newsletters that were highly ranked in the Hulbert Financial Digest, and who currently is president of Zweig-DiMenna Associates, a hedge fund firm in New York, refers to days with at least 90% of volume in rising shares as "9-to-1 up days." In his 1986 book, "Winning on Wall Street," Zweig wrote that "every bull market in history, and many good intermediate advances, has been launched with a buying stampede that included one or more 9-to-1 up days."

I've seen several attempts by the bulls in recent weeks to come up with excuses for why the market has had such difficulty in mustering a 9-to-1 up day, and I want to address the major one here: The excuse has to do with how many interest-rate sensitive and energy-related issues trade on the NYSE. Because those issues don't necessarily move up and down in lockstep with the broad equity market, the argument goes, it's become increasingly rare for the stock market to ever produce a 9-to-1 up day.
I don't buy these arguments.

For starters, Monday saw an 11-cent rise in the price of a barrel of oil, not a decrease. And the CBOE's 30-year Treasury bond yield index actually fell, causing any issues with exposure to the long end of the maturity spectrum to rise in price. So the existence of an increasing number of energy-related and interest-rate sensitive issues on the NYSE should actually have increased the chances that Monday would be a 9-to-1 up day.

Furthermore, it's worth emphasizing that the stock market seemed to have no difficulty turning in several 9-to-1 up days in 2007.

So, try as we might to wriggle out from underneath the bearish significance of the market's bad breadth, I think we must face it squarely.

By my own tracking 9/4 and today 9/9 were 90% down days in volume and points on the NYSE. This is not constructive with regard to the long side of equities.

[Jim Nickerson]

Re: Bearish Information

9/15/08 today was the third -90% down day in volume and points on the NYSE.

[Jim Nickerson]

Re: Bearish Information

Another "Black Monday" http://www.marketwatch.com/news/stor...6951B8D9697%7D

Commentary: There are some parallels between Monday and the 1987 Crash

By Mark Hulbert, MarketWatch
Last update: 6:06 p.m. EDT Sept. 15, 2008

That point drop [503.99 on 9/15/2008] is almost exactly the same as the Dow's loss on October 19, 1987, the day of the 1987 stock market crash. That crash, which was the worst in stock market history, became known as Black Monday; the Dow dropped 508 points on that day.

Of course, a 508-point drop in October 1987 amounted to a 22.6% loss, or five times the magnitude of Monday's 4.4% loss. But investors more often than not react emotionally rather than rationally; and if they focus instead on the point drop, then Monday's plunge might take on some of the psychological significance of the 1987 Crash.

So it will be interesting to see how many commentators make a big deal about a parallel to 1987.

If they do, then contrarians will consider it to be a good sign. Contrarians, of course, turn bullish when everyone else is throwing in the towel, and it would be strong evidence of capitulation if commentators were to consider Monday to be one of the worst days in history.

If commentators instead choose to pooh-pooh Monday's drop, then contrarians are likely to conclude that there is not yet enough capitulation.

Which will it be?

I'm afraid that it doesn't look good: The average short-term market timer has yet to completely throw in the towel.

Consider the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average recommended stock market exposure among a subset of short-term stock market timing newsletters.

As of Monday evening, for example, the HSNSI stood at minus 33.2%. Though that suggests that the average short-term timer is bearish, he is not nearly as bearish as on past occasions of capitulation. The all-time low for the HSNSI, for example, is minus 81.8%--or nearly 50 percentage points lower.

Shorter-term comparisons reach the same conclusion. For example, the HSNSI closed Monday night higher than where it stood prior to the July stock market low. Then, this sentiment barometer got as low as minus 42.9%.

What this means: Even though the July lows were convincingly taken out by Monday's plunge, the average short-term market timer is more bullish today than then - by nearly ten percentage points.

That's not a good sign, from a contrarian point of view. If Monday's low were to be the final low of the bear market that began a year ago, then contrarians would expect sentiment today to be a lot lower than where it stood in mid July.

To appreciate how sentiment typically behaves at a bear market low, consider what the HSNSI did during the successful retest of the stock market's low of Oct. 9, 2002, when the Dow closed at 7,286. The HSNSI on that day stood at 10%.

After an impressive rally off of that low, the market in the first months of 2003 set up a retest of that low, getting as close as 7,524 on March 11. The HSNSI on that day stood at minus 19.2% -- 29.2 percentage points lower than where this sentiment index had stood at the October 9 2002, low.

Clearly, there was a lot more pessimism in March 2003 than there was in October 2002. And, sure enough, the October 2002 low ended up holding, and the market rallied strongly.

It has been just the opposite this time around. As the market's rally off the July lows began to falter in August and early September, the typical market timer did not appear to be concerned. The consensus was that the July low would hold.

So contrarians are not surprised that those lows did not hold. ( Read my September 3 column.)

If sentiment behaves according to the contrarian pattern, there will be a lot more pessimism when the bear market hits its final low.

This suggests the final lows are not in place yet.