Posted on 09/12/2010 11:00:25 AM PDT by fightinJAG
The favorite forecasting tool of economists and investors is to extend whatever are the current conditions and recent trends in a straight line into the future. I was reminded of that by an article in this week’s Bloomberg Businessweek magazine, which began with the following;
“The U.S. economy remains almost comatose . . . The current slump already ranks as the longest period of sustained weakness since the Great Depression . . . Once-in-a-lifetime dislocations . . .will take years to work out. Among them: the job drought, the debt hangover, the defense-industry contraction, the banking collapse, the real-estate depression, the health-care cost explosion, and the runaway federal deficit.”
The article then discloses that was Time magazine’s analysis of the economy in its September, 1992 issue, when the Dow was at 3,390, and the economy was still struggling to pull out of the 1991 recession.
The S&P 500 then declined another 7% to its mid-October 1992 low, which according to seasonal analysis, was the beginning of the market’s next ‘favorable season’. Stocks then launched into a bull market.
Unfortunately, most investors missed out as they were still disbelieving that a strong economic recovery could soon be underway given those miserable surrounding conditions noted above - and especially with a newly elected Democrat in the White House.
But by 1995, with the market up 50% since 1992, sideline money finally began returning to the market in earnest with investors scrambling to catch up
(Excerpt) Read more at businessinsider.com ...
Whatever the merits of this author’s analysis, it’s a little funny that in all the similarities he pointed out, he missed one crucial fact.
What happened between the economic wreckage of 1992 and when “sideline money finally flowing into the market” in 1995?
Um, there was that little matter that in 1994 the Republicans took back the House from the tax-and-spend Rats and Bill Clinton. This made a huge difference to the mood of the country and it’s optimism that, regardless of what the Republicans actually accomplished politically, at the very least they had put the brakes on the radical inclinations of the Clintons and their pals in Congress.
Just like when it became Obama would be the winner, the market tanked way before the election.
Might be a bounce up as it becomes clear the Dems will lose ground in the House & Senate.
Exactly what I was thinking. Seems that any erosion of power for Obama and Congressional Democrats benefits the entirety of the American public and visa-versa.
Anyone that would go long in equities at this time is nuts.
Or it could be that the mood is turning positive, which will result in positive action from the herd: Electing adults, starting new ventures, or resuming ventures put on hold, and going long stocks. We see stocks rise first, before we see the effects of the change in mood in other areas (to buy stocks, at worst you just have to call your broker, with an effect on stock prices that's relatively immediate; but the effects of other risk-taking decisions may take months or years to show up in the numbers—which would be why stocks rise well before the economic numbers improve.)
Also, as the poster previously stated, the repubs took control of Congress in the ‘94 election.
Lastly, as much of a scumbag clintoon was, he did not hate America like the current occupant of the White House does. This is a key point I believe in that the people of America see Mulla Odumbo as a direct enemy of America.
Bear market rallies aren’t sensing or forecasting anything; they’re just violent momo-driven corrections to the primary trend and always wrong.
Thank you for expressing my exact thoughts after just reading the excerpt.
He also ignores the sovereign debt crisis, the insolvency of credit markets, the unbelievable deficit level and a forecast of more taxes.
This economic era is not similar to 1992 - 1995, it is similar to 1929 - 1930s.
“Tell me true,” said the young greenhorn, between hands, to the evil looking card shark named ‘Snake eyes’, “is this an honest poker game?”
The other men, all hard looking, poker-faced cowboys, could not contain snorts of laughter and disdain at the question, some quickly drowning their expression with a quick shot of whiskey.
“Boy,” replied the greasy and murderous Snake eyes, “there has never been an honest game of chance at this table. These men, all of us, would kill you for your boots, would steal from a church poor box if the Reverend didn’t offer to gun them down, and have only escaped the hangman’s noose because there is no law hereabouts.”
“So,” said the greenhorn, “Is it big stakes?”
“Son, I done told you that the game was rigged. Are you that stupid?”
“Is there an empty chair?”, asked the greenhorn.
“Of course there is,” sighed Snake eyes. “The game is rigged. But you can’t win if you don’t play.”
“Deal me in!”, said the greenhorn.
That's always so obvious after the fact, isn't it? Unfortunately, telling the difference between a short covering rally that will be quickly reversed and the start of a new significant uptrend is not quite so easy in real time. Markets can do anything at any time. Different indicators (and interpretive methodologies) often conflict. Even when they don't, they only indicate what's probable, not what's certain. The market sometimes chooses to take the less probable direction :-)
The market is always right. Price is what matters. Trends do reverse, but at any given moment, it is far more likely that the present trend will continue.
Trends also operate at all time scales, all the time. Looking at just the past few weeks, the trend is up. Looking at just the past few months, the trend is down. Looking at the past year, the trend is net sideways. Looking at the past 18 months, the trend is strongly up. Since the beginning of the current century (or millenium,) the trend is at best net sideways. Looking at the past centuries, the trend is very strong up.
Looking at the picture as a whole, my expectation would be for high volatility involving lots of up-down whipsaw action for the next two months or so. I also note that the size of the swings has been narrowing since the high in April, and so would not be at all surprised to see that narrowing continue until the election. The next major move probably won't happen until right after the election, and is more likely to be up than down. The closest analogy would be 2004.
Longer term, I'm currently very bearish.
When Clinton took office, he immediately wanted to do a 50 billion dollar stimulus. Seemed like a huge number at the time.
His advisors told him that he needed to tame the deficit and prevent inflation lest he be considered Jimmy Carter. So no stimulus. As Carville said, the Bond Market prevailed.
We forget that Clinton wasn’t a socialistic dope like the current President.
1.) Clinton was a pragmatist and moved center right and went along with the Kasich - Penny type spending cuts where as Tom Foley wouldn't. Niether will Obama IMHO
2.) An even bigger factor was the productivity enhancements via the integration of the micro-chip and software into the manufacturing enviroment. This was the tailwind in Clinton's economy which has is origins in the Reagan era (and before) of venture capital going into: CAD/CAM, FEA, and the advent of the personal computer in the work environment. He didn't have a freakin' thing to do with it execpt dumb luck and it was powerful enough to overcome his tax increases.
3.) Clinton had the productivity enhancements (of the hardware/software mentioned above) filling the sails of Corp Earnings and Profits then by extension tax revenues, via a one in a century "tipping point" or paradigm change of increased productivity.
Obama doesn't have it. These technologies have been commoditized, and the only game changer I can think of is genetically tailored drugs that will be breakthroughs, but given Obamacare will they die on the vine for lack of venture capital and an investing environment that is risk adverse?
On the other hand...
1.) P & E of the S & P is like 12, in a good market it is 17 to 21, some may consider it undervalued.
Talk to business people you know. One tells me he is steady, but people will not spend their capital until 11/3/2010 and this freight train is stopped. I disagree with that, because the legislation will not go a way, it will take years to unravel.
3.) Ditto that the capital strike we have here will people pulling their money out of the markets. Will Freepers go back in after 11/03? I do not know....
He is not culturally an American. He is not culturally an Afro-American. He's not even really a Democrat, it's just that that party's tendency of socialism and Progressivism meshes okay with his political goals and ambitions.
The scary thing is that Barack Obama, Jr. is an Anticolonialist. This explains everything.
it can also be argued that there are deep rooted systemic problems within the US economy which have been exacerbated by the uncertainty surrounding the 2008 election and, now, the uncertainty of the 2010 mid term elections. There is, IMO, a reason U2 unemployment is hovering around 10% that has nothing to do with Obama and everything to do with certain new world order global economic realities.
Personally, I myself am on a consumer strike against this Administration and I don’t know what I will do on 11/3. I have no intention of spending one thin dime more than necessary. If that hurts the real economy in the short term, so be it. I am sorry. It has become an emergency for each of us to do whatever we can, however “little,” to STARVE THE BEAST.
I think your business friend’s observation is spot on. There’s a capital strike ongoing and it may or may not begin to ease on 11/3. Certainly the entire business world has pinned the fate of the nation on those previously (perhaps still) despised Wal-Mart types whom they desperately hope will come out in droves to vote to stop the madness in November.
This is not to say that the stock market might not go on a run for some reason — maybe even just a huge sigh of relief if the Congress changes hands on 11/2. But I also do not think that the author’s analysis has much merit. He ignores too many dissimilarities that are critical.
Our options are narrowing as we reach the tipping point of 50% of Americans on the dole.
At some point, structurally we simply no longer “own” our own economy. It will be dictated to us by the need to avoid civil unrest.
Line up, AGAIN, Suckers!
bump for later
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