Posted on 01/11/2003 8:29:15 PM PST by arete
NEW YORK (Reuters) - People swear that Wall Street has been penalized enough for its excesses in the 1990s. The market has fallen so much over the past three years, they say, that it should turn higher, no matter how bad the economic script.
But the smart money says: Just because the market has racked up four straight years of losses only once from 1929 to 1932, doesn't mean it can't do it again.
``If there is a fourth down year, many investors are likely to look for a fifth -- or a case of them,'' says James Dines, editor of the Dines Letter.
``What bugs me is that economists insist America is still in an economic upturn, but I find myself disbelieving their numbers and conclusions,'' he says. ``Are they fools or knaves?''
The jump in the jobless rate to 6 percent in November from 5.7 percent in the previous month doesn't have the footprints of an economic upturn by a long shot, Dines says. More bad news came on Friday, with the unemployment report for December showing a surprising drop of 101,000 non-farm jobs. The jobless rate held at 6 percent, stuck at an eight-year high hit in April. Before April 2002, the last time the nation's unemployment rate was this high was in August 1994.
So much for the much-ballyhooed ``jobless recovery.''
PLAYING THE NUMBERS
Some of the reasons the bulls are touting to predict better times ahead are mind-boggling. They cite historical market patterns, such as years ending in ``3s''and the third year of a presidential term, which have often been good for stocks.
Then there's the famous ``January Barometer,'' a prognosticating tool that has helped investors anticipate how the market will perform during the rest of the year. In a nutshell, based on whether the Standard & Poor's 500 index is up or down in January, the market has posted whole-year gains or whole-year losses.
Among the bullish cheerleaders, Banc of America this week raised its 12-month targets for the Standard & Poor's 500 index to 1,100 and for the Dow Jones industrial average, to 10,600, which would put the major indexes more than 20 percent higher than at the start of the year.
Banc of America painted a rosy outlook even as it estimates corporate earnings will inch up by only 9 percent in 2003. A lot of the optimism is based on hopes that President Bush's economic stimulus package will shore up the economy and the stock market.
``One of the notions is that the market can't decline four years in a row since the only other time it has done so was during the Depression, and we're not in a depression,'' says John Hussman, professor of economics at the University of Michigan and head of Hussman Econometrics, a research firm.
``The difficulty is that the market's decline from its 2000 peak began when stocks commanded a price/peak earnings multiple that was fully 50 percent higher than the valuation at the 1929 peak,'' he says.
In March 2000 when the speculative bubble burst, the P/E ratio was more than 30, the highest of any bull market in history.
What's a P/E? It's a ratio that gives investors an idea of how much they are paying for a company's earnings power. So the higher the P/E, the more investors pay for the stock and therefore, the more earnings growth they are expecting.
Hussman's philosophy: No form of investment risk is worth taking without regard to the market's valuation, sound fundamentals and a good economic climate.
The latest numbers point to an economy that is still not out of the doghouse. The Institute for Supply Management reported that growth in the service sector, which creates 80 percent of the nation's jobs, slowed in December.
Turning points leading to recovery in the economy are hard to see. But in this post-bubble environment, it has become much more difficult to predict.
The advice from the pros: Pay attention to what the economic data are saying.
A NEW GOLDEN RULE
The mindset of investors says a lot about where the market is heading. For example, the rush by nervous investors to the safe haven of gold, is a sign that things are just not right.
The price of gold this month rose to a 6-year high on jitters about the health of the world's biggest economy, a falling dollar and the continued risk of war against oil-rich Iraq.
Historically, a strong gold market is bad for Wall Street because the people who buy the precious metal don't buy stocks, which explains why gold moves in the opposite direction from stocks.
In the ``who-would-have-thought-it-could happen'' category: Conseco Inc., the insurance and finance giant, became the nation's third-largest bankruptcy last month. United Airlines, the world's second-biggest airline, and its parent UAL Corp. also filed for bankruptcy protection in December -- becoming the biggest air carrier ever to seek court protection from creditors.
By one estimate, companies with assets of more than $375 billion have sought protection from their creditors in the past year, eclipsing the record of $258 billion in 2001.
McDonald's Corp. reported its first quarterly loss in the 37 years it has been a publicly traded company.
``In view of factors pointing in so many different directions, it is unsurprising that the stock market is flat since it itself is probably uncertain which way to jump,'' Dines says.
THE SHAPE OF THINGS TO COME
The most important thing that will affect this year's stock market will be the shape of corporate earnings. But before earnings start to rebound from depressed levels, they will first need to stabilize. And a turnaround will take time.
Corporate America's health can be measured by its investments in the future. Right now, there are few signs that businesses are willing to open their wallets in a world of tepid growth and spend on new technology. Most have called ``time out'' on buying fancier tech stuff after their investment excesses in the late 1990s.
Here the problem arises. In order for the economy to lift off and create more jobs, businesses will need to start spending. It's a vicious cycle.
The latest survey of the largest U.S. companies' spending plans on information technology makes grim reading.
In December, when companies set their spending goals for the following year, Goldman Sachs found that businesses planned to cut IT spending by 1 percent in 2003. In the previous survey two months earlier, the same companies said they planned to increase -- yes, increase -- spending by 2.3 percent.
For the week, the blue-chip Dow Jones industrial average rose 183 points or 2.1 percent to close at 8,784.95, based on the latest available figures. The tech-laden Nasdaq composite index jumped 61 points or 4.4 percent to finish at 1,447.75, while the broad Standard & Poor's 500 advanced 19 points or 2.1 percent to end at 927.57.
(Pierre Belec is a free-lance writer. Any opinions expressed are those of Mr. Belec.)
From what I read in a different article, the market has only had 4 opportuniies to fall 4 years in a row which would make the odds about 1 in 4 that it will drop again this year. Not all that bad if you are a gambler.
Richard W.
That is the best bit of humor I've read all week! Third times a charm LOL.
It depends upon employer. Many are fools, most of the rest are knaves.
If the economy begins to recover, the market turns upward, they can simply perform another "spectacular" atrocity and down we go again.
This will remain true until every single terrorist and terrorist state is eliminated.
--Boris
Everything Is Going To Be Just Fine... -- Mogambo Guru Commentary
Richard W.
Which terrorists are you talking about? Is it the banking terrorists or the federal reserve terrorists?
Richard W.
Problem was and is, the stock market is simply legalized gambling. Hillary did it with insider trading...(eat our heart out Martha Stewart)...you can't win, however with careful planning or educating yourself, you can make it work for you.
Brokers aren’t wizards, they are for the most part smart people who understand the comings and goings of a days ‘take’. We have good mechanics; good tech people; some good lawyers; some good teachers etc. But you don’t get instant gratification from the stock market or any other market unless that is all you do and it is still a gamble. The Clintons and that administration simply cooked the books – for everyone they could fool and spent the “surplus” like drunken sailors (my apologies to you wonderful sailors) on false, corrupted entries and lost funds. There is no mystery as to what and where the money went and they encouraged everyone to spend and invest, with unbounded enthusiasm...they spent every nickel of your money; more of the same money President Bush wants to give back to you...it embarrasses him that “your” government steals from you. The Clintons didn’t care...sociopaths feel no pain...regardless of what they want you to believe.
The Snake Oil days are over: NO TO HILLARY
"Don't cry for me Argentin............
Over the holidays, I went to Vegas and took $4000 off the crap tables! Then I came back and invested it all! HEHEHEHE
That wasn't funny at all...it actually made me want to live like a hermit for 3 years and get a second job...so I could get rid of ALL my debt (mortgage included)!
Less employees = less IT
Many have been waiting for the next IT feeding frenzy. There won't be any IT feeding frenzy this year where I work. The equipment will be replaced as needed. Swapping out 1/3 of our computers isn't going to happen. I can't imagine many state and local governments going on a buying binge unless it is related to the war on terrorism.
I heard some "expert" on tv say the same thing about 2 years ago.
People need to be warned of the risks involved rather than relying on commission salesmen posing as investment experts on CNBC. After 3 years of telling people to buy cause the "bottom is in" and losing up to 50% of investors money for them, the gugu's are still claiming they have the secret to investment success. Nonsense.
Who can argue with the fact that this could possibly be another down year for the "market"? The odds are against it, but noone I know would deem it impossible.
Odds are for gamblers. Investors should be looking at the weak economy, huge private and public debt, panic at the FED and company fundamentals. All of which say it is going to be another down year.
These prognosticators of the "market", though, are worthless, because they are trying to predict the truly unpredictable. And who cares what Dines says anyway? You should be suspicious of his comments just from the fact that his "analysis" focuses on total employment figures, which are lagging, not leading indicators of the economy.
When the employment numbers are bad, they are always lagging indicators. Typical Wall Street pitch and catch. If the employment numbers were good, you think the scammers would be telling us to disregard them cause "they're lagging indicators"? More nonsense talk for those about to be fleeced by the expert "money managers".
It's a market of stocks. Even if the "market" is down this year, many stocks will be up, and vice versa. You appear to be picking up on the market timers that are in agreement with your mind set and may be ignoring some solid companies that are truly bargains and that will do well in the long run. Why wouldn't there be bargains after a 3-year down market? Just keep in mind that investors make the biggest mistakes when they are overwhelmed with optimism or pessimism and trade on those emotions. And market timers are notoriously unsuccessful.
Oh geez, I can't believe that you are actually going to argue that if stocks go from being 90% overvalued down to 45% overvalued, that they are now somehow a bargin. That is the same Wall Street crap about how stocks are now cheap. What you are calling market timing is just simply waiting until stocks have reasonable PE's before buying them. Buffett does it all the time and is highly successful at it. Many companies are still putting out phony earnings by taking "charges" or reporting cash flow as earnings. Only on Wall Street and CNBC do you hear the hype of "BEAT THE STREET!" when a company that has never made a dime loses less than expected.
Investors need to be cautious and become more aware of how the Wall Steet con game is played. They are selling false hopes and dreams. It is bad for everyone.
Richard W.
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