Posted on 10/16/2002 4:00:31 PM PDT by rohry
Market WrapUp for the Week
Wednesday, October 16, 2002 Are We At the Bottom Yet? How far will it go before a bottom is reached and how long will it take to get there? That is a question Wall Street has been wrong on for the last three years running. First it was a correction in 2001. Then it became a bear market after September 11th. This year it was supposed to be a recovery, which now looks impossible. It will take more than intervention to get this market going again. It will take a miracle. Chances are it may be more than a decade before stock prices ever approach their highs again which may be too hard for many investors to swallow. Historically, markets tend to swing to extremes in both directions. The mania of the 1990s took stock prices to unbelievable heights. The new century should see the markets fall to incredible new lows. There have been three major bull markets in the last century: the 1920s, the 1950-60s, and the 1980-90s. In each case, stock prices rose to extremes but none of these periods were as extreme as the 90s bull market. After markets reach these levels, they take decades to correct. The 1920s bull market took 25 years to surpass former levels and the 1950-60s took 16 years. We have only undergone three years of corrections. Despite the fluff taken out of the market, stocks still remain expensive by any measure of value. History would suggest we might have another 4 to 9 years before we reach bottom. How will investors know when a bottom is reached? When everyone is out of their mutual funds and when the industry has shrunk to a shadow of its former size, when dividend yields are at 6-7%, PE multiples are down to 7, and nobody you know will admit owning a stock or mutual fund will we have arrived at a bottom. In the meantime, all we are likely to see is tradable rallies that are brief and furious. Momentary excesses will punctuate the markets; violent upsurges followed by deeper plunges all the way down. In the end the market will have its way despite the best efforts to thwart its course. Valuations will become attractive and sound investment principles will be restored and become fashionable. Patience will one day become a virtue again. Quick fixes and momentary thrills will be unfashionable. When I got in the business in the late 70s, the investment business lived on Graham and Dodd. I remember reading a speech given by John Templeton. Templeton extolled the virtues of buying when markets were low and stocks were cheap, and then holding on to the stocks for 3-5 years until the markets recognized their value. This stands in sharp contrast to todays investment climate where 5 minutes, much less five days, can seem like eternity to most investors. Fashions come and go and it is no different in the financial markets. Todays fad to get rich quick will also fade as markets fall even further. As my mother-in-law is so fond of saying, this too shall pass. The Fate of the Investor For Wall Street and Main Street, it hasnt dawned yet that we are in a wartime economy. In war natural resources command a premium. Raw materials are used and expended in instruments of war. In war, things get blown up, broken, and destroyed. Ammunition is expended, bombs and rockets are exploded, and raw materials are commandeered for the production and prosecution of the war. In war faith in paper evaporates as governments inflate their budgets in order to pay for the cost of war. Wars in the past have always been inflationary. There is no reason this time to think that things will be different. We may see deflation in paper and the credit markets, but inflation will be the natural trend of raw materials. If you dont have a war portfolio you may find yourself out of sync with the markets. This can be viewed by looking at IBD and the strength of sectors that are doing well this year. The US will soon be at war, and the reality of this has not been fully factored into the markets. Most who work on Wall Street were in diapers during the last war. Only the old-timers remember what war can do to a portfolio. Today on Wall Street In addition to J.P. Morgans woes, S&P downgraded GMs debt as notch from BBB+ to BBB, one level above junk bond status. GM has $187 billion of total debt. S&P said it is also reviewing Fords debt, which has total debt of $162 billion. Both GM and Ford have been hit hard by losses in their pension plan. Those losses will require both companies to make additional contributions out of earnings next year. GMs pension shortfall is $28 billion, which is nearly double that of last year where it stood at $12 billion. Capital One Financial Corp shares fell as much as 26% today after the fifth biggest issuer of MasterCard and Visa said credit card losses would climb through the remainder of this year and next. Capital One wrote off 4.96% of its loans in the third quarter. The company said that figure may rise to as high as 6% in the fourth quarter. In July federal regulators who monitor Capital One closely made the company boost its loan loss reserves and increase risk controls. In other credit related matters, Brazil is drawing down its reserves to pay off debt that is maturing this month. Brazil has refinanced only about 20% of its loans coming due this month. A plunging currency and stock market, which has lost over 63% this year has made it difficult for the country to roll over its debt. Brazil must refinance another $20.8 billion by the end of the year. Raising money in the debt markets has become difficult because of a plunging currency and speculation that the Lula, the Socialist Workers Party candidate, has in the past advocated defaulting on the countrys massive ($250-$300 billion) debt. Brazil may become the next financial crisis as the dominoes continue to fall throughout Latin America heading their way North. Todays Market Overseas Markets Asian stocks rose as a rally in U.S. equities spurred by higher corporate profits boosted optimism that the region's largest overseas market is recovering. Honda Motor Co., Hyundai Motor Co. and other exporters gained. Japan's Nikkei 225 Stock Average added 0.5% to 8884.87, completing a three-day gain of 5.3%. Bond Markets © Copyright Jim Puplava, October 16, 2002 |
seriously, i have read every word written by messr. puplava for the past year, year and a half or so, being introduced to his site here.
although there is little that messr. puplava writes that is fairly criticized or dismissed, nevertheless, i do understand why some here might be inclined to append to his daily column: "and, therefore, we're all going to die."
more a question of style than substance; frankly, messr. puplava provides a healthy dose of balance than what we see/hear elsewhere.
Morning futures are way up. My theory will have to wait another day...
Oh boy, IBM has real earnings of .76 this quarter down from .90 for the same quarter a year ago and the pumpers are going to spin that into a wild rally. The fix is in and when Wall Street wants prices higher -- they will go higher. Who believes this crap anymore?
Richard W.
Most the bashing rohry gets is from new people that haven't been following MWU for any period of time. Something like discussing WWII in 1942 and someone that has just come out of the hills and says everyone is a doom & gloomer. After an exchange, you learn that person didn't know what happened between 1932 and 1941.
Rohry does handle these FNG's with patience and puts in an effort doing it. Too bad it happens so much.
SPOILER ALERT! The Fed did it.
This is the entire point of the GSE money pumps. The more they inflate the value of homes, the more access they have to people's income streams. Naturally, local governments are also eager to jump on the gravy train by cranking up property taxes.
Utterly pathetic when you consider the fact that most Americans don't have a title but rather a document with "color of title".
Home of the Fee and Land of the Slave.
Keep up the doom and gloom. We hit bottom last week.... the bulls are gaining momementum. You know after awhile this doom and gloom is really gonna look silly. The worst is behind us.
Care to make a small cash wager?
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