Posted on 06/29/2002 1:33:09 PM PDT by churchillbuff
I was in Turkey in late 1999, but I listened to his program at least once a week when I got back just before Christmas. I first heard his sell signal in the third week in January. The Dow and S&P 500 peaked in January, the NASDAQ continued up another 20%+ into the middle of March,
I, luckily got out the week I first heard his sell reccomendation.
I found his politics and economic theories too leftist, also. But it seems like he had a good model to see where the market was going. The original bears (not the ones that have always been bears) started chirping in 1997!
If a lot of advisors start saying the market is going down and now is the time to sell, and a lot of people listen to them and start selling, then guess what?
The market is going to go down.
And of course the opposite is true for buy recommendations.
It's really all about investor confidence. If the investor is confident the market is going up, he'll buy...and the market will go up.
Yes, he says --- possibly -- 18 years. Longterm "secular" trends, he says, last about that long --- though there are short-term "cyclical" moves along the way.
as for brinker being merely "lucky" --- it's the kind of luck I wish many more analysts displayed.
the bad news is he doesn't see even a cyclical upturn anytime soon.
Exactly. Brinker's now orphaned call. As the QQQ's went down, Brinker closed his online chat groups & stopped noting the call altogether. To this day, he never discusses the call on his program, accepts no call-ins on it from his listeners, and has not included it in calculating his model portfolios returns. This call lost his subscribers alot of money. His handling of it lost him much of his own credibility.
I may be remembering inaccurately, but I seem to recall his advice for a short-term play with QQQs - he gave it in spring or early summer of 2000, with a suggested 3 to 4 month time frame - - a lo and behold, the QQQs DID go up about 20 percent during the period. Please correct me if I'm hallucinating, but this is what I remember.
You are exactly 100% correct.
Worse, earnings used for those measures in the 1990's were not real. I sat in a number of audit committee review meetings at which management was focused on defending the practice of putting charges below the line or getting the charges off the income statement entirely (except for amortization) by capitalizing charges that should have been expensed. It was obvious that the earnings used by analysts and the media to promote stock prices were not the real earnings at all.
None of this has anything to do with one's emotional outlook on life--it is numbers analysis and by 1990 it was clear that common stocks were overpriced looking for a significant sell-off. So I view the attack on those analysts that were bearish by the early 90's as a little unfair--they were correct in a sense. And in fact, a mild contraction had started by late 1991. Political pressure on the Fed to expand the money supply and reduce interest rates was effective by late 1992 at the time of the election but people generally were not sophisticated enough to recognize it and Clinton was elected on a platform of stopping a recession.
By 1993 and 1994, it was important for the Clinton administration to deliver on its promises--the 1993 tax increase was a basis for getting the Fed to artifically lower interest rates and increase the money supply to promote monetary and ultimately general economic expansion--the Clinton administration and the fed commenced creation of an artifical bubble. The consequence was that already high earnings multiples became grossly inflated in the same environment in which competative pressures were forcing corporate mangement to engage in fraudulent accounting practices to artifically inflate their earnings.
The political dance went on--on at least three occasions in the late 90's, the stock market commenced a sell off that was unpalitable from the point of view of the administration's political objectives. Those selloffs terminated in short term bottoms that were accompanied by huge volumes of futures contract purchases that appeared to be uneconomic--unfriendly political speculation is that Ruben used his connections in the securities industry to get traders to purchase uneconomic long futures positions by committing to a fed bailout of the position, effectively monetizing the margin of the stock market for short periods.
The impact was to support the bull position and cause inflation, not only of stock prices but also of consumer debt (because many consumers were long the market); and, prices of residential real estate.
This whole climate was artificial--like the excessive bubble expansion in the 1920's, the end result has been stock prices that today bear no relationship to expectable earnings and residential real estate prices that bear no relationship to standard economic formulas about what the owners can afford to commit economically. The ultimate result of course, is that the bubble deflates.
How long is this going to go on? A long time. Prechter I believe is currently forecasting something like twenty or thirty years. The length of the unwinding period is related to the size of the bubble--the current bubble is much larger both in terms of absolute dollars as well as proportunate to the size of the economy than the bubble in the 1920's which took from 1929 to 1949 to unravel.
What can we do about it? Interest rate reductions have never been effective to reverse a downturn; there are a number of examples ranging from the US in 1930 to Japan--the same is true of creation of artifical liquidity; that has not been effective either. In fact, the recovery in the 1980's was enginered by Volker with very high interest rates (coupled with the Reagan tax reductions). A similar policy today might have a beneficial impact on general economic conditions although it should not be expected to result in an increase in common stock prices.
Common stock prices usually bottom around 6-8 PE ratios, based on earnings determined under generally accepted accounting principals (GAAP). Ratios today are uncertain (because the earnings are not real and are not determined in accordance with appropriate accounting rules). My own view is that the S & P and the DOW Industrials are selling around 50-60 times; the Nasdaq is not capable of determination. So a reasonable expectation for the major averages would be a DOW around 1200 and the S & P around 98.
P-E ratios have indeed been way out of whack for quite a while. I'm not equipped with the information off hand, but I pretty much agree with what you say here. Yet, they kept preaching that its a "new economy". Had I been alive for about 75 or 80 years, I very well might have remembered hearing those same words on technology of the day, radio.
Worse, earnings used for those measures in the 1990's were not real. I sat in a number of audit committee review meetings at which management was focused on defending the practice of putting charges below the line or getting the charges off the income statement entirely (except for amortization) by capitalizing charges that should have been expensed. It was obvious that the earnings used by analysts and the media to promote stock prices were not the real earnings at all.
I'm not going to accuse every corporation of "nudging" the numbers, but there was obviously some creative financial reporting. Apparently much moreso than was customary in the past. Of course, stalled economies tend to bring out the worst. As long as things keep getting stirred, it blends in, but when economic activity slows, the crud tends to settle to the bottom where everyone can see it. Yes, its the economy, stupid (not you, of course).
None of this has anything to do with one's emotional outlook on life--it is numbers analysis and by 1990 it was clear that common stocks were overpriced looking for a significant sell-off. So I view the attack on those analysts that were bearish by the early 90's as a little unfair--they were correct in a sense. And in fact, a mild contraction had started by late 1991. Political pressure on the Fed to expand the money supply and reduce interest rates was effective by late 1992 at the time of the election but people generally were not sophisticated enough to recognize it and Clinton was elected on a platform of stopping a recession.
Indeed, the bears of the late ninety's were observant. As for the early '90's, I'm not so sure. We tend to compare to an average, but the market really isn't so old that the average might not be a bit low. Still, by the late '90's, plenty of wise people knew. They saw the shenanigans, read the footnotes, and knew that the market couldn't sustain the crazy P-E ratios.
What really scares me now it the immense amount of credit that people have racked up. M-1 did increase, though I'm not sure if it was what a Federal Reserve person might call the right amount or too much. It seemed to be the right amount if you factor in feeding the credit frenzy. And I would, in a twisted way, consider the use of credit to be a self-inflicted inflation, at least when used for most consumer products. If the product gains value, of course, it becomes leverage (and we know that leverage works both ways).
By 1993 and 1994, it was important for the Clinton administration to deliver on its promises--the 1993 tax increase was a basis for getting the Fed to artifically lower interest rates and increase the money supply to promote monetary and ultimately general economic expansion--the Clinton administration and the fed commenced creation of an artifical bubble. The consequence was that already high earnings multiples became grossly inflated in the same environment in which competative pressures were forcing corporate mangement to engage in fraudulent accounting practices to artifically inflate their earnings.
I agree in general. Also, I think that there was plenty of connection between the "Crooked One" and many of our industry leaders. Look at how Enron had FERC's ear when they created the whole idea of the deregulation schemes in this country. Most utilities balked at the changes (particularly when it was their grid that was being "shared"), but as an officer at Enron might say, "Acchh! They're engineers, what would they know about markets". I can attest that I've never seen so much strain put on the nation's grid as I've seen in the last 4-5 years, but that's another story (and perhaps partly fueled by overheated growth).
The political dance went on--on at least three occasions in the late 90's, the stock market commenced a sell off that was unpalitable from the point of view of the administration's political objectives. Those selloffs terminated in short term bottoms that were accompanied by huge volumes of futures contract purchases that appeared to be uneconomic--unfriendly political speculation is that Ruben used his connections in the securities industry to get traders to purchase uneconomic long futures positions by committing to a fed bailout of the position, effectively monetizing the margin of the stock market for short periods.
Never underestimate the influence of someone backed "with the full faith of the United States Government". So to speak. Ruben is no dummy - He's just unethical as all getout and would take the country down for his own gain. Or Slick's gain.
The impact was to support the bull position and cause inflation, not only of stock prices but also of consumer debt (because many consumers were long the market); and, prices of residential real estate.
Then, create a new measure of inflation. CPI indexes that have a completely new and apparently adjustable "basket" of items so that no matter how things change, they can appear to remain the same. Remember when they decided to put a computer into the "basket", but instead of expecting people to buy the latest or near latest generation of computer, they set it up such that the computer in this "basket" was of equal computing power to the one used in the previous measurement period. In other words, those 100 MHZ pentiums that were once 2500 dollars are now available for 50 dollars. Kind of has a downward impression of perceived inflation.
But, I buy my own groceries and cars and such; I know what stuff costs. I know that the figures have been "massaged".
This whole climate was artificial--like the excessive bubble expansion in the 1920's, the end result has been stock prices that today bear no relationship to expectable earnings and residential real estate prices that bear no relationship to standard economic formulas about what the owners can afford to commit economically. The ultimate result of course, is that the bubble deflates.
I don't know, I'll have to think about it, but the parallels between the '90's (the real decade of greed and self-absorbtion) and the '20's are definately there. You're absolutely right about the stock prices, particularly of those dot.com's and such. And I've been wondering how long consumer credit could finance the economic engine anyways.
How long is this going to go on? A long time. Prechter I believe is currently forecasting something like twenty or thirty years. The length of the unwinding period is related to the size of the bubble--the current bubble is much larger both in terms of absolute dollars as well as proportunate to the size of the economy than the bubble in the 1920's which took from 1929 to 1949 to unravel.
Depends on how fast it unwinds. They keep finding out about lousy financial reporting and things might happen a bit quicker. It still might take a while to recover, but it will happen.
What can we do about it? Interest rate reductions have never been effective to reverse a downturn; there are a number of examples ranging from the US in 1930 to Japan--the same is true of creation of artifical liquidity; that has not been effective either. In fact, the recovery in the 1980's was enginered by Volker with very high interest rates (coupled with the Reagan tax reductions). A similar policy today might have a beneficial impact on general economic conditions although it should not be expected to result in an increase in common stock prices.
I will have to say, however, that the situation in the '80's was inflation. Come to think of it, the same may be true today as witnessed above. Hmmmn, you may be on to something here.
Common stock prices usually bottom around 6-8 PE ratios, based on earnings determined under generally accepted accounting principals (GAAP). Ratios today are uncertain (because the earnings are not real and are not determined in accordance with appropriate accounting rules). My own view is that the S & P and the DOW Industrials are selling around 50-60 times; the Nasdaq is not capable of determination. So a reasonable expectation for the major averages would be a DOW around 1200 and the S & P around 98.
I'm really not that bearish. OTOH, it would be interesting if my modestly small supply of precious physical were to overtake my 401K. I would not feel as bad as some in that situation.
He called the bull market before that, too. He has a huge market model and he won't say what is in it, but for broad trends it seems pretty good. From day to day it probably doesn't help much, and it wouldn't be much good for individual stocks, either. He says he expects a bull market to begin in the next year, but we will have to wait until he says it because he can't read the future; it's not now, though.
I don't believe it was he who made the prediction. I heard that program in early 2000, and he cited another source (I don't know which) indicating the historical "secular" trends thus:
1929 - 1946 -- Secular bear
1947 - 1965 -- Secular bull
1966 - 1982 -- Secular bear
1982 - 1999 -- Secular bull
It's hard to argue with history. Looking at those periods, the 1929-46 time period encompassed the market crash, the Depression and WWII, all typified by great uncertainty.
1947-65 covered the stability of the post-war economic expansion with lots of growth, money, jobs and stability.
1965-82 ushered in the turmoil of the 60s and the Vietnam war. Remember LBJ and his guns and butter approach to war and domestic policy? We could spend billions of dollars redistributing the wealth to people who didn't earn it AND have the war in Vietnam too. What a deal! The fallout of that was the stagflation of the 70s.
Ronald Reagan's tax cuts fueled the growth from 1982-99 (not Bill Clinton as the commie-libs would have us believe.)
Now we've got massive accounting fraud in God knows how many companies, terrorist attacks on American soil, the dot-com bust, and in general a lot of uncertainty. It would not surprise me one bit if it took until 2017 or so to get things straightened out.
It's hard to argue with trends, whether Bob Brinker points them out or not. And yes, I did take his advice and repositioned my portfolio into bonds and money market funds in January 2000, and am damn grateful I did. I see no reason to change, if only to move maybe 5 - 10% to precious metals.
Other than that, I'm staying put.
A friend and subscriber to Brinker convinced me to buy some QQQ's as per your reply: "Brinker then foolishly recomended investing in the QQQ's which were trading in the 80's (20-35% of portfolio) and advised to hold (now at 26+).
Fortunately, it was only 10 k, and I followed the Business World News rule of putting an autosell on these shares to protect me. It was the fastest 8%, I ever lost. My friend did not have an auto sell order and lost a ton. At the same time, I had bought a similiar amount of MDY and actually did pretty good that year. That got me into midcap and small cap mutual funds which have been very good to us with the exception of the Dreyfus Mid Cap that tanked as hard as the QQQ's did a year later.
So Brinker has revised history and is not allowing any discussion on this QQQ buying that he recommended?
At the end of 5 years the CD would be worth $64,118. You would also have to figure in the tax hit and mild inflation for true value. For principle preservation, I think it is a fair deal.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.